Centrum Broking
Tata Sponge (Buy)
CMP: ₹910.1
Target: ₹1,125
Tata Sponge Iron Ltd (TSIL) is a holding company. The company is engaged in the production of sponge iron by direct reduction method of iron ore and generation of power from waste heat.
We maintain our ‘Buy’ rating on Tata Sponge and revise our TP to ₹1,125 as spreads have continued to improve and outlook on the sustenance of the same is strong which gives confidence of smart recovery in earnings over FY18-19E. Q2 earnings were strong y-o-y led by better pricing and company remains on track to achieve its full year volume targets.
TSIL had earlier indicated its plans to foray into steel making through the brownfield route but we await final details on the size of the first phase and investments therein. Stock trades at FY19E EV/EBITDA of 3.7x and a five year AOCF/EV yield of 9.3 per cent which keeps risk-reward favourable.
Published on October 23, 2017
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