Buy Tata Sponge Iron; target Rs 382: Angel Broking

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Buy Tata Sponge Iron; target Rs 382: Angel Broking

Angel Broking has maintained buy rating on Tata Sponge Iron with a target price of Rs 382 in its November 18, 2011 report.

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Angel Broking has maintained buy rating on Tata Sponge Iron with a target price of Rs 382 in its November 18, 2011 report.

"Tata Sponge Iron Ltd. (TSIL) reported marginally lower revenue on a yoy basis at Rs 174cr in 2QFY2012 as compared to Rs 176cr in 2QFY2011 on the back of hampered sponge iron production due to iron ore supply issues. This was partially offset by increased sponge iron realization. However, EBITDA margin expanded by 802bp yoy from 9.2% in 2QFY2011 to 17.2% in 2QFY2012 on account of a decline in raw-material cost as a percent of sales. PAT increased by 109% yoy to Rs 22cr in 2QFY2012 as compared to Rs 10cr in 2QFY2011. We continue to maintain our Buy recommendation on the stock."

"We expect TSIL to post a 16% CAGR in its revenue over FY2011-13E to Rs 794cr in FY2013E due to resumption in sponge iron production and sales volume. The company gets assured supply of iron ore from Tata Steel, which insulates it from the price volatility in the spot market. TSIL has a 45% stake in Talcher coal block in Radhikapur, with estimated reserves of 120mn tonnes. Progress on the pending forest clearance for the block could be a trigger for the stock."

"We expect TSIL to post a 16% CAGR in its revenue over FY2011-13E, while its EBITDA margin is expected to contract by 508bp from 22.2% in FY2011 to 17.1% in FY2013 due to increasing raw-material costs. PAT is expected to decline to Rs 92cr in FY2013E from Rs 101cr in FY2011. The stock is trading at a PE of 5.1x FY2013E earnings and P/B of 0.7x for FY2013E. We maintain our Buy recommendation on the stock with a target price of Rs 382, based on a target P/B of 0.9x for FY2013E, says Angel Broking research report.

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To read the full report click on the attachment