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Missing growth
Tata Sponge (TTSP) has its manufacturing facility at Bilaipada near Joda in the
Keonjhar district of Orissa. It has sponge iron production capacity of 390,000tpa
(3 kilns; 2x120ktpa and 1x150ktpa) and a 26MW captive power plant based on
waste heat recovery from its kilns.
Its power facilities are adequate to meet its captive needs and it sells ~70% of the
power generated to the state electricity grid at notified rates.
TTSP's plant is ideally located in close proximity to iron ore mines (25km from
plants) and sponge iron consumers in the eastern region, which helps to save
transportation costs. The company's strategic tie-up with Tata Steel secures its
iron ore requirement in future years. Tata Steel's Khondbond mine in Orissa supplies
iron ore to TTSP largely on long-term pricing basis.
TTSP imports ~35% of its coal requirement for blending with inferior grade domestic
coal. It sources the balance 65% through linkage and e-auction from Coal India.
Its average coal cost is Rs4,000-4,500 per ton.
To get coal with ash content less than 22% from diverse sources remains a
challenge. In FY10, TTSP imported ~200k tons of coal from South Africa.
Development of Radhikapur (East) captive coal block in Talcher coal fields, Orissa
is underway. Environment clearance has been obtained. About 2,500 acres of land
has been allotted. However, the company still does not have possession of the
land. So far, TTSP has paid Rs1.1b towards the coal mines. Forest clearance is
still pending. Total cost of developing the mine will be nearly Rs5b. The coal block
has reserves of 115m tons and TTSP's share is ~50m tons. Scaw industries and
SPS Sponge are the other joint allottees. TTSP will be the leader and invest 100%
of the project cost. Coal will be supplied to the joint allottees at cost plus fixed
return on investment.
TTSP is planning to add another 25MW captive power plant at the existing location,
which will use unburnt coal from the sponge iron kiln.
TTSP is one of the best managed sponge iron plants in the country. Its location in
Barbil is of strategic advantage in sourcing iron ore. The arrangement with Tata
Steel helps in sourcing iron ore at reasonable long-term prices. It has a strong
balance sheet with surplus cash (Rs1.3b) and consistent track record of paying
dividend (80%). Valuations are attractive. The stock trades at 5.2x FY12E EPS
and at an EV of 2.1x FY12E EBITDA. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Missing growth
Tata Sponge (TTSP) has its manufacturing facility at Bilaipada near Joda in the
Keonjhar district of Orissa. It has sponge iron production capacity of 390,000tpa
(3 kilns; 2x120ktpa and 1x150ktpa) and a 26MW captive power plant based on
waste heat recovery from its kilns.
Its power facilities are adequate to meet its captive needs and it sells ~70% of the
power generated to the state electricity grid at notified rates.
TTSP's plant is ideally located in close proximity to iron ore mines (25km from
plants) and sponge iron consumers in the eastern region, which helps to save
transportation costs. The company's strategic tie-up with Tata Steel secures its
iron ore requirement in future years. Tata Steel's Khondbond mine in Orissa supplies
iron ore to TTSP largely on long-term pricing basis.
TTSP imports ~35% of its coal requirement for blending with inferior grade domestic
coal. It sources the balance 65% through linkage and e-auction from Coal India.
Its average coal cost is Rs4,000-4,500 per ton.
To get coal with ash content less than 22% from diverse sources remains a
challenge. In FY10, TTSP imported ~200k tons of coal from South Africa.
Development of Radhikapur (East) captive coal block in Talcher coal fields, Orissa
is underway. Environment clearance has been obtained. About 2,500 acres of land
has been allotted. However, the company still does not have possession of the
land. So far, TTSP has paid Rs1.1b towards the coal mines. Forest clearance is
still pending. Total cost of developing the mine will be nearly Rs5b. The coal block
has reserves of 115m tons and TTSP's share is ~50m tons. Scaw industries and
SPS Sponge are the other joint allottees. TTSP will be the leader and invest 100%
of the project cost. Coal will be supplied to the joint allottees at cost plus fixed
return on investment.
TTSP is planning to add another 25MW captive power plant at the existing location,
which will use unburnt coal from the sponge iron kiln.
TTSP is one of the best managed sponge iron plants in the country. Its location in
Barbil is of strategic advantage in sourcing iron ore. The arrangement with Tata
Steel helps in sourcing iron ore at reasonable long-term prices. It has a strong
balance sheet with surplus cash (Rs1.3b) and consistent track record of paying
dividend (80%). Valuations are attractive. The stock trades at 5.2x FY12E EPS
and at an EV of 2.1x FY12E EBITDA. Maintain Buy.
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