Centrum is bullish on Tata Sponge has recommended buy rating on the stock with a target price of Rs 1220 in its research report dated September 17, 2018.
Centrum's research report on Tata Sponge
We upgrade Tata Sponge (TSIL) to Buy with a revised TP of Rs1220 as we expect strong operational performance to be maintained led by better pricing, solid volumes and tight control on conversion costs leading to further improvement in spreads. TSIL has received a much needed relief by getting its related party resolutions passed in the re-voting which would help maintain status-quo in running of operations in the most efficient manner. Clarity on capex towards the build-up of new steel complex is still elusive but strong cash rich balance sheet provides comfort. Valuations remain attractive at 2.9x FY20E EV/EBITDA making risk-reward favorable.
We revise our TP higher to Rs1220 led by higher earnings and upgrade to buy. Key downside risks are fall in sponge iron prices and higher coal costs.
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