Tata Sponge Iron, the small-cap (Rs. 900 crore) company belonging to the venerable Tata group, first came to our notice in July 2014 as a testament of Sid Choraria’s brilliant stock picking skills. Sid had recommended a buy of Tata Sponge six months earlier when it was languishing at Rs. 270 on the basis that it was a “significantly undervalued deep value stock trading at mouth-watering multiples”. The stock shot up a mind-boggling 183% since Sid’s recommendation.
Tata Sponge once again came into the radar when its sibling Tata Metaliks shot up a mind-numbing 227% in just 30 days after it announced that an amalgamation between it and Tata Steel had been called off.
Tata Metaliks brought immense wealth to a bright-eyed youngster named Dibyajit Saha who had the presence of mind to load up on the stock on the day of its big news.
Tata Metaliks’ super surge caused savvy investors to wonder whether Tata Sponge would follow its illustrious path and also shower riches on investors.
After Tata Metaliks gaining 39% in 1 mth…now it seem the turn of another group company Tata Sponge..stock up 4%. pic.twitter.com/4h0FRF4X4m
— Geetu Moza (@Geetu_Moza) July 25, 2016
The indications are that Tata Sponge Iron is on a strong growth trajectory because the entire steel industry is expected to grow at 7% in FY17 as compared to 3% in FY16.
CNBC-TV18 Exclusive Tata Sponge: Expect Steel Industry To Grow At 7% In FY17 Vs 3% In FY16 #1QWithCNBCTV18
— CNBC-TV18 (@CNBCTV18Live) July 26, 2016
Tata Sponge reported blockbuster results for Q1FY17 with the consolidated PAT shooting up 48% to Rs. 10.55 crore as compared to Rs. 7.11 crore YoY.
DP Deshpande, its MD, projected a rosy picture for the steel industry and the company.
EXCL DP Deshpande, MD, Tata Sponge: Drop in net realisations is partially compensated by raw material cost fall. pic.twitter.com/NbLT8nTz8I
— CNBC-TV18 News (@CNBCTV18News) July 26, 2016
Daljeet Kohli has sensed an opportunity to make mega bucks from Tata Sponge. He has recommended a buy on the basis that Tata Sponge is “engineered to overcome constraints“. He explains that Tata Sponge’s “strong balance sheet, debt‐free status, and increasing protectionism from government on imported steel” makes the stock look positive.
Daljeet adds that Tata Sponge is likely “to continue the trajectory of sustainable volume and sales realization“. He also emphasizes that “the conclusive outlook for domestic infrastructural growth will create a demand of sponge iron in the country” and notes that “The company has performed above industry average even during the weak economic environment helped by the company’s strong brand image and management”.
Daljeet has predicted a target price of Rs. 930 for Tata Sponge which amounts to a hefty upside of 61% from the CMP of Rs. 590.
The best part is that even if Daljeet’s thesis does not play out as expected, the blue-chip pedigree of Tata Sponge coupled with its zero debt status and high cash balance means that our capital is safe and sound and we can be assured of getting it back with a reasonable return some day or the other!
Does not meet my criteria of investment! Very low return on equity of 4% in the latest year and even average return on equity of the last 3 years is just 10%. In my view company not having debt on books and the projected rosy future are not good enough reasons to invest in the stock.
Why does he recommend it now after 200% gains…
Honestly I think Daljeet Kohli is wrong this time with Tata Sponge as his pick.
Nifty Retests 8750, Buying In Cash Market by FII & DII
Stock Market Today by Shailesh Saraf – 8th August 2016
Indian Market Outlook:
Nifty saw sharp buying in the last few days from its 2 week low of 8530. Strong buying momentum was witnessed last Friday which was confirmed by open interest in the F&O segment as well as cash market data.
The buying witnessed before US payroll data is an indication that the Nifty is expected to scale its resistance of 8750, which, if crossed, will take the Index to its next monthly level of 8850-8860.
Top 5 gainers were Grasim, Hero Motor Corp, Hindalco, Bajaj Auto and Ambuja cement.
Nifty Futures is expected to open at 8760 as per SGX Nifty at 8:10 am IST, which is 54 points above its previous close of 8706.
#Nivezareview on Small Cap #Stock :
Looking at the last year performance of Tata Sponge Iron, number are down. Company delivered revenue de-growth with falling earnings. As far as steel industry is concerned, the sector is expected to deliver better in coming years as street is bullish on infra projects and this could be the better boost for the sector as well. Apart from this there is no sector specific trigger and there is no company specific trigger as well.
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