Buy Tata Metaliks; target of Rs 600: ICICI Direct

ICICI Direct's research report on Tata Metaliks

Tata Metaliks reported a healthy Q4FY20 performance wherein EBITDA and PAT increased sharply both QoQ and YoY. For Q4FY20, pig iron sales volume was at ~79500 tonnes (86000 tonnes in Q4FY19) while ductile iron sales volume was at ~54000 tonnes (54000 tonnes in Q4FY19). Topline for the quarter was at Rs 521.6 crore (up 1% QoQ but down 12% YoY). Pig iron prices were up 7% QoQ while ductile iron prices were up 3% QoQ. EBITDA was at Rs 120.3 crore (up 49% YoY, 54% QoQ). EBITDA margin was at 23.1% (13.6% in Q4FY19, 15.1% in Q3FY20). Higher realisations QoQ along with cost control measures aided EBITDA margin. RM cost as a percentage of sales was at 51.1% (59.5% in Q3FY20, 64.2% in Q4FY19). Ensuing PAT was at Rs 77.0 crore (up 20% YoY, 68% QoQ).

Outlook

The investment lined up in development of water infrastructure and allied projects augurs well for DI pipes demand, which is likely to grow at a steady pace in the medium term. To cater to this opportunity, Tata Metaliks has already started work on doubling its DI capacity, thereby providing healthy revenue visibility in the longer run. We value the stock at 6x FY22E EV/EBITDA and arrive at a target price of Rs 600. Hence, we assign a BUY rating to the stock. Key risk to our call is a significant increase in raw material costs and lower-than-expected increase in demand for DI pipes.

Tata Metaliks 25062020-icici