Result Update: Tata Sponge Iron Ltd - REDUCE - TP Rs.857 - Kotak

Tata Sponge reported strong sets of numbers. Net sales during the quarter grew 62.2%/4.7% YoY/QoQ to Rs1,750mn, on account of higher sales volume and better realisation. Higher realisation and decline in costs led to more than 3x YoY (49.6% QoQ) jump in EBITDA to Rs386mn, with an EBITDA margin of 22.1%. The company reported PAT of Rs306mn, higher than our estimates, supported by higher operating performance and ~7% increase in other income. We have revised our volume assumption higher (on the back of EC for expanding sponge iron capacity by 35,000 tonnes) and also raise our realisation assumptions. We revise our FY18E/FY19E earnings upwards to Rs69.6 and Rs72 from Rs56.4 and Rs60.8, respectively. We believe that, the current valuation of 3.9x FY19E EBITDA, the stock is fairly valued and upside is capped. We recommend REDUCE rating (earlier SELL) with a revised target price of Rs857 (earlier Rs.760). We have not assigned any value to the investment of Rs1.8bn made by the company on the coal block, as the company's coal block is yet to put in the auction.

Shares of TATA SPONGE IRON LTD. was last trading in BSE at Rs.841.85 as compared to the previous close of Rs. 835.1. The total number of shares traded during the day was 54432 in over 2177 trades.

The stock hit an intraday high of Rs. 859.9 and intraday low of 833.25. The net turnover during the day was Rs. 46026803.

Source : Equity Bulls

Keywords