Buy Tata Sponge; target of Rs 290: Firstcall Research

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Buy Tata Sponge; target of Rs 290: Firstcall Research

Firstcall Research is bullish on Tata Sponge Iron and has recommended buy rating on the stock with a target of Rs 290 in its January 23, 2012 research report.

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Firstcall Research is bullish on Tata Sponge Iron and has recommended buy rating on the stock with a target of Rs 290 in its January 23, 2012 research report.

"Tata Sponge, which has its manufacturing facility at Bilaipada (in Joda Block of Keonjhar District in Orissa), was initially set up as a joint venture company between Tata Steel and the Industrial Promotion and Investment Corporation of Orissa Limited (IPICOL). It has moved on since, becoming an associate company of Tata Steel following the former's acquisition of IPICOL's stake in 1991. The origins of Tata Sponge can be traced to a groundbreaking effort by Tata Steel to industrialise a backward area of Orissa. Tata Steel proposed to do this by introducing an innovative technology for making sponge iron - Tisco Direct Reduction (TDR), developed by its Research and Development Division. As the first Indian Sponge Iron Company to be accredited with ISO 9002 certification, Tata Sponge Iron Limited produces premium & consistent quality sponge iron for its valued customers. The Company has emerged as one of the leaders among coal-based sponge iron suppliers in India, while winning customer compliments for consistency in supply and product quality. It is also accredited with ISO 14000 certifications."

"Tata Sponge Iron Ltd disclosed results for the quarter ended Sep 2011. Net sales for the quarter moved down 1% to Rs.1737.20 million as compared to Rs.1758.60 million during the corresponding quarter last year. During the quarter, the company has reported Net Profit increased to Rs.217.30 million from Rs.104.10 million in previous year same quarter. The Basic EPS of the company stood at Rs.14.11 for the quarter ended Sep 2011."

"Net profit of the company has increased at 20% yoy Rs.1013.40mn from Rs.845.20mn of same period of last year. Total revenue for the year stood at Rs.6831.20 mn from Rs.5355.50 which is 28% increased than that of a year ago. Total Income has increased from Rs 6948.70 million for the year ended March 31, 2011 to Rs.5419.40 million for the year ended March 31, 2010.EPS for the year stood at Rs.65.81 per equity share of Rs.10.00 each. Operating profit of the company stood at Rs.1688.00mn. OPM for the year stood at 24.71%. Expenditure of the company increased 33% YoY to Rs.5260.70 mn."

"At the current market price of Rs.254.00, the stock is trading at 3.40 x FY12E and 3.27 x FY13E respectively. Price to Book Value of the stock is expected to be at 0.63 x and 0.53 x respectively for FY12E and FY13E. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.74.63 and Rs.77.79 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 12% over 2010 to 2013E respectively. During the quarter, the company has reported Net Profit increased to Rs.217.30 million from Rs.104.10 million in previous year same quarter. On the basis of EV/EBITDA, the stock trades at 2.08 x for FY12E and 2.00 x for FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend 'BUY' in this particular scrip with a target price of Rs 290 for medium to long term investment," says Firstcall Research report.    

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To read the full report click on the attachment