Stock Review: TATA SPONGE IRON

Tata Sponge Iron's strong performance on the bourses was in tandem with its equally strong financial performance as its sales grew at a cumulative annualised rate of 23% over the past threes years and net profit at 82%. The company has no debt on its books. This gives financial flexibility for it in terms of capex plans. It procures iron ore from Tata Steel under a long-time pricing pact, while coal is either imported or sourced from Coal India. It has obtained 45% stake in a coal block in Orissa, where commercial operations are expected to begin in FY12. Besides, it is also set to double its captive power plant to 50 mw over the next few years. Both these factors will improve its profitability in future. Its stock fell as its September 2010 quarter numbers were affected by one-off items. Its valuations are cheaper compared to its peers such as Usha Martin and Monnet Ispat.