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

There is no pending regulatory matter against EASTWIND as on date.

No disciplinary action has been taken against the Company by any regulatory/statutory authority.

No complaint has been lodged by any client relating to our Investment Advisory Services.

Conflict of interest

Narnolia Financial Advisors Ltd., an Associate of EASTWIND, is a SEBI Registered Stock Broker, Depository Participant, Merchant Banker, Portfolio Manager

& AMFI registered Mutual Fund Distributor and engaged in execution/distribution of various products & services. However, we maintain appropriate

Chinese walls as expected under SEBI Investment Advisor Regulation.

EASTWIND, its associates may have managed or co-managed public offering of securities, may have received compensation for Investment Banking or

Merchant Banking or Brokerage services, may have received any compensation for products or services other than Investment Banking or Merchant

Banking or Brokerage services from the subject company in the past 12 months.

EASTWIND, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as

principal or agent in or for the securities mentioned while rendering advices. They may perform or seek to perform other services for, or solicit other

business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient

should take this into account before interpreting the document.

We are not affiliated with any intermediaries for execution or distribution services. Hence, we do not receive any consideration for execution or distribution

services. Client will not be under any obligation to avail the stock broking, depository and distribution or other services offered by EASTWIND or its

Associate/Group Companies or through any other entity as recommended by EASTWIND.

We do not receive any consideration by way of remuneration or compensation or in any other form, whatsoever, from any person other than the client being

advised in respect of the underlying products or securities for which advice is provided to the client. We will not receive any benefit in case based on our

recommendations you opt to avail any services from our affiliates/associates or other market intermediaries.

Disclaimer

This report has been prepared by Eastwind Capital Advisors Private Ltd. (EASTWIND) and is meant for sole use by the recipient and not for public

circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in

part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of EASTWIND. The report is based on the

facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The

information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no

guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are

subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer

to buy or sell or subscribe for securities or other financial instruments for the clients. Nothing in this report constitutes investment, legal, accounting and tax

advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions

expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives,

financial positions and needs of specific recipient. Certain transactions -including those involving futures, options, another derivative products as well as

non-investment grade securities - involve substantial risk and are not suitable for all investors. Each recipient of this document should make such

investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document

(including the merits and risks involved), and should consult his/her/its own advisors to determine the merits and risks of such an investment. Though

disseminated to all the customers simultaneously, not all customers may receive this report at the same time. EASTWIND will not treat recipients as

customers by virtue of their receiving this report. Neither the Company, not its directors, employees, agents or representatives shall be liable for any

damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits or lost opportunities that may arise from or in

connection with the use of the information/report. The person accessing this information specifically agrees to exempt EASTWIND or any of its affiliates or

employees from, any and all responsibility/liability arising from such misuse and agrees not to hold EASTWIND or any of its affiliates or employees

responsible for any such misuse and further agrees to hold EASTWIND or any of its affiliates or employees free and harmless from all losses, costs, damages,

expenses that may be suffered by the person accessing this information due to any errors and delays.

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such

distribution, publication, availability or use would be contrary to law, regulation or which would subject EASTWIND & its group companies to registration or

licensing requirements within such jurisdictions.