Tata Me­ta­liks has a Lot Go­ing For it, Earn­ings to Surge

Cost re­duc­tion, higher ca­pac­ity and mar­ket share to also help

The Economic Times - - Smart - Mar­ket In­tel­li­gence

ex­pects it to cool down fur­ther.

Fur­ther, the re­cent merger of the DI pipes sub­sidiary with Tata Me­ta­liks too, will save costs, said Paul. For in­stance, just the sav­ing on ex­cise will re­duce cost by ₹ 1,200 a tonne.

Theother­busi­ness,pi­g­iron,too,was hitintheDe­cem­berquar­ter­due­tothe same rea­sons. Pig iron is around half of the com­pany’s to­tal rev­enue.

Within the in­dus­try, which is grow­ing at 12-13% from in­creas­ing ur­ban­i­sa­tion and higher gov­ern­ment spend­ing, the com­pany has an ad­vant a g e ove r r ival s s uch a s Elec­trotherm, Elec­tros­teel Cast­ings, Jai Balaji In­dus­tries, Jin­dal Saw and Srikala­hasthi Pipes. Most of its ri­vals are heav­ily lever­aged and may strug­gle to keep pace with the grow­ing de­mand. Tata Me­ta­liks has a debt of around ₹ 400 c ro re, a nd t he debt-to-eq­uity ra­tio is less than 2, which is a com­fort­able level.

An­a­lysts es­ti­mate the com­pany to post rev­enue of ₹ 1,650 crore in FY18 with an EBITDA mar­gin of 15% and net profit mar­gin of 8%. This means, Tata Me­ta­liks can make a net profit of ₹ 132 crore. At Mon­day’s clos­ing price of ₹ 407.75 on the BSE, the stock is trad­ing at 7.5 times the ex­pected FY18 earn­ings. Other pipe and tube play­ers such as APL Apollo and Fi­nolex In­dus­tries, which are lead­ers in steel and PVC pipes, have seen a sharp rerat­ing over the past two years and are trad­ing at mul­ti­ples of 18. A con­sis­tent per­for mance by Tata Me­ta­liks may lead the mar­ket to re­ward it with a sim­i­lar val­u­a­tion. HIGHS & LOWS

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