An impressive June quarter performance, following good shows in the preceding two quarters too, helped the stock of Tata Sponge Iron, a Tata Steel subsidiary, shoot up 9 per cent on July 15. Continuing the rally, the stock has zoomed 58 per cent so far.

In the June quarter, revenues from the sponge iron business (which contributes about 94 per cent of the company’s sales) grew a strong 22 per cent over the year-ago period.

Both higher volumes and realisations per tonne boosted the segment's revenues. This along with lower growth in costs helped Tata Sponge Iron more than double its quarterly profit to ₹44 crore.

The company sources iron ore from Tata Steel which has its own mines. This puts Tata Sponge Iron on a better footing compared with most domestic sponge iron makers which have been hurt by the shortage and higher prices of iron ore.

Following the ban on iron ore mining (now lifted partially) and the subsequent capping of iron ore production in some states, many sponge iron makers have seen their capacity utilisations fall. Tata Sponge Iron, in contrast, has upped its capacity utilisation from 85 per cent a year ago to 94 per cent now.

After the sharp run-up at ₹1,100, the stock trades at about 13 times its trailing 12-month earnings. This is more than its five-year average valuation of 5.7 times.

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