Post on 08-Aug-2020
transcript
Tata Metaliks LimitedIndia Equity Analytics 20-Jan-20 Result Update
IndustryBloombergBSE CODE
MetalsTML IN513434
Uncertain demand for DI pipe impact volume going ahead
RESEARCH ANALYST
STOCK INFO
52wk Range H/L
Mkt Capital (Rs Cr)
Free float (%)
Avg. Vol 1M (,000)
No. of Shares (Crs)
Promoters Pledged %
704/480
1837
50%
76
3
0%
3QFY20 Result update
Volume growth of Pig iron business in 3QFY20 based on reduced iron ore prices while volume for Di pipe business remain subdued. Overall industry demand for DI pipe is expected to grow by 8-10%, while management expects to grow beyond industry based on incremental capacity coming forward. Pig iron and coking coal spread improved margins and expected to enhance further in 4QFY20. However, with this reduced coking coal prices spread expansion will not sustain for long run. Various cost control measures helps like setting oxygen plant and PCI plant will maintain operating efficiencies. We continue to remain NEUTRAL stance on the stock with the target price of Rs. 630 with 6x FY21E diluted EV/EBITDA.
View and Valuation
Key Risks to our rating and target• Demand outlook for DI pipe industry.• Volatility in coking coal and iron ore prices is a concern.
• TATAMETALI reported revenue of Rs. 519 Cr. (down by 5.1% YoY) largely on account ofDI pipe business revenue falling by 18% YoY at Rs. 261 Cr. and pig iron business down by4% YoY at Rs. 386 Cr.
• Pig iron volumes during the quarter was at 86000 T (up 40% YoY and 12% QoQ) whilereduced pig iron prices dropped the realization by 4% QoQ.
• DI pipes volumes were at 54000 T (down 19% YoY and 4% QoQ) and reduced demandturn down realization by 2% QoQ.
• Liquidity issues faced due to change in the government of Maharashtra and Jharkhandreduced the volume growth of DI pipe business despite healthy order book lined up for the next nine months. Overall volume growth for FY20 remains muted for DI pipesbusiness.
• Fall in realization is further expected in DI pipe business on account of reduced rawmaterial prices.
• Spread of pig iron and coke prices expanded by Rs. 1000-1200/t during 3QFY20 and isfurther expected to expand in 4QFY20 based on the improvement of Rs. 700-800/t inthe month of January.
• EBITDA margins improved by 710bps QoQ to 15.1% based on various cost controlmeasures like improvement in fuel rates by 6% QoQ, PCI and Oxygen plant came in1HFY20 helps in cost reduction.
• In 4QFY20, further improvement in margin is expected based on PCI plant front as in3QFY20 its only 70% utilized.
• PAT during the quarter stood at Rs. 46 Cr. with the PAT growth of 15.8% YoY on accountof reduced taxes, finance cost and higher other income.
KEY FINANCIAL/VALUATIONS FY18
Net Sales
EBITDA
EBIT
PAT
EPS (Rs)
EPS growth (%)
Diluted EPS (Rs)
ROE (%)
ROCE (%)
BV
P/B (X)
P/E (x)
FY17 FY19 FY20E
1318
225
189
116
46
46
3%
56%
52%
82
7.2
12.8
1873
277
228
159
63
63
37%
44%
41%
142
5.2
11.7
2155
307
250
182
65
58
3%
24%
31%
273
2.4
10.0
2077
258
192
142
51
45
-22%
16%
21%
319
2.0
12.8
2196
295
215
158
56
50
11%
13%
18%
427
1.5
11.5
FY21E
Fig in Rs Cr
Eastwind Capital Advisors Pvt. Ltd.
The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Eastwind Capital Advisors Pvt. Ltd. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
3QFY20 Results
TATAMETALI
FINANCIALS
Net Sales
Other Income
Total Income
COGS
Staff Cost
Other Exp.
Expenditure
EBITDA
Depreciation
EBIT
Interest
PBT
Excpt. Item
Tax
PAT
3QFY19
546
1
548
339
28
105
472
75
14
61
11
51
0
11
40
4QFY19
594
3
597
381
29
103
513
81
15
66
12
57
0
-8
64
1QFY20
499
4
503
312
30
113
454
45
14
30
7
28
0
8
20
YoY %
-5.1%
144%
-5%
-9%
10%
-4%
-7%
5%
25%
0%
-18%
8%
-
-19%
16%
QoQ%
1.4%
-45.8%
0.9%
-2.4%
3.1%
-18.7%
-6.4%
90.6%
5.3%
145.8%
19.5%
140.5%
-
-
96.3%
FY18
1873
20
1894
1088
100
407
1596
277
49
228
47
201
0
41
159
FY19
2155
7
2162
1333
112
403
1848
307
58
250
43
213
0
30
182
YoY %
15.0%
-67%
14.2%
22.4%
11.7%
-1.0%
15.8%
10.8%
17.5%
9.4%
-8.1%
5.8%
-
-26.8%
14.3%
Fig in Rs Cr
Strong growth in Pig iron volumes
Pig iron contributed revenue of Rs. 386 Cr. (down by 4% YoY) on account of fall in realization by 4% QoQ due to reduced steel
grade pig iron prices. However, external pig iron volumes in 3QFY20 were at 86000 T (up 40% YoY and 12% QoQ) despite the
poor market scenario and near term slowdown in the economy.
Revenue decline of DI pipe business led by reduced demand
Revenue contributed by DI pipe business in 3QFY20 is Rs. 261 Cr. (down by 18% YoY) on the back of reduced volume due to
funding issues faced by the EDC contractor in collecting the money from government. Change in government of Maharashtra
and Jharkhand which is around 18-20% in the overall volume mix of DI pipes impacted the volume growth. Realization in
3QFY20 also fall by 2% QoQ however, it’s expected further to reduce in 4QFY20 based on the lag effect of reduced raw material
prices.
Margins expanded on account of better operating efficiencies
EBITDA margins in 3QFY20 expanded by 710 bps based on reduced fuel cost by 6% QoQ, PCI plant and oxygen plant
commenced in 1HFY20 helps in enhancing the efficiency of blast furnace. In 4QFY20, cost is expected to go down further with
the complete utilization of PCI plant (currently 70% utilized in 3QFY20). PAT during the quarter stood at Rs. 46 Cr. with the
reduced taxes, finance cost and higher other income which maintain PAT margin at 8.9%.
Other Updates
Capacity expansion plan of 200000T in DI pipe business will commence 1St phase of 120000T in 3QFY21. However, in FY21
volume contribution are not expected much from such commencement yet it will be benefited in FY22. The 2ND phase will
commence in 2HFY22 with remaining 80000 T of capacity whose benefit could be seen in FY23. Other cost reduction measures
through setting up power plant is expected to commission in 4QFY21.
2QFY20
511
6
517
316
30
124
470
41
16
25
8
23
0
-1
23
SEGMENTS 2QFY184QFY18
135857
71229
64628
1QFY19
115436
68393
47043
2QFY19
134718
83984
50734
3QFY19
128039
61503
66536
4QFY19
139807
68120
71687
1QFY20
125100
71500
53600
VOLUME (TON)
Hot metal
Pig iron
DI pipe
4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
Operating Matrix
133000
77000
56000
2QFY20 YoY %
9.3%
39.8%
-18.8%
Margin expansion based on operating efficiencies
3QFY20
519
3
522
309
31
100
440
78
17
61
9
55
0
9
46
140000
86000
54000
3QFY20
Eastwind Capital Advisors Pvt. Ltd.
Concall Highlights
• Volumes in 3QFY20 of Pig iron and DI Pipe are 86000 Tonnes and 54000 Tonnes respectively.
• Volumes for 4QFY20 in DI pipe business expected to be muted based on pressure from demand side due to issues relating to
fund flow from government.
• Management expects DI pipe industry to grow by 8-10% moving forward. Management is confident enough to grow over an
above industry.
• DI pipes realization is expected to fall futher in the coming quarter based on the lag effect of reduced raw material prices.
• Product mix is expected to be adverse in 4QFY20 which will further reduce volumes.
• Order book still remains strong on the Di pipes business, the fund flow is the major issue from government side where EPC
contractors are facing the problem in receiving the money on time. Change of government in Maharashtra and Jharkhand
from where orders were lined up.
• Contribution from Maharashtra and Jharkhand in the overall mix of DI pipe sales volumes is around 15-18%.
• Spreads of pig iron to coke in 3QFY20 improved by Rs. 1000-1200/t as compared to 2QFY20 and in the month of January it’s
further expanded by Rs. 700-800/t.
• EBITDA margins improved during the quarter due to improved realizations pig iron business, operational efficiencies through
increased coal injections, cost control measures (PCI and oxygen plant commenced in 1HFY20), stable blast furnace
operations etc.
• EBITDA margins for DI pipes business in 3QFY20 is 24%, while margins are expected to remain in the range of 18-20%
moving ahead.
• Improvement in fuel rates by 6% QoQ in 3QFY20. PCI and Oxygen plant came in 1HFY20 helps in cost reduction. Further
improvement in 4QFY20 is expected based on PCI plant front as in 3QFY20 its 70% utilized.
• Expansion project: DI pipe 1ST phase will come in FY21 (in 3QFY21) with the incremental volumes of 120000 Tonnes and the
benefits could be seen from FY22 and 2ND phase will come in FY22 (in 2HFY22) with volumes of 80000 Tonnes and the
benefit of the same will come in Fy23.
• Power plant which will help in cost reduction will commence in 4QFY21.
TATAMETALI
Eastwind Capital Advisors Pvt. Ltd.
Exhibit: Net sales and growth trend Exhibit: Cost of good sold and realization trend
Decline in DI pipe volume and realisation of both DI pipe and Pig iron business decline the overall revenue in 3QFY20…
Gross margin improved QoQ due to lower iron ore and coking coal prices.
Exhibit: EBITDA and EBITDA margin trend Exhibit: PAT and PAT margin trend
Margin expansion by 710 bps QoQ based on better operating effeciencies.
Exhibit: Pig iron volume trend
Pig iron volume expanded with the reduced iron ore prices..
Higher other income reduced taxes and depreciation helps PAT margins for further expansion.
Exhibit: DI pipe volume trend
DI pipe volume reduced on the back of incertain demand outlook
TATAMETALI
Eastwind Capital Advisors Pvt. Ltd.
Exhibit: EBITDA/t trend Exhibit: Domestic Pig iron price trend
EBITDA/t improved significantly on the back improvement in cost reduction.
Increase in pig iron prices helps to extend the Spread during the quarter.
Exhibit: Coking coal price trend Exhibit: Iron ore price trend
Reduced coking coal prices helps spread for further expansion and improve margin
Exhibit: Pig iron and DI pipe share in total production
Management has steadily increased its DI pipe share in total production….
Domestic Iron ore price fall by 9% on QoQ basis reduced realizations of pig iron business.
TATAMETALI
Eastwind Capital Advisors Pvt. Ltd.
Y/E March FY15 FY16 FY17 FY18 FY19 FY20E
Revenue from Operation
Change (%)
Other Income
EBITDA
Change (%)
Margin (%)
Depr & Amor.
EBIT
Int. & other fin. Cost
EBT
Exp Item
Tax
Minority Int & P/L share of Ass.
Reported PAT
Adj PAT *
Change (%)
Margin(%)
1419
0%
5
202
111%
14%
31
171
41
134
2
23
0
109
110
1052%
8%
1317
-7%
2
216
7%
16%
33
183
46
139
0
26
-1
112
113
3%
9%
1318
0%
1
225
4%
17%
36
189
38
152
0
36
-1
116
117
3%
9%
2155
15%
7
307
11%
14%
58
250
43
213
0
30
-1
182
183
14%
8%
2077
-4%
18
258
-16%
12%
66
192
33
177
0
34
-1
142
142
-22%
7%
2196
6%
18
295
14%
13%
80
215
35
198
0
40
0
158
158
11%
7%
1424
43%
2
96
-448%
7%
31
65
43
24
21
-7
0
9
38
-111%
1%
Financial Details
FY21E
Fig in Rs Cr
Balance Sheet
Income Statement
Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E
Share Capital
Reserves
Networth
Debt
Other Non Cur Liab
Total Capital Employed
Net Fixed Assets (incl CWIP)
Non Cur Investments
Other Non Cur Asst
Non Curr Assets
Inventory
Debtors
Cash & Bank
Other Curr Assets
Curr Assets
Creditors
Provisons (both)
Other Curr Liab
Curr Liabilities
Net Curr Assets
Total Assets
125
-38
87
174
10
261
379
0
3
451
103
125
3
2
277
278
23
166
457
-180
728
25
74
99
307
12
406
440
0
54
495
120
171
2
59
364
249
31
14
442
-77
859
25
182
207
331
18
538
623
0
18
643
160
188
2
53
423
171
41
24
510
-87
1066
25
333
359
418
13
776
610
0
9
631
199
215
3
38
494
208
17
37
335
158
1125
28
739
767
39
15
806
661
0
9
701
315
278
29
23
681
481
20
59
562
119
1382
28
869
897
50
15
947
795
0
9
826
284
268
59
21
664
464
16
41
528
136
1491
32
1168
1200
80
15
1280
1115
0
0
1115
301
283
86
23
731
490
16
41
551
180
1846
125
-145
-20
265
10
246
401
0
3
455
118
101
21
2
280
302
11
177
480
-199
735
FY21E
Fig in Rs Cr
FY14
1873
42%
20
277
23%
15%
49
228
47
201
0
41
-1
159
160
37%
8%
*Adj PAT from contd. operation after minority interest
TATAMETALI
Eastwind Capital Advisors Pvt. Ltd.
Cash Flow Statement
Y/E March
PBT
(inc)/Dec in Working Capital
Non Cash Op Exp
Int Paid (+)
Tax Paid
others
CF from Op. Activities
(inc)/Dec in FA & CWIP
Free Cashflow
(Pur)/Sale of Inv
others
CF from Inv. Activities
inc/(dec) in NW
inc/(dec) in Debt
Int. Paid
Div Paid (inc tax)
others
CF from Fin. Activities
Inc(Dec) in Cash
Add: Opening Balance
Closing Balance
132
-24
70
41
-23
155
-48
108
0
-48
0
-12
-42
0
-125
-17
20
3
112
-95
98
46
-24
91
-80
11
0
-79
0
-55
-38
0
-13
-1
3
1
114
-118
114
38
-33
77
-126
-49
0
-125
0
60
-38
-6
49
0
1
2
200
-36
78
47
-46
196
-60
135
-10
-70
0
-104
-48
-7
-125
1
2
3
212
102
103
43
-49
369
-97
272
10
-87
0
-210
-56
-9
-257
25
3
28
177
23
99
33
-34
264
-200
64
0
-200
0
11
-33
-12
-33
31
29
60
198
14
115
35
-40
287
-400
-113
0
-400
0
30
-35
-24
140
27
59
86
3
134
105
43
-2
239
7
246
0
7
0
-230
-44
0
-234
12
8
20
Key Ratios
Financial Details
Y/E March
ROE
ROCE
Asset Turnover
Debtor Days
Inv Days
Payable Days
Int Coverage
P/E
Price / Book Value
EV/EBITDA
Diluted EV/EBITDA
Div Yield
124.8%
81.5%
1.95
32
27
71
4.1
2.8
3.5
2.3
2.3
0.0%
113.4%
67.4%
1.53
47
33
69
4.0
2.2
2.5
2.5
2.5
0.0%
56.0%
51.7%
1.24
52
44
47
5.0
12.8
7.2
8.0
8.0
0.3%
44.4%
40.9%
1.67
42
39
41
4.8
11.7
5.2
8.2
8.2
0.3%
23.7%
31.0%
1.56
47
53
81
5.8
10.0
2.4
6.0
6.7
0.5%
15.8%
21.4%
1.39
47
50
81
5.8
12.8
2.0
7.0
7.8
0.5%
13.2%
17.9%
1.19
47
50
81
6.1
11.5
1.5
6
6.9
1.1%
-47.9%
61.3%
1.94
26
30
77
1.5
13.9
(6.6)
3.9
3.9
0.0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Fig in Rs Cr
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
TATAMETALI
Eastwind Capital Advisors Pvt. Ltd.
Eastwind Capital Advisors Pvt. Ltd.
EASTWIND Capital Advisors Private Ltd. (EASTWIND) is a SEBI Registered Investment Advisors having SEBI Registration Number INA300005439 valid till
24.08.2021. Registered Office: 59, 2nd Floor, A C Market, Gel Church Complex, Main Road, Ranchi, Jharkhand 834 001, CIN:- U67120JH2007PTC012791,
Compliance Officer: Manish Agarwal, Email Id: mkagarwal@eastwind.in, Contact No.: 033-40541759
EASTWIND is owned by Narnolia Capital Advisors Private Ltd. which is NBFC registered with RBI. Narnolia Capital Advisors Private Ltd is owned by
Narnolia Securities Ltd. under the Promotership of Mr. Krishnanand Narnolia. Details of associate entities of Eastwind Capital Advisors Private Ltd. are
available on the website at www.narnolia.com
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No disciplinary action has been taken against the Company by any regulatory/statutory authority.
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& AMFI registered Mutual Fund Distributor and engaged in execution/distribution of various products & services. However, we maintain appropriate
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