The Covid-19 outbreak has led to a shutdown of operations and loss of dispatches for Tata Metaliks (TML) in FY20E/FY21E. The Covid-19 pandemic has led to a slowdown in demand for pig iron from the end user industries like auto and engineering. The brokerage has lowered earnings to incorporate loss of dispatches in FY20E & FY21E.
The company’s share price moved up by 1.92 per cent from its previous close of Rs 344.60. The last traded price is Rs 351.20. Incorporated in 1990, Tata Metaliks has a market cap of Rs 968.23 crore.
Investment Rationale
Centrum valued the company at 4.1 times (22 per cent discount to FY15-19 average EV/EBITDA) FY22E EV/EBITDA to arrive at the price target of Rs 407. The 22 per cent discount to its 5-year average multiple is attributed to the uncertainty on the timeline of the expansion. Despite the downward revision in the earnings, current valuations are at attractive levels as the stock trades at 3.4 times FY22E EV/EBITDA. The brokerage therefore upgraded the rating to “add”.
Risks: Slower recovery than expected from the pandemic lockdown and further delay in commissioning of the new capacity.
Financials
For the quarter ended December 31, 2019, the company reported standalone sales of Rs 518.62 crore, up 1.42 per cent from last quarter sales of Rs 511.38 crore and down -5.08 per cent from last year's same quarter sales of Rs 546.37 crore. The company reported net profit after tax of Rs 45.91 crore in the latest quarter.
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