Tata Spong Iron - 3QFY2013 Result Review - Angel Broking

Tata Sponge Iron (CMP: Rs.308/ TP: Rs.379/ Upside: 22.8%)

For 3QFY2013, TSIL reported a mixed set of results. Revenue grew by a stupendous 52.8% yoy to Rs.200cr, 10.5% higher than our expectation of Rs.181cr. However, EBITDA margin contracted by 512bp on a yoy basis to 13.7% on account of higher raw material costs (as percentage of net sales) as compared to same quarter last year. Conversely, net profit for 3QFY2013 grew by 22.6% yoy to Rs.21cr on account of higher other income and lower tax outgo for the quarter as compared to 3QFY2012.

TSIL received a notice in Nov 2012 from the Ministry of Coal (MoC) for encashment of bank guarantee (BG) of Rs.32.5cr on the grounds that there was a delay in commissioning the Radhikapur coal block allotted to the company. This amount has been disclosed as a contingent liability in the books of TSIL. The company has applied to the MoC for extension of the normative date of production after it contended that the delays in commissioning of the project were mainly attributable to both Central and State Government in granting approval, which is still pending. Even though TSIL has obtained a stay from the Hon'ble High Court of Delhi against revocation of BG by the MoC till April 11, 2013, it continues to remain an overhang on the stock.

At CMP, the stock is currently trading at a P/B of 0.7x for FY2014E, which we believe is attractive. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.379 based on a target P/B of 0.8x for FY2014E.

Source : Equity Bulls

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