Tata Sponge

Tata Sponge Iron is on a roll. For Q1FY15, the company posted a whopping 144% (YoY) jump in net profit at Rs.44 crore though sequentially the rise is more muted, up 10%. A 20% rise in net sales at Rs.193 crore, a tight leash on operating costs – it was at 73% of total income in current Q1 compared to 88% in Q1FY14. The other income of Rs.10 crore v/s Rs.7 crore in previous Q1 also helped the bottomline.  Interestingly, its interest outgo for the quarter has come down from 3 crore in Q4 to Rs.83 lakh. Its interest cost for FY14 stood at Rs.13 crore, indicating manageable levels of debt.

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. Of the 54.50% promoters stake, Tata Steel holds 51%.