Tata Sponge - Cheapest sponge iron stock!
Tata Sponge - Cheapest sponge iron stock!
Tata Sponge is a Tata Group company engaged in the manufacture of 3,90,000 TPA of sponge iron with captive power plant of 26 MW at Keonjhar in Orissa. The present equity of the company is Rs.15.40 crores, of which about 40% is Promoters Equity, held by Tata Steel.
For FY 07, the total income of the company was at Rs.297 crores with operating profit of Rs.51.79 crores, PBT of Rs.32.94 crores, PAT of Rs.21.23 crores, which has resulted into an EPS of Rs.13.80. The company declared dividend of 40% for the year.
The total sponge iron production in FY 07 was at 2,82,274 MT with capacity utilization having achieved at 72%. During FY 07, the company commissioned new power plant capacity of 18.50 MW taking captive power plant capacity to 26 MW. The production of sponge iron in FY 07 was lower due to stabilization of Kiln 3 which was operational in March 06, for 1,50,000 TPA, and also due to shutdown of Kilns for connecting waste heat recovery systems to 2nd Power Plant of 18.5 MW.
The share would have a book value of close to Rs.140 as at 31st March 08, while total debt in the books of the company, was only at Rs.145 crores which are backed by net current assets of about Rs.70 crores.
For first half year ended 30th September 07, the company posted a topline of Rs.210 crores, operating profit of Rs.76.13 crores, PBT of Rs.58.80 crores, PAT of Rs.34.36 crores which has resulted into an EPS of Rs.22.31. Hence, FY 08 is likely to have a topline of close to Rs.450 crores with estimated EPS in excess of Rs.46.
The company is increasing its sponge iron making capacity from 3.90 lakh TPA to 8.40 lakh MT by installing three kilns, each with a capacity of 1.50 lakh TPA. This is expected to cost about Rs.450 crores and expansion would be implemented on allotment of iron ore mines to the company. Each kiln will have waste heat recovery based power plant. The present location of the company is capable to accommodate an expansion upto 10 lakh TPA. However, the company plans to spend additional Rs.150 crores on infrastructure development, including setting up of another railway siding.
Capacity utilization for FY 08 is likely to be at 90%, thus producing about 3.50 lakh MT of sponge iron. This would rise to about 98% in FY 09, thus producing about 3.80 lakh MT of sponge.
The captive power plant of 26 MW capacity results in lower power cost and the surplus power of about 80 lakh units per month are sold to the grid.
The company has been allotted coal block at Talcher, with estimated 120 million tonne reserves, in which the company has about 45% share. Coal is the major cost component for the company, as it is used as a reductant in sponge iron manufacturing plus also as a fuel for captive power plant. The production at Talcher Coal block would commence from FY 10, as work has already started. This would improve EBITDA margin of the company from 25% to 38%. The company also plans to install a 100 MW power plant, at pithead of the allotted coal block. This would be a big trigger for the company to ramp up its topline and bottomline.
The company is also in the process of acquiring captive iron ore mines, which is likely to happen soon, thus reducing cost of its main raw-material, as also paving way for expansion to 8.40 lakh TPA. Currently the company is sourcing its iron-ore from Khondbond mines, taken on lease from Tata Steel and cost per ton, presently, is about Rs.2,000 per MT, which is negotiated every quarter.
The share is now ruling at Rs.270, which discounts its FY 08 earnings by about 6 times. Ramping up of capacity utilization and benefits of coal mines and likely allotment of iron-ore mines would vastly improve the financial performance of the company. FY 10, should be able to post exponential growth.
Share has potential to touch Rs.400 mark in the next 9 months as EPS for FY 09 is likely to exceed Rs.50. PE multiple of 8 times, still is lowest amongst peers, which are now ruling at a multiple of double digit, based on FY 09 performance.
Tata Sponge - Cheapest sponge iron stock!
Tata Sponge is a Tata Group company engaged in the manufacture of 3,90,000 TPA of sponge iron with captive power plant of 26 MW at Keonjhar in Orissa. The present equity of the company is Rs.15.40 crores, of which about 40% is Promoters Equity, held by Tata Steel.
For FY 07, the total income of the company was at Rs.297 crores with operating profit of Rs.51.79 crores, PBT of Rs.32.94 crores, PAT of Rs.21.23 crores, which has resulted into an EPS of Rs.13.80. The company declared dividend of 40% for the year.
The total sponge iron production in FY 07 was at 2,82,274 MT with capacity utilization having achieved at 72%. During FY 07, the company commissioned new power plant capacity of 18.50 MW taking captive power plant capacity to 26 MW. The production of sponge iron in FY 07 was lower due to stabilization of Kiln 3 which was operational in March 06, for 1,50,000 TPA, and also due to shutdown of Kilns for connecting waste heat recovery systems to 2nd Power Plant of 18.5 MW.
The share would have a book value of close to Rs.140 as at 31st March 08, while total debt in the books of the company, was only at Rs.145 crores which are backed by net current assets of about Rs.70 crores.
For first half year ended 30th September 07, the company posted a topline of Rs.210 crores, operating profit of Rs.76.13 crores, PBT of Rs.58.80 crores, PAT of Rs.34.36 crores which has resulted into an EPS of Rs.22.31. Hence, FY 08 is likely to have a topline of close to Rs.450 crores with estimated EPS in excess of Rs.46.
The company is increasing its sponge iron making capacity from 3.90 lakh TPA to 8.40 lakh MT by installing three kilns, each with a capacity of 1.50 lakh TPA. This is expected to cost about Rs.450 crores and expansion would be implemented on allotment of iron ore mines to the company. Each kiln will have waste heat recovery based power plant. The present location of the company is capable to accommodate an expansion upto 10 lakh TPA. However, the company plans to spend additional Rs.150 crores on infrastructure development, including setting up of another railway siding.
Capacity utilization for FY 08 is likely to be at 90%, thus producing about 3.50 lakh MT of sponge iron. This would rise to about 98% in FY 09, thus producing about 3.80 lakh MT of sponge.
The captive power plant of 26 MW capacity results in lower power cost and the surplus power of about 80 lakh units per month are sold to the grid.
The company has been allotted coal block at Talcher, with estimated 120 million tonne reserves, in which the company has about 45% share. Coal is the major cost component for the company, as it is used as a reductant in sponge iron manufacturing plus also as a fuel for captive power plant. The production at Talcher Coal block would commence from FY 10, as work has already started. This would improve EBITDA margin of the company from 25% to 38%. The company also plans to install a 100 MW power plant, at pithead of the allotted coal block. This would be a big trigger for the company to ramp up its topline and bottomline.
The company is also in the process of acquiring captive iron ore mines, which is likely to happen soon, thus reducing cost of its main raw-material, as also paving way for expansion to 8.40 lakh TPA. Currently the company is sourcing its iron-ore from Khondbond mines, taken on lease from Tata Steel and cost per ton, presently, is about Rs.2,000 per MT, which is negotiated every quarter.
The share is now ruling at Rs.270, which discounts its FY 08 earnings by about 6 times. Ramping up of capacity utilization and benefits of coal mines and likely allotment of iron-ore mines would vastly improve the financial performance of the company. FY 10, should be able to post exponential growth.
Share has potential to touch Rs.400 mark in the next 9 months as EPS for FY 09 is likely to exceed Rs.50. PE multiple of 8 times, still is lowest amongst peers, which are now ruling at a multiple of double digit, based on FY 09 performance.
