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Last Updated : Oct 17, 2018 03:19 PM IST | Source: Moneycontrol.com

Buy Tata Sponge; target of Rs 977: Kotak Securities

Kotak Securities is bullish on Tata Sponge has recommended buy rating on the stock with a target price of Rs 977 in its research report dated October 15, 2018.

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Kotak Securities' research report on Tata Sponge


Sponge iron sales volume during the quarter declined 19.13% QoQ (marginally up YoY) to 93KT, due to maintenance shutdown. The sponge iron realisation increased 30.5%/3.1% YoY/QoQ to Rs22,047/tonne. Clarity on steel capex is still uncertain. Cash at the end of 1HFY19 stands at Rs7 bn. Management reiterated confidence in meeting its full year production guidance of 425kt of sponge iron with strong volumes in H2FY19. We are building in 421KT and 425KT of volume for FY19E and FY20E, respectively. Management has applied for the fresh environmental clearance to further enhance its capacity to 465KT.


Outlook


Sponge iron realisation declined by Rs2,700/tonne from its high of Rs26,700/tonne in the month of September 2018. Post the recent correction in the stock price, we feel at CMP, the stock is trading at 2.6x FY20E EV/EBITDA, is attractive and risk-reward is favorable. Hence, we upgrade to BUY (earlier Accumulate) rating, with a revised target price of Rs977 (earlier Rs1,055), valuing it at 4x FY20 EBITDA. We have not assigned any value to the investment of Rs1.8bn made by the company on the coal block.


For all recommendations report, click here



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First Published on Oct 17, 2018 03:19 pm
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