Stock recommendation Tata Sponge Iron Ltd.

 Technical Analysis :

The share price of Tata Sponge has bounced back from the lower band of consolidation ( 900) and the stock has undergone a base building process over past eight months.

The stock witnessed a sturdy rally during November 2016 to January 2018 (from  490-1240). Since then, it entered a secondary phase of consolidation ( 900-1240).

Currently, the stock has resolved out of last five weeks consolidation, suggesting acceleration of positive momentum, auguring well for the stock to unfold the next leg of the rally.

Fundamental Analysis :

Healthy domestic steel demand growth has led to a positive impact on realizations of sponge iron players where, Tata Sponge, being a leading domestic sponge iron player, witnessed a healthy uptick in its realizations over the last two to three years.

The company also has access to captive power plants. Power is generated through these captive power plants through waste heat generated during sponge iron manufacturing. This aids in keeping a check on power costs, thereby aiding overall EBITDA margins.

In FY18, optimum capacity utilization levels and healthy realizations have also had a positive impact on the operating margins of the company.



   

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