Tata Sponge – Value Pick was initiated on 20Th Jan 2012 at a price of 253. CMP is 339, total returns of 34% till date.
Currently there is also Open offer, where promoters are interested to raise their stake.
Therefore we suggest the investors to tender to the open offer which is at a price of Rs. 375 which is at a good premium.
Recently the company also gave a good dividend of Rs. 8 which shows a total return of 37% till date on our call. We suggest clients to book profits/ tender to the open offer as we would like to close our call.
Pending Calls that look good to reach targets…
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Tata Sponge
Company Description
Tata Sponge Limited engages in the production and sale of sponge iron in India. Its sponge iron is used by secondary steel producers for producing steel. The company also engages in the generation of captive power by using kiln waste heat with an installed capacity of 26 megawatt. It was formerly known as IPITATA Sponge Iron Limited.
The Company operates three kilns with an installed capacity of 390,000 tons per annum to produce sponge iron. The Company has its manufacturing facility at Bilaipada (in Joda Block of Keonjhar District in Orissa). During the fiscal year ended March 31, 2011, the Company produced 383,002 tons of sponge iron.
Favorable Risk and Reward – Attractive Valuation
With lot of cash in a Balance sheet ( Rs. 1.83 Billion ) and BV of Rs. 358 stock is offering ample margin of safety. Stock is currently quoting at TTM PE of 3.91 and TTM P/BV 0.78. At CMP of Rs. 253 stock is quoting at PE of 4.3x & 3.9x for FY 12e & FY 13e earnings.
Our estimated Book value for the stock for FY12e and FY13e is 378 & 433 and stock is quoting around 71% discount for FY13e P/BV. We believe stock is undervalued at CMP and offering good upside for long term investors. One should add the stock for a price target of Rs. 449 based on 5 years median P/BV multiple.
Thanks & Regards
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