Centrum recommended hold rating on Tata Sponge with a target price of Rs 1135 in its research report dated July 18, 2018.
Centrum's research report on Tata Sponge
We maintain our Hold rating on Tata Sponge (TSIL) with a revised TP of Rs1135 as we see valuations fair with strong operational performance likely to be maintained and surplus cash on books expected to be deployed as CWIP in the steel plant capex over the next few years. Q1 earnings were strong YoY led by better pricing, solid volumes and tight control on conversion costs. TSIL’s spreads in sponge iron business have remained strong but sustenance of the same at current high levels for long periods of time is difficult and hence we continue to build our annual estimates below the current run-rate. Clarity on capex towards the build-up of new steel complex is still elusive.
We revise our TP to Rs1135 and maintain Hold. Key downside risks are fall in sponge iron prices and higher coal costs while upside risks are higher volumes and better spread.
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