tata sponge iron (tsil) result updated

8/3/2019 Tata Sponge Iron (TSIL) Result Updated

http://slidepdf.com/reader/full/tata-sponge-iron-tsil-result-updated 1/11

Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 2QFY12 2QFY11 % chg (yoy) 1QFY2012 % chg (qoq)

Net sales 174 176 (1.2) 146 19.2

EBITDA 30 16 85.2 33 (9.8)

EBITDA margin (%) 17.2 9.2 802bp 22.7 (552bp)

Reported PAT 22 10 108.7 23 (3.5)

Source: Company, Angel Research

Tata Sponge Iron Ltd. (TSIL) reported marginally lower revenue on a yoy basis at

` 174cr in 2QFY2012 as compared to ` 176cr in 2QFY2011 on the back of

hampered sponge iron production due to iron ore supply issues. This was partially

offset by increased sponge iron realization. However, EBITDA margin expandedby 802bp yoy from 9.2% in 2QFY2011 to 17.2% in 2QFY2012 on account of a

decline in raw-material cost as a percent of sales. PAT increased by 109% yoy to

` 22cr in 2QFY2012 as compared to ` 10cr in 2QFY2011. We continue to

maintain our Buy recommendation on the stock.

Increased volumes to aid revenue growth: We expect TSIL to post a 16% CAGR in

its revenue over FY2011-13E to ` 794cr in FY2013E due to resumption in sponge

iron production and sales volume. The company gets assured supply of iron ore

from Tata Steel, which insulates it from the price volatility in the spot market. TSIL

has a 45% stake in Talcher coal block in Radhikapur, with estimated reserves of

120mn tonnes. Progress on the pending forest clearance for the block could be atrigger for the stock.

Outlook and valuation: We expect TSIL to post a 16% CAGR in its revenue over

FY2011-13E, while its EBITDA margin is expected to contract by 508bp from

22.2% in FY2011 to 17.1% in FY2013 due to increasing raw-material costs. PAT

is expected to decline to ` 92cr in FY2013E from ` 101cr in FY2011. The stock is

trading at a PE of 5.1x FY2013E earnings and P/B of 0.7x for FY2013E.

We maintain our Buy recommendation on the stock with a target price of ` 382,

based on a target P/B of 0.9x for FY2013E.

Key financials

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E

Net sales 520 676 693 794

% chg (14.7) 30.0 2.6 14.6

Net profit 85 101 88 92

% chg (30.0) 19.9 (13.6) 5.1

EBITDA (%) 23.8 22.2 18.7 17.1

EPS (`) 54.9 65.8 56.9 59.8

P/E (x) 5.6 4.7 5.4 5.1

P/BV (x) 1.1 0.9 0.8 0.7

RoE (%) 22.0 21.9 16.1 15.0

RoIC (%) 40.2 57.6 48.8 44.0

EV/Sales (x) 0.7 0.4 0.4 0.3

EV/EBITDA (x) 3.1 1.7 1.9 1.5


BUYCMP ` 307

Target Price ` 382

Investment Period 12 Months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 43.7

MF / Banks / Indian Fls 7.3

FII / NRIs / OCBs 12.0

Indian Public / Others 37.0

Abs. (%) 3m 1yr 3yr

Sensex (0.6) (17.9) 83.2

TSIL (1.2) (19.3) 152.3

Beta 0.7

Metals

Market Cap ( ` cr) 472

52 Week High / Low 405/291

Avg. Daily Volume 9,432

Face Value ( ` ) 10

BSE Sensex 16,372

Nifty 4,906Reuters Code TTSP.BO

TTSP IN

Shareen Batatawala

+91- 22- 3935 7800 Ext: 6849

[email protected]

Tata Sponge Iron (TSIL)

Performance Highlights

Company update | Metals

November 18, 2011



TSIL | Company update

November 18, 2011 2

Exhibit 1: 2QFY2012 performance

Y/E March (` cr) 2QFY2012 2QFY2011 yoy chg (%) 1QFY2012 qoq chg (%) 1HFY2012 1H20FY11 % chg

Net Sales 174 176 (1.2) 146 19.2 319 317 0.7

Net raw material 125 143 (12.4) 94 33.5 219 221 (0.8)(% of Sales) 72.1 81.3 64.4 68.6 69.6

Staff Costs 4 4 (4.7) 5 (19.5) 10 10 0.4

(% of Sales) 2.5 2.5 3.6 3.0 3.0

Other Expenses 14 12 16.7 13 6.2 28 29 (3.3)

(% of Sales) 8.2 7.0 9.3 8.7 9.1

Total Expenditure 144 160 (9.9) 113 27.8 256 259 (1.0)

Operating Profit 30 16 85.2 33 (9.8) 63 58 8.1

OPM 17.2 9.2 802bp 22.7 (552bp) 19.7 18.4 135bp

Interest 0 0 0 0 0

Depreciation 5 5 (0.4) 5 1.3 9 9 (1.8)

Other Income 6.2 3.3 86.8 4 38.8 11 5 126.7

PBT 31 15 112.0 33 (4.9) 64 54 12.6

(% of Sales) 18.1 8.4 22.7 20.2 16.9

Tax 10 4 119.8 10 (7.8) 20 17 16.5

(% of PBT) 30.8 29.7 31.8 31.3 32.3

Reported PAT 22 10 108.7 23 (3.5) 44 36 21.8

PATM 12.5 5.9 15.5 13.9 11.4

Equity capital (cr) 15 15 15 15 15

EPS (`) 14.1 6.8 108.7 14.6 (3.5) 28.7 23.6 21.8


Iron ore supply issues hamper production of sponge iron

Sponge iron production volume for 1HFY2012 declined to 1,44,767MT as

compared to 1,93,000MT in 1HFY2011 due to shortage in iron ore on account of

disruption in supplies. Lower sponge iron production led to a subsequent decrease

in production transportation of power from 97.2mn units in 1HFY2011 to 73.4mn

units in 1HFY2012. Despite lower volumes, the company’s net sales improved

marginally on a yoy basis for 1HFY2012 to ` 319cr mainly due to a ~30%

increase in sponge iron prices in 1HFY2012 as compared to 1HFY2011. Increased

sponge iron realization led to lower net raw-material cost as a percentage of net

sales, from 81.3% in 2QFY2011 to 72.1% in 2QFY2012. This led to an 802bpexpansion in EBITDA margin to 17.2% in 2QFY2012 as compared to 9.2% in

2QFY2011. This increase in EBITDA coupled with high other income led to a

108.7% increase in net profit to ` 22cr in 2QFY2012 from ` 10cr in 2QFY2011.




November 18, 2011 3

Investment rationale

Assured supply of iron ore through Tata Steel

TSIL has a long-term supply agreement with Tata Steel for the assured supply ofiron ore which insulates it from the price volatility in the spot market. In the past, it

had leased out mining assets worth ` 6.3cr to Tata Steel to operate Khondbond

iron ore mines and supply iron ore to the company.

Stake in coal block can drive further upsides

TSIL has a 45% stake in Talcher coal block in Orissa, which has estimated reserves

of 120mn tonnes for captive consumption, for which forest clearance is pending.

Coal constitutes about 55% of the total raw-material cost for the company.

The company has deposited money for the first phase of land acquisition with the

Orissa government. Progress on forest clearance could be a potential trigger for

the stock.

Cash-rich company with substantially high return ratios

TSIL reported higher RoIC of 57.6% for FY2011, with cash reserves of ` 188cr in

FY2011. We expect the company to have RoIC of 48.8% and 44% in FY2012E and

FY2013E, respectively. The company’s cash reserves are expected to be at ` 221cr

by FY2013E-end.

Outlook and valuation

We have revised our revenue and earnings estimates downwards for FY2012E and

FY2013E, considering a hit on sponge iron production volumes and increasing

raw-material costs. We expect revenue to grow at a CAGR of 16% over

FY2011-13E and operating margin to contract by 508bp over FY2011-13E, from

22.2% in FY2011 to 17.1% in FY2013E. Profit is expected to decline in FY2013E to

` 92cr from ` 101cr in FY2011. At current levels, the stock is trading at a PE of 5.1x

FY2013E and P/B of 0.7x for FY2013E. We maintain our Buy recommendation on

the stock with a target price of ` 382, based on a target P/B of 0.9x for FY2013E.

Exhibit 2: One-year forward P/B band


0

100

200

300

400

500

600

700

Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11

( ` )

Price 0.4x 0.7x 1.0x 1.3x




November 18, 2011 4

Financial performance

Exhibit 3: Key assumptions

FY2012E FY2013E

Sponge iron volume growth (%) (19.2) 13.9

Change in MRP of sponge iron (%) 16.0 0.2

Change in MRP of iron ore 30.0 5.0

Change in MRP of coal 30.0 5.0

Source: Angel Research

Exhibit 4: Change in estimates

Y/E March Earlier estimates Revised estimates % chg

FY2012E FY2013E FY2012E FY2013E FY2012E FY2013E

Net sales (` cr) 813 820 693 794 (14.8) (3.1)OPM (%) 20.5 20.8 18.7 17.1 (179bp) (368bp)

EPS (`) 71.0 71.5 56.9 59.8 (19.8) (16.3)

Source: Angel Research

We expect the company’s net sales of to post a CAGR of 16% over FY2011-13E to

` 794cr in FY2013E from ` 676cr in FY2011 on account of higher sales volume for

sponge iron. The increase in raw-material prices would lead to a 508bp

contraction in EBITDA margin from 22.2% in FY2011 to 17.1% in FY2013E. Profit

is expected to decline to ` 88cr and ` 92cr in FY2012E and FY2013E, respectively.

Exhibit 5: Revenue and revenue growth


-20

0

20

40

60

80

0

200

400

600

800

1000

FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

( % )

( `

c r )

Revenue (LHS) Revenue growth (RHS)




November 18, 2011 5

Exhibit 6: EBITDA and EBITDA margin


Exhibit 7: PAT and PAT margin


Risks

Volatile raw-material prices

Iron ore and coal are the major raw materials used in the manufacture of sponge

iron. Coal prices increased by about 20% in FY2011 as compared to FY2010,

while iron ore prices increased by 49% during the same period. There has been a

decline in iron ore prices in the past one month, while coal prices are still on an

uptrend. Raw material constitutes about 65% to the total expenditure and, hence,

volatility in raw-material prices would affect the company’s EBITDA margin.

0

10

20

30

40

0

40

80

120

160

200

FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

( % )

( `

c r )

EBITDA (LHS) EBITDA margin (RHS)

0

5

10

15

20

25

0

40

80

120

160

FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

( % )

( `

c r )

PAT (LHS) PAT margin (RHS)




November 18, 2011 6

Industry outlook

Sponge iron is used as a substitute of scrap and is used in the manufacturing of

crude steel by the EAF method. Currently, 60% of the total crude steel production is

through EAF method. Supply constraints of scrap led to increased production of

sponge iron. The sponge iron industry in India grew at a CAGR of 17% over

FY2002-11 to 23.3mn tonnes in FY2011, which was attributed mainly to healthy

growth in steel production and increased demand from construction as well as

other end-users of the steel sector.

Exhibit 8: Sponge iron production in India

Source: SIMA, JPC

The company

TSIL is an associate company of Tata Steel, which holds a 39.7% stake in the

company. TSIL is a leading manufacturer of sponge iron, which is used as a raw

material in steel manufacturing through the EAF route. The company has an

installed capacity of 3,90,000 TPA and a 26MW captive power plant based on

waste heat recovery from its kilns. Moreover, the company has a 45% stake in

Talcher coal block with estimated reserves of 120mn tonnes, which has received

environmental clearance, while forest clearance is still pending. TSIL plans to

expand its power-generation capacity of 26MW to 51MW over a period of two to

three years.

0

5

10

15

20

25

F Y 2 0 0 3

F Y 2 0 0 4

F Y 2 0 0 5

F Y 2 0 0 6

F Y 2 0 0 7

F Y 2 0 0 8

F Y 2 0 0 9

F Y 2 0 1 0

F Y 2 0 1 1

( m n t o n n e

s )

Sponge iron production




November 18, 2011 7

Profit & Loss Statement

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Gross sales 516 676 558 735 754 864

Less: Excise duty 60 67 38 60 61 70Net Sales 455 609 520 676 693 794

Other operating income - - - - - -

Total operating income 455 609 520 676 693 794

% chg 64.2 33.8 (14.7) 30.0 2.6 14.6

Net Raw Materials 249 347 322 441 476 563

Other Mfg costs 18 24 21 23 23 25

Personnel 15 19 19 19 21 22

Other 28 35 33 44 43 48

Total Expenditure 311 425 396 526 563 659

EBITDA 145 184 124 150 130 136

% chg 346.8 27.1 (32.6) 20.8 (13.2) 4.4

(% of Net Sales) 31.8 30.2 23.8 22.2 18.7 17.1

Depreciation & Amortisation 20 18 19 19 21 22

EBIT 125 166 105 131 109 114

% chg 561.9 32.4 (36.9) 25.5 (16.6) 4.1

(% of Net Sales) 27.5 27.2 20.1 19.4 15.8 14.3

Interest & other charges 12 5 - - - -

Other Income 23 20 22 19 21 24

(% of sales) 5.1 3.3 4.2 2.8 3.0 3.0

PBT 136 181 126 150 130 137

% chg 30.0 29.7 24.3 22.2 18.7 17.3

Tax 41 61 42 49 42 45

(% of PBT) 30.0 33.4 33.0 32.6 32.6 33.0

PAT (reported) 96 121 85 101 88 92

Extraordinary (Expense)/Inc. 3 - - - - -

ADJ. PAT 92 121 85 101 88 92

% chg 476.4 30.5 (30.0) 19.9 (13.6) 5.1

(% of Net Sales) 20.3 19.8 16.3 15.0 12.6 11.6

Basic EPS (`) 60.0 78.4 54.9 65.8 56.9 59.8

Fully Diluted EPS (̀ ) 60.0 78.4 54.9 65.8 56.9 59.8

% chg 476.4 30.5 (30.0) 19.9 (13.6) 5.1




November 18, 2011 8

Balance Sheet

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

SOURCES OF FUNDS

Equity Share Capital 15 15 15 15 15 15Reserves& Surplus 228 334 405 492 563 637

Shareholders Funds 243 350 420 507 579 653

Minority Interest - - - - - -

Total Loans 84 - - - 20 14

Deferred Tax Liability 53 50 46 39 34 34

Total Liabilities 381 400 466 546 632 701

APPLICATION OF FUNDS

Gross Block 369 359 359 360 396 435

Less: Acc. Depreciation 118 136 154 171 192 213

Net Block 251 223 206 189 204 222Capital Work-in-Progress 14 21 122 129 148 156

Goodwill - - - - - -

Investments 1 1 1 34 60 60

Current Assets 207 210 215 287 311 370

Cash 97 115 93 188 183 221

Loans & Advances 47 24 16 14 17 20

Inventory 42 51 68 63 73 86

Debtors 21 20 38 22 38 44

Current liabilities 93 55 78 93 91 107

Net Current Assets 115 155 138 194 220 263

Mis. Exp. not written off - - - - - -

Total Assets 381 400 466 546 632 701




November 18, 2011 9

Cash Flow Statement

Y/E December FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Profit before tax 136 181 126 150 130 137

Depreciation 20 18 19 19 21 22Change in Working Capital (28) (23) (5) 38 (30) (5)

Less: Other income 37 (1) (15) (18) (5) 0

Direct taxes paid (41) (61) (42) (49) (42) (45)

Cash Flow from Operations 124 115 85 140 72 109

(Inc.)/Dec. in Fixed Assets (20) 3 (101) (8) (55) (47)

(Inc.)/Dec. in Investments - - - (34) (26) -

Dividend received 1 - 1 1 - -

Interest revieved 9 11 6 9 - -

Others (17) (12) 0 (1) - -

Cash Flow from Investing (27) 2 (94) (33) (81) (47)

Issue of Equity - - - - - -

Inc./(Dec.) in loans (62) (84) - - 20 (6)

Dividend Paid (Incl. Tax) (11) (12) (12) (14) (16) (18)

Interest paid (12) (5) (0) - (0) (0)

Others 5 2 0 2 - -

Cash Flow from Financing (81) (100) (12) (12) 4 (24)

Inc./(Dec.) in Cash 17 17 (21) 95 (5) 38

Opening Cash balances 80 97 115 93 188 183

Closing Cash balances 97 115 93 188 183 221




November 18, 2011 10

Key Ratios

Y/E March FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Valuation Ratio (x)

P/E (on FDEPS) 5.1 3.9 5.6 4.7 5.4 5.1P/CEPS 4.2 3.4 4.5 3.9 4.4 4.1

P/BV 1.9 1.4 1.1 0.9 0.8 0.7

Dividend yield (%) 2.3 2.6 2.6 3.0 0.2 0.2

EV/Sales 1.0 0.6 0.7 0.4 0.4 0.3

EV/EBITDA 3.2 1.9 3.1 1.7 1.9 1.5

EV / Total Assets 1.2 0.9 0.8 0.5 0.4 0.3

Per Share Data (`)EPS (Basic) 60.0 78.4 54.9 65.8 56.9 59.8

EPS (fully diluted) 60.0 78.4 54.9 65.8 56.9 59.8

Cash EPS 72.8 90.2 67.5 77.8 70.3 73.9

DPS 7.0 8.0 8.0 9.3 9.0 10.0

Book Value 158.1 227.1 272.8 329.3 375.7 423.9

Dupont Analysis

EBIT margin 27.5 27.2 20.1 19.4 15.8 14.3

Tax retention ratio 0.7 0.7 0.7 0.7 0.7 0.7

Asset turnover (x) 1.8 2.3 2.0 3.0 3.1 3.1

ROIC (Post-tax) 33.9 41.1 26.9 38.9 32.9 29.5

Cost of Debt (Post Tax) 7.3 7.3 128.8 0.0 0.0 0.0

Leverage (x) (0.1) (0.3) (0.2) (0.4) (0.4) (0.4)

Operating ROE 32.4 30.0 49.7 21.8 20.2 17.4

Returns (%)

ROCE (Pre-tax) 34.6 42.2 24.0 25.7 18.4 16.9

Angel ROIC (Pre-tax) 48.5 61.8 40.2 57.6 48.8 44.0

ROE 46.0 40.7 22.0 21.9 16.1 15.0

Turnover ratios (x)

Asset Turnover 1.3 1.7 1.4 1.9 1.8 1.9

Inventory / Sales (days) 24 28 42 35 36 36

Receivables (days) 13 12 20 16 20 20

Payables (days) 101 63 61 59 59 59

WC (ex-cash) (days) 14 24 31 3 19 19

Solvency ratios (x)Net debt to equity (0.1) (0.3) (0.2) (0.4) (0.4) (0.4)

Net debt to EBITDA (0.1) (0.6) (0.8) (1.5) (1.7) (2.0)

Interest Coverage 10.4 35.7 418.2 - 420.6 542.1




November 18, 2011 11

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .

Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in

the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

Disclosure of Interest Statement TSIL

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

tata sponge iron (tsil) result updated

Documents