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!