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Reports best ever quarterly profit…

About the stock:

Tata Metaliks (TML) is a subsidiary of Tata Steel, which was established in 1990. TML has manufacturing facilities at Kharagpur, West Bengal, India which produces pig iron and ductile iron (DI) pipes

* By Q4FY23, TML would double its DI pipe capacity to 4 lakh tonnes

* TML has healthy cash flow and strong balance-sheet. It is one of the few players in the steel pipe sector having net cash position in its balance sheet

Q1FY22 Results:

TML reported a healthy operational performance in Q1FY22 wherein it reported its best ever quarterly profits.

* Reported revenue of | 603 crore, up 187% YoY but down 9% QoQ.

* EBITDA was at of | 154 crore (vs. | 143 crore in Q4FY21, | 10 crore in Q1FY21). EBITDA margin was at 25.5%, up 380 bps QoQ, 2060 bps YoY

* Ensuing PAT was at | 95 crore (up 26% QoQ)

What should investors do?

Tata Metaliks share price has grown by ~3.7x over the past five years (from ~| 340 in July 2016 to ~| 1265 levels in July 2021).

* We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation:

We value TML at | 1475 i.e. 7x FY23E EV/EBITDA

Key triggers for future price performance:

* The first phase of DI pipe capacity expansion (of ~1 lakh tonne) is likely to be commissioned in Q4FY22. Second phase is likely to be commissioned in Q4FY23 (of ~1 lakh tonne). Post commissioning of both phases, TML would double its DI capacity from 2 lakh tonnes currently to 4 lakh tonnes

* One of the key beneficiaries of Jal Jeevan mission

* In the next few years, TML would reap benefits of capacity expansion, which would result in healthy cash flows for the company

Alternate Stock Idea:

* Apart from TML, in our steel pipes sector coverage we also like Ratnamani Metals and Tubes (RMTL).

* Leadership position in stainless steel pipes and tubes segment, differentiates RMTL from its peer group

* BUY with a target price of

* 2400

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