Tata Sponge
Tata Sponge had closed yesterday at Rs.478.35 and there were not really too many expectations from this company in terms of Q4 performance. But its numbers, which came in late in the evening yesterday, truly bowled over the market, with the stock price reacting today, opening higher at Rs.505, going on to hit an intra day high at Rs.539.90, a new 52-week high.
This company is an associate company of Tata Steel which holds 51% stake and for Q4FY14, riding on the back of robust growth in net sales, tight leash on costs, substantial rise in other operating income and almost halving of interest outgo helped the company end Q4 with a consolidated net profit at Rs.40 crore, up almost 4.5 times YoY and sequentially, it was up 67%. And it ended FY14 with a net profit at Rs.101 crore, up 19%. Interestingly, though its net sales for Q4 rose 10% at Rs.228 crore, for FY14, net sales was actually down 2%. It was only due to the over 5% decline in operating costs which helped shore up the bottomline.
Q4 is always seasonally the best and hence these numbers are good. On an equity of Rs.15.40 crore, the company ended FY14 with an EPS of Rs.66, which gives a discounting of less than 10. Its reserves as at 31st March 2014 stood at Rs.707 crore. With small debt, (interest outgo for FY14 was at Rs.13 crore) the company has a cash balance of Rs.269 crore. The only factor which is currently going against the company is the continued delay in getting the clearances for its Radhikapur coal block, where Tata Sponge has applied for 120MT reserves. Once this clearance comes through, we could see a big trigger in the stock price as this coal block will help the company meet part of its raw material requirements. It is expected to be operational in the next 18-24 months. Another noteworthy point is that it sources iron ore from its parent, Tata Steel, at a good 15% discount to market prices through Orissa Mineral Corporation. This helps it produce at very low costs.