FY18 Result Update: Tata Sponge Iron Ltd - REDUCE - TP Rs.1172 - Kotak

Tata Sponge's numbers were better than estimates driven by higher realisation and volume leading to better spreads. Net sales during the quarter grew 45.7%/13.5% YoY/QoQ to Rs2.44bn. Higher realisation and improvement in operating leverage led to 138.7%/28% YoY/QoQ jump in EBITDA to Rs616 mn, with an EBITDA margin of 25.3%. The company reported PAT of Rs467mn in Q4FY18. We revised our earnings higher on account of higher sponge iron prices, which have gone up sharply in line with an upward movement in scrap prices. Our revised EPS stands at Rs97.5 (earlier Rs88) and Rs99.0 (earlier Rs89.4) for FY19E and FY20E, respectively. Continued uptick in spreads and sustenance of the same make us believe that TTSP's earnings will be strong in FY19 as well. Besides this, TTSP's strong balance sheet and improved outlook for the steel sector, foray into steel making through brownfield route, is a key positive. Though, we remain positive on TSIL due to better visibility on spread improvement and its sustenance, but given the recent rally, we believe that at current valuation of 5.4x/4.7x FY19E/FY20E, the stock is fairly valued. Hence, we recommend REDUCE with a target price of Rs1,172. We have not assigned any value to the investment of Rs1.8bn made by the company on the coal block, as the company's coal block is yet to put in the auction.

Shares of TATA SPONGE IRON LTD. was last trading in BSE at Rs.1127.75 as compared to the previous close of Rs. 1124. The total number of shares traded during the day was 40955 in over 1926 trades.

The stock hit an intraday high of Rs. 1150 and intraday low of 1122. The net turnover during the day was Rs. 46553733.

Source : Equity Bulls

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