Buy Tata Sponge; target of Rs 337: Firstcall Research

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26 Aug, 2025 12:21

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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 337 in its March 23, 2013 research report.
 
“Tata Sponge Ltd has its manufacturing facility at Bilaipada (in Joda Block of Keonjhar District in Orissa), was initially set up as a joint venture company with Tata Steel and the Industrial Promotion and Investment Corporation of Orissa Limited (IPICOL). Associate company of Tata Steel since 1982. Tata Sponge produces highgrade sponge iron that is consistent in quality. The Company has an annual manufacturing capacity of 390,000 tonnes of sponge iron from its 3 kilns. The production process follows its unique and superior than its competitors. The entire process of management system certification and reduce paperwork primarily through duplication, eliminate conflicting responsibility & relationships and harmonise & optimise practices, progressive companies have been adopting the concept of Integrated Management System (IMS) which is a merged system standard comprising ISO 9000, ISO 14000 & OHSAS 18000 specification.”
 
“Tata Sponge has also taken a step towards implementing IMS which is in steady progress and the certification is expected to be recommended shortly. The Management Representative & Top Management Appointee for ISO9001, ISO14001 & OHSAS-18001 system. India is the world's largest producer of sponge iron, most of which is produced primarily through the coal based method of production. Growth in the sponge iron production can be attributed largely to the popularity of secondary steelmaking route, which has shown a phenomenal growth in India. The proportion of crude steel produced by the secondary steel sector rose from 26 mMT(37 percent) in 1999-2k to 54 mMT(59 percent) in 2007-08. This has been mainly due to the lower investment cost of the EAF as compared with the integrated blast furnace-- oxygen converter route and also because of its greater flexibility of product mix. Tata Sponge Iron Limited is committed to comply with the requirements of the Quality Management System and to achieve continual improvement in its operations through it for the production and marketing of sponge iron and power.”
 
“Tata Sponge produces high-grade sponge iron that is consistent in quality. The Company has an annual manufacturing capacity of 390,000 tonnes of sponge iron from its 3 kilns, reported its financial results for the quarter ended 31st Dec, 2012. The third quarter witnesses a healthy increase in overall sales as well as profitability of the company. The company’s net profit jumps to Rs.205.80 million against Rs.167.90 million in the corresponding quarter ending of previous year, an increase of 22.57 percent. Revenue for the quarter rose by 52.78 percent to Rs.1997.80 million from Rs.1307.60 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.13.36 a share during the quarter, registering at 22.57 percent increase over previous year period. Profit before interest, depreciation and tax is Rs.349.30 millions as against Rs.302.90 millions in the corresponding period of the previous year.”
 
“At the current market price of Rs 298, the stock P/E ratio is at 4.64 x FY13E and 3.87 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.64.28 and Rs.77.09 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 14 percent and 5 percent over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 2.80 x for FY13E and 2.39 x for FY14E. Price to Book Value of the stock is expected to be at 0.69 x and 0.58 x respectively for FY13E and FY14E. We expect that the company surplus scenario is likely to continue for the next two years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 337 for medium to long term investment,” says Firstcall Research report.

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