TATA METALIKS LTD ISIN… · Gallantt Ispat Ltd 43.40 16701.00 2.14 20.28 4.13 5.00 Hisar Metal Industries Ltd 64.00 345.60 9.72 6.58 1.78 10.00 Gallantt Metal Ltd 54.70 4448.30 8.19

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TATA METALIKS LTDResult Update (CONSOLIDATED BASIS): Q1 FY19

CMP: 730.35 AUG 30th, 2018

Overweight ISIN:INE056C01010

Index Details SYNOPSIS

Tata Metaliks Ltd is engaged in the business of

manufacturing and selling Foundry Grade pig iron.

Revenue for the quarter increased by 15.49% to Rs.

4675.40 mn from Rs. 4048.30 mn, when compared

with the prior year period.

During Q1 FY19, EBIDTA is Rs. 674.50 mn as

against Rs. 603.40 mn in the corresponding period

of the previous year, up by 11.78%.

During Q1 FY19, Profit before tax stood at Rs.

416.90 mn from Rs. 394.00 mn in Q1 FY18.

During Q1 FY19, net profit stood at Rs. 303.90 mn

against Rs. 306.20 mn in the corresponding quarter

ending of previous year.

EPS of the company stood at Rs. 12.02 a share

during the quarter, as against Rs. 12.11 per share

over previous year period.

Net Sales and PAT of the company are expected to

grow at a CAGR of 14% and 12% over 2017 to

2020E, respectively.

Stock DataSector Iron & Steel/Interm.ProductsBSE Code 513434Face Value 10.0052wk. High / Low (Rs.) 975.10/605.95Volume (2wk. Avg.) 21000Market Cap (Rs. in mn.) 18470.55

Annual Estimated Results(A*: Actual / E*: Estimated)Years(Rs in mn) FY18A FY19E FY20ENet Sales 18942.10 20836.31 23336.67EBITDA 2974.70 3225.87 3514.05Net Profit 1591.80 1674.24 1787.50EPS 62.94 66.20 70.68P/E 11.60 11.03 10.33

Shareholding Pattern (%)

As on June 2018 As on Mar 2018

Promoter 50.09 50.09

Public 49.91 49.91

Others -- --

1 Year Comparative Graph

TATA METALIKS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDENDCompany Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)Tata Metaliks Ltd 730.35 18470.55 57.31 12.74 5.15 30.00Gallantt Ispat Ltd 43.40 16701.00 2.14 20.28 4.13 5.00Hisar Metal Industries Ltd 64.00 345.60 9.72 6.58 1.78 10.00Gallantt Metal Ltd 54.70 4448.30 8.19 6.68 1.08 2.50


QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results updates- Q1 FY19,

(Rs in mn) June-18 June-17 % Change

Revenue 4675.40 4048.30 15.49%

Net Profit 303.90 306.20 (0.75%)

EPS 12.02 12.11 (0.75%)

EBIDTA 674.50 603.40 11.78%

The company’s revenue stood at Rs. 4675.40 million against Rs. 4048.30 million in the corresponding quarter ending of

previous year, increase by 15.49%. Net profit for the quarter stood at Rs. 303.90 million as against Rs. 306.20 million,

when compared with the prior year period. Reported earnings per share of the company stood at Rs. 12.02 a share during

the quarter, as against Rs. 12.11 per share over previous year period. Profit before interest, depreciation and tax is Rs.

674.50 million as against Rs. 603.40 million in the corresponding period of the previous year.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q1 FY19 Q1 FY18 %Change

Cost of MaterialsConsumed 2972.70 2407.60 23%

Employees BenefitsExpense 273.20 229.30 19%

Depreciation &Amortisation Expense 151.90 116.10 31%

Excise duty on Sale ofGoods 0.00 208.90 --

Other Expenses 965.60 1080.60 -11%


Segment Revenue

COMPANY PROFILE

Tata Metaliks Limited is engaged in the manufacture of foundry grade pig iron. The Company manufactures and sells

products, such as scrap pig iron and granulated slag. The Company offers a range of end-to-end technical services, which

include charge mix and melting, molding and core making, spheroidal graphite (SG) iron production and development,

project based consultancy, pollution control, customized training and testing facility. It also offers a range of by-products,

such as slag, which includes manufacturing and supplying granulated blast furnace slag for cement plants; potted pig iron,

which is used by foundries as scrap; pig iron scrap, which includes pig casting machine scrap, pig iron runner, pig iron

skull and pig iron chips and plates, and iron sweepings, including low iron (Fe) and high Fe. Its products offer

applications, such as pressure tight precision castings, rolling mill rolls, motor and generator housings, automobile engine

blocks, crankshafts and gears.


FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2017 -2020E

FY17A FY18A FY19E FY20EASSETS1) Non-Current Assets

a) Property, plant and Equipment 5895.20 5853.90 6146.60 6576.86b) Capital Work in Progress 335.40 242.10 217.89 207.00c) Other Intangible Assets 2.10 1.60 1.36 1.22d) Financial Assets

i) Investments 0.10 0.10 0.11 0.11ii) Other Financial Assets 15.40 58.00 74.24 93.54

e) Non-Current Tax Assets 47.00 30.70 39.30 49.12f) Deferred Tax Assets 0.00 30.70 32.24 33.20g) Other Non -Current Assets 134.00 94.30 80.16 72.14Sub - Total Non- Current Assets 6429.20 6311.40 6591.88 7033.19

2) Current Assetsa) Inventories 1601.90 1986.60 2383.92 2860.70b) Financial Assets

i) Investments 0.00 100.10 105.11 109.31ii) Trade Receivables 1879.20 2146.90 2361.59 2574.13iii) Cash and Cash Equivalents 18.80 25.80 32.25 39.35iv) Other Balances with Bank 2.90 6.30 7.88 9.45v) Other Financial Assets 195.20 289.50 370.56 466.91

c) Other Current Assets 529.80 384.30 441.95 508.24Sub - Total Current Assets 4227.80 4939.50 5703.25 6568.08

Total Assets (1+2) 10657.00 11250.90 12295.12 13601.28EQUITY AND LIABILITIES1) EQUITY

a) Equity Share Capital 252.90 252.90 252.90 252.90b) Other Equity 1818.90 3333.90 5008.14 6795.64

Total Equity 2071.80 3586.80 5261.04 7048.542) Non Current Liabilities

a) Financial Liabilitiesi) Borrowings 1575.10 1998.00 1698.30 1528.47

b) Provisions 129.30 133.70 140.39 144.60Sub - Total Non Current Liabilities 1704.40 2131.70 1838.69 1673.07

3) Current Liabilitiesa) Financial Liabilities

i) Borrowings 1733.00 2177.70 1851.05 1511.75ii) Trade Payables 1706.60 2082.40 2207.88 2318.27iii) Other Financial Liabilities 2766.80 824.30 618.23 476.03

b) Provisions 352.80 38.90 28.01 21.01c) Current Tax Liabilities (net) 78.20 42.50 31.98 25.62d) Other Current Liabilities 243.40 366.60 458.25 526.99Sub - Total Current Liabilities 6880.80 5532.40 5195.39 4879.67

Total Equity and Liabilities (1+2+3) 10657.00 11250.90 12295.12 13601.28


Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E

Description 12m 12m 12m 12mNet Sales 14101.00 18942.10 20836.31 23336.67Other Income 14.60 202.30 125.43 144.24Total Income 14115.60 19144.40 20961.74 23480.91Expenditure -11851.60 -16169.70 -17735.87 -19966.85Operating Profit 2264.00 2974.70 3225.87 3514.05Interest -375.00 -470.90 -508.57 -559.43Gross Profit 1889.00 2503.80 2717.30 2954.63Depreciation -364.30 -490.70 -588.84 -694.83Profit Before Tax 1524.70 2013.10 2128.46 2259.79Tax -356.10 -412.00 -454.21 -472.30Profit After Tax 1168.60 1601.10 1674.24 1787.50Profit/Loss from Discontinued Operations -8.00 -9.30 0.00 0.00Net Profit 1160.60 1591.80 1674.24 1787.50Equity Capital 252.90 252.90 252.90 252.90Reserves 1818.90 3333.90 5008.14 6795.64Face Value 10.00 10.00 10.00 10.00EPS 45.89 62.94 66.20 70.68

Quarterly Profit & Loss Statement for the period of 31st Dec, 2017 to 30th Sep, 2018E

Value(Rs.in.mn) 31-Dec-17 31-Mar-18 30-June-18 30-Sep-18EDescription 3m 3m 3m 3mNet sales 4899.00 5460.60 4675.40 4909.17Other Income 1.00 93.40 14.80 12.14Total Income 4900.00 5554.00 4690.20 4921.31Expenditure -4172.90 -4581.30 -4015.70 -4197.34Operating Profit 727.10 972.70 674.50 723.97Interest -100.50 -177.20 -105.70 -116.27Gross Profit 626.60 795.50 568.80 607.70Depreciation -122.70 -132.20 -151.90 -168.61Profit Before Tax 503.90 663.30 416.90 439.09Tax -97.70 -114.50 -110.70 -97.21Profit After Tax 406.20 548.80 306.20 341.87Profit/Loss from Discontinued Operations -2.70 -2.30 -2.30 0.00Net Profit 403.50 546.50 303.90 341.87Equity Capital 252.90 252.90 252.90 252.90Face Value 10.00 10.00 10.00 10.00EPS 15.95 21.61 12.02 13.52


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 45.89 62.94 66.20 70.68EBITDA Margin (%) 16.06% 15.70% 15.48% 15.06%PBT Margin (%) 10.81% 10.63% 10.22% 9.68%PAT Margin (%) 8.29% 8.45% 8.04% 7.66%P/E Ratio (x) 15.91 11.60 11.03 10.33ROE (%) 56.41% 44.64% 31.82% 25.36%ROCE (%) 35.31% 32.00% 29.93% 27.94%Debt Equity Ratio 1.60 1.16 0.67 0.43EV/EBITDA (x) 18.75 14.15 13.07 11.95Book Value (Rs.) 81.92 141.83 208.03 278.71P/BV 8.92 5.15 3.51 2.62

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 730.35, the stock P/E ratio is at 11.03 x FY19E and 10.33 x FY20E respectively.

Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 66.20 and Rs. 70.68

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 12% over 2017 to 2020E

respectively.

On the basis of EV/EBITDA, the stock trades at 13.07 x for FY19E and 11.95 x for FY20E.

Price to Book Value of the stock is expected to be 3.51 x and 2.62 x for FY19E and FY20E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

Global growth strengthened in 2017 to ~3%, the highest rate of global growth since 2011, with a notable rebound in

global trade, investment and manufacturing activity. In 2019, growth is expected to be 3.1% as per the World Bank,

supported by strong momentum, favourable market sentiment, accommodative financial conditions, and expansionary

fiscal policy in the United States and a recovery in commodity prices.

On the domestic macro-economic front, the outlook for the Indian economy has improved post the effects of

demonetisation and implementation of Goods and Services Tax (GST). Despite global and domestic uncertainties, India

has emerged as one of the fastest growing major economies in the world with a GDP growth of 6.6% in 2017-18 and is

projected to grow at c.7.3% in FY 2018-19. However, the steep increase in oil prices continues to pose a serious challenge

to the finances of the Government and its ability to spend on infrastructure and building productive assets.


India’s crude steel production increased 3.1% to 104.96 million tonnes in FY 2017-18 from 97.39 million tonnes last year.

Imposition of protective tariffs by the Government continue to offset the threat of cheap imports from China. Steel

consumption is expected to grow by 7-7.5% in FY 2019 on the back of Government’s push for infrastructure projects and

strengthening consumer demand.

India, which is a major pig iron manufacturer and exporter in the world, registered a marginal dip of 2% on pig iron

output during FY 2017-18 although the foundry grade pig iron demand was robust during the year, especially in the

second half. Pig iron exports registered a 33% increase with total exports of 0.44 million tonnes. However, domestic sales

became more attractive during the rupee devaluation in the latter part of the year. Government’s focused investments in

various infrastructure and construction sectors led by the “Make in India” initiative, should help to further push the

demand for Pig iron in FY 2018-19.

The medium to long term outlook of Ductile Iron (DI) pipe is also encouraging with major water, sanitation & irrigation

projects in various States being finalised and awarded to contracting companies coupled with the government’s focus on

projects like “AMRUT” (Atal Mission for Rejuvenation & Urban Transformation) and Lift irrigation projects.

Coke, a key raw material for production of both pig iron and DI pipes, experienced immense volatility and upward trend

in prices throughout the year impacting input costs adversely. International coke price dropped for a short period from

US$338/t CFR in April 2017 to a level of US$ 266/t in June 2017. The prices continued to increase thereafter and reached

a peak of US$ 396/t CFR in December 2017. It finally closed the year at ~USD 356/t CFR. Price of coking coal from

Australia experienced a similar movement starting at a high of US$ 258/t FOB in April 2017 and closing at US$ 197/t in

March 2018. In order to manage the price fluctuation of coke, the Company entered into a long term sourcing contract

with its parent Tata Steel Limited.

The prices for international iron ore fines were also volatile during FY 2017-18, though relatively less. The price

movement ranged between a high of US$ 78/t CFR China to a low of US$ 58/t. In the domestic market, the iron ore prices

moved up sharply in Q4 triggered by closure of several mines in Odisha arising out of Supreme Court judgement directing

payment of penalties by miners latest by end of Dec’17.

Pig iron prices moved up about 20% during FY 2017-18 especially in the last quarter of the fiscal which mitigated the

coal/coke price increase to a large extent. Foundry grade pig iron market remained buoyant almost throughout the year

due to robust demand coupled with shortage in supply from some of the regular manufacturers in the country.

Volatility in the DI pipe prices is inherently much lower compared to pig iron. This is because DI pipes is a value-added

product and contracts are typically executed over several months, unlike Pig iron which is an intermediate product and can

be categorised as a commodity. During the year, the price of DI pipe moved in a narrow band and dropped marginally

mainly due to market hiccups arising out of uncertainties due to GST implementation.

Opportunities:

Foundry grade pig iron, a major product of the Company, is primarily used for manufacturing a variety of grey iron and

ductile iron castings by foundries for a host of industries like automotive, agriculture, pump, valve, compressor, railways,


defence, wind mills, heavy machinery etc. Besides this, the Company also manufactures basic grade pig iron in small

quantities which is consumed by secondary steel makers. Both these industries - casting as well as steel, are expected to

grow at good pace in the future driven by the policy initiatives of the Government of India and the positive industrial

growth in the country.

The foundry grade pig iron market is diversified in nature with stringent technical specifications offered by some of

reputed manufacturers customised for various applications. Thus, the foundry grade pig iron market provides an

opportunity for a wide variety of customised grade options like standard foundry grade, high silicon grade, high

phosphorous grade, low phosphorous grade and ductile iron grade. This also offers an opportunity to create value for

customers by providing differentiated products and services. With significant growth in the automobile and auto

components sectors, the foundry industry is also expected to grow at a fast pace in the near future.

During FY 2017-18, full availability of the blast furnaces helped higher production and sales of pig iron in its focused

markets. Raw material cost challenges were judiciously managed to optimise overall margins. The next year’s focus

would be to increase direct sales to customers, rationalise distribution channels and improve market share in eastern India

considering freight advantage for the Company.

The demand for DI pipe continues to grow with Government’s continued focus on water, sanitation and irrigation

schemes in several states and with the development of smart cities. While global growth is expected to be around ~3% in

the next year, India’s economy is expected to gain from various factors such as increase in domestic consumption,

increased exports, improving rural consumption & spending, investments in infrastructure projects, ease of doing business

and streamlined tax structure to name a few. These factors also provide ample scope for increase in demand for DI pipes.

While there are opportunities as stated above, the pig iron and DI pipe businesses may suffer due to a possible threat of

slower than expected economic growth. Indian economy cannot remain isolated from the global changes, specially actions

driven by countries like US and China. Growing protectionist measures and geopolitical tensions can adversely impact the

world economy including India.


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Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

Dr.C.V.S.L. Kameswari M.Sc, PGDCA,M.B.A,Ph.D (Finance)

Pharma &Diversified

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TATA METALIKS LTD ISIN… · Gallantt Ispat Ltd 43.40 16701.00 2.14 20.28 4.13 5.00 Hisar Metal Industries Ltd 64.00 345.60 9.72 6.58 1.78 10.00 Gallantt Metal Ltd 54.70 4448.30 8.19

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