Orissa – Based TATA Sponge Iron is a India’s Leading manufacture of sponge iron. TATA Sponge Iron is an associate company of TATA Steel.Orissa – Based TATA Sponge Iron is a India’s Leading manufacture of sponge iron. Tata Sponge sources iron ore fully from the mine of its parent and imports a good part of its coal needs, eliminating uncertainty of availability. It also generates its own power eliminating another source of availability uncertainty.
Why to buy?
1. Tata Sponge operates its plant at near full capacity; and runs it well. For instance it tries to continuously minimize the coal and power needed to make a unit of sponge iron. Further the quality of sponge iron produced is consistent in its Iron content and weight – important consideration for customers. Operating a plant at full capacity allows its fixed costs to be spread over the largest possible quantity minimizing per unit costs of sponge iron – not to mention time and costs saved from rampant start-ups and shut-downs.
2. Tata Sponge uses waste heat from the sponge iron making process to generate power, 2/3rds of which at full capacity is sold to the local state electricity board. The marginal cost involved is about 30 – 40% of the price at which power is sold to the grid. These profits are independent of the sponge iron prices allowing the bottom-line to escape to an extent the cyclical nature of the sponge iron business.
3. Further Tata Sponge has turned a profit every year in the past since 1992. Tata Sponge features excellent business economics with high returns on tangible capital employed in excess of 50% and return on tangible equity over 20%. Impressively, Tata Sponge has grown revenue 15 out of the last 20 years.
4. Greater visibility on coal block statutory clearances which will lead to margin expansion and government focus on infrastructure growth should see a sustained demand for sponge iron.
Cheap valuation, Tata group backed company, access to Tata Steel`s iron ore and excellent operational efficiency are reasons convincing enough to stock up on this script.
Why to buy?
1. Tata Sponge operates its plant at near full capacity; and runs it well. For instance it tries to continuously minimize the coal and power needed to make a unit of sponge iron. Further the quality of sponge iron produced is consistent in its Iron content and weight – important consideration for customers. Operating a plant at full capacity allows its fixed costs to be spread over the largest possible quantity minimizing per unit costs of sponge iron – not to mention time and costs saved from rampant start-ups and shut-downs.
2. Tata Sponge uses waste heat from the sponge iron making process to generate power, 2/3rds of which at full capacity is sold to the local state electricity board. The marginal cost involved is about 30 – 40% of the price at which power is sold to the grid. These profits are independent of the sponge iron prices allowing the bottom-line to escape to an extent the cyclical nature of the sponge iron business.
3. Further Tata Sponge has turned a profit every year in the past since 1992. Tata Sponge features excellent business economics with high returns on tangible capital employed in excess of 50% and return on tangible equity over 20%. Impressively, Tata Sponge has grown revenue 15 out of the last 20 years.
4. Greater visibility on coal block statutory clearances which will lead to margin expansion and government focus on infrastructure growth should see a sustained demand for sponge iron.
Cheap valuation, Tata group backed company, access to Tata Steel`s iron ore and excellent operational efficiency are reasons convincing enough to stock up on this script.
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