Small Cap Tata Stock Zoomed 9.54% In 1 Month & 17.1% In 3 Months, Top Brokerage Assigns Hold

ICICI Direct is assigned Hold on Tata Metaliks Ltd (TML). The brokerage has estimated a target price of Rs 900 for the stock. According to the given target price, the stock sees a 5% upside from its current level in 12 months. Tata Metaliks is a small-cap Tata Group's Metal sector company with a market capitalization of Rs 2,707.77 crore. Recently, the Tata Group announced the merger of the Group's metal businesses, both publicly traded and privately held, into Tata Steel. Tata Metaliks Ltd. is one of the listed metal sector companies among the stocks listed by Tata for the merger with Tata Steel.

Tata Metaliks Stock performance

The share price of Tata Metaliks on NSE is Rs 857.50/share, gaining 2.87% as compared to its previous close. The 52-week low stock was recorded on 17 June 2022 at Rs 617.35/share and the 52-week high on 11 April 2022 at Rs 922/share, respectively. The stock has performed decently over the last 3 years. It grew 2.23% in the last 1 week, 9.54% in the last 1 month, and 17.1% in the last 3 months, respectively. However, it fell 0.78% in the last 1 year. It has given the highest 31.11% in the last 3 months. Whereas, in the last 5 years it declined by 2.84%. 

Q3FY23 Results

Tata Metalik's (TML's) Q3FY23 performance was adversely impacted by operational issues with one of the blast furnaces, which had frequent shutdowns thereby increasing the operating costs. The blast furnace was repaired in early December 2022 and is now operating well.

TML's revenue was at Rs 790 crore, up 15% YoY but down 10% QoQ. TML's pig iron sales volumes were at ~63000 tonnes, down 25% YoY. TML's ductile iron (DI) pipes sales volume was at ~77000 tonnes, up 16% YoY & 11% QoQ. The growth in DI pipe volume was aided by the new plant. DI pipe plant - 2 (new plant) had a vertical ramp-up wherein production of finished DI pipes touched 25 KT in Q3FY23 compared to 13 KT in Q2FY23.

TML's EBITDA for the quarter was at Rs 39 crore, down 43% YoY and 5% QoQ. TML's EBITDA margin for the quarter was at 4.9% compared to 4.7% in Q2FY23 and 9.8% in Q2FY23. Ensuing PAT for Q3FY23 was at Rs 9 crore, down 74% YoY and 34% QoQ.

Buy for a target price of Rs 900/share

TML's share price has given a return of ~37% over the last three years (from ~Rs 625 in January 2020 to ~Rs 856 levels in January 2023). We maintain our HOLD rating on the stock. We value TML at Rs 900 i.e. 6.5x FY24E EV/EBITDA.

Key triggers for future price performance

Domestic demand of pig iron is expected to firm up in Q4FY23 as utilisation levels in general castings, agriculture, etc are likely to improve.
Demand outlook for DI pipes for Q4FY23 is robust in line with government's increased outlay through Jal Jeevan mission to provide drinking water.

 

About the stock

Tata Metaliks (TML) is a subsidiary of Tata Steel, which started its commercial production in 1994. TML has manufacturing facilities in Kharagpur, West Bengal, which produces pig iron and ductile iron (DI) pipes. TML is currently in the process of expanding its DI pipe capacity. TML has a healthy balance-sheet. It is one of the few players in the steel pipe sector having net cash position on its balance sheet.

 

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.