Tata Metaliks Ltd. share price target

Ensuing PAT was at | 36 crore (down 52% YoY and 35% QoQ) What should investors do? TML's share price has given a return of ~152% over the last five years (from ~| 344 in January 2017 to ~| 866 levels in January 2022). We downgrade to stock from BUY to HOLD Target Price and Valuation: We value TML at | 975 i.e. 6.5x FY23E EV/EBITDA...

Cost headwinds to rise; DI pipe thesis intact We lower our TP to Rs1330 (Rs1440 previously) and re-iterate BUY rating on Tata Metaliks (TML). We have lowered FY23 estimates to account for delay in commissioning of phase 2 of DI pipe expansion (now expected in 3Q/4QFY23). The performance in 3QFY22 was subdued due to inflation in coking coal/ coke and iron ore cost, further deteriorated due to instability of blast furnace post the maintenance shutdown. Operating profit is expected to remain weak in 4QFY22 mainly due to coking coal cost pressure. We expect a turn-around starting 1QFY23 when the high price Ductile Iron (DI) pipe contracts kick in along with...

EBITDA was at of | 154 crore (vs. | 143 crore in Q4FY21, | 10 crore in Q1FY21). EBITDA margin was at 25.5%, up 380 bps QoQ, 2060 bps YoY Ensuing PAT was at | 95 crore (up 26% QoQ) past five years (from ~| 340 in July 2016 to ~| 1265 levels in July 2021). The first phase of DI pipe capacity expansion (of ~1 lakh tonne) is likely to be commissioned in Q4FY22. Second phase is likely to be commissioned in Q4FY23 (of ~1 lakh tonne). Post commissioning of both phases, TML would...

Q4FY21 was marked by a sharp increase in prices of key raw materials. Q4FY21 witnessed a steep rise in domestic iron ore prices by ~20-30% mainly due to supply constraint in Odisha from merchant mines. Furthermore, domestic coke prices in Eastern India increased ~22% QoQ, caused by limited availability, as merchant coke plants contracted for exports to avail better realisation. Despite a notable increase in prices of key raw materials, TML was able to report relatively steady EBITDA margin for the quarter. For Q4FY21, EBITDA margins were at 21.7% (23.1% in Q4FY20,...

In our occasional review of the progress of water projects (including the Jal Jeevan Mission) and its impact on demand for pipes, we highlight how funding has resumed in the Covid-hit states along with a 3x surge (vs. August 2020) in countrywide release of funds. Our discussion with a senior official at Uttar Pradesh State Water and Sanitation Mission (SWSM) indicates massive spending worth Rs65bn aimed to increase the tap water coverage to 40% in 2years (14% currently). With 4x surge in budgetary allocation by Centre for the Jal Jeevan Mission Rural in FY22 and announcement of another Rs2.87tn for Jal Jeevan Mission Urban, we...

We raise our TP to Rs950 and re-iterate BUY rating on Tata Metaliks (TML). The fast tracking of DI pipe expansion eliminates the overhang of capacity constraint for FY22/FY23 and provides for upward revision in TP as we roll over valuations to FY23 estimates. On the demand side, doubling of its DI pipe order book to 14-16months indicates release of funds for water projects and strong outlook for TML's DI pipe business for the next two years. Multiple price hikes for foundry grade pig iron and low cost iron ore inventory led to record high pig iron spreads in 3QFY21. We expect...

We believe the recently announced merger of Tata Metaliks (TML) with Tata Steel Long Products Ltd. (TSLP) does not present a fair deal for the investors of TML. The future value of TML, once it turns into a 75% DI pipe (EBITDA level) driven business deserves a higher swap ratio as the merged entity will always be perceived and valued as a commodity play with substantial debt on balance sheet rather than a value added product manufacturer which is net cash. Although the entities undergoing a merger have overlapping operations, we believe that the synergies for TML are meagre as it already benefits from pooled resources and expertise...

Achieves the milestone of lowest cost pig iron producer The record high injection of pulverised coal has led to a structural reduction in Tata Metalik's (TML) upstream cost thereby making it the lowest cost producer of pig iron in India. Multiple price hikes for foundry grade pig iron and low coking coal cost further led to record high pig iron spreads and highest quarterly profit in 2QFY21. The partial repayment of debt has strengthened TML's balance sheet making it net cash. With robust outlook on long term demand for DI pipes, lowest production cost, impeccable capital allocation and superior corporate governance, we maintain our...

In our Water project Tracker, an occasional review of the progress of water projects (including the Jal Jeevan Mission) along with an analysis of its impact on demand for pipes, we outline our discussion with a senior official at Kerala Water Authority (KWA), which highlights that although currently there is a countrywide slowdown in execution of water projects, we will likely see pent up demand for pipes in FY22. Decoding the tender document of a water project, we learned that ~30% of the budget outlay is spent on DI pipes. The ongoing Andhra Pradesh State...

Cost savings intact in a weak quarter| Result Update 1QFY21 Tata Metalik's (TML) long-term prospects remain intact despite a weak 1QFY21 performance on account of muted sales and realisations due to the pandemic. No relief in the fixed costs further dragged down the EBITDA margins to ~5%. We believe that although realisation will remain muted in FY21, the spreads will continue to stay buoyant due to the enormous cost savings from increased coal injection, low coking coal prices, commissioning of coke oven and captive power plant. With robust outlook on long term demand for DI pipes, massive cost savings, impeccable capital allocation...

We initiate on Tata Metaliks (TML), a premier pipe manufacturing company, with a TP of Rs680 (~38% upside) and BUY. In what appears as many stars being aligned, the doubling of its high margin Ductile iron (DI) pipe capacity which comes just on the cusp of expanding demand from government schemes like Jal Jeevan Mission, is a force multiplier that facilitates potential of massive ~500bps market share gains, structurally enriches its EBITDA/t profile, and partially offsets commodity price risk of the pig iron (PI) business. Additional impetus to productivity will come from cost-saving...

Augmenting DI capacity to cater to rising demand Fortunes of the DI pipes segment are closely linked to the investment in water, sanitation and irrigation projects across the country. Over the last five years, DI pipes demand has grown at ~8% CAGR. Going forward also, on the back of a significant increase in government allocation on water infrastructure, the demand for DI pipes is expected to grow at a steady pace in the next five years. Driven by notable investment planned by the government, Tata Metaliks is planning to expand its DI pipe making capacity...

Tata Metaliks (TML) delivered steady performance in Q1 despite few unscheduled shutdowns and EBITDA stood at ~Rs660mn, up 33% YoY but lower than our expectations by ~8% with the miss being completely driven by shutdown impact (~Rs70mn). We continue to maintain our positive view on TML as its DI pipe business boasts of an industry leading cost structure, solid demand drivers and strong entry barriers. With expected recovery in spreads in FY19E and commissioning of PCI project by Q4FY19E coupled with several other productivity improvement initiatives, TML is expected to continue delivering steady earnings growth over...

Tata Metaliks (TML) delivered in line performance in Q2 as the positive impact of strong volumes mitigated the headwinds of subdued spreads and overall weak market conditions. We continue to maintain our positive view on TML as its DI pipe business boasts of an industry leading cost structure, solid demand drivers and strong entry barriers. With complete stabilisation of growth-accretive and cost efficient projects offering quick paybacks and expected recovery in spreads from H2FY18, TML is set to take the next leap in profitability and deliver EBITDA/PAT CAGR of 26%/38% over FY17-19E. Despite the consistent up move in the stock in last...