Tata Metaliks has a Lot Going For it, Earnings to Surge
Cost reduction, higher capacity and market share to also help
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