Tata Metaliks (TML) has reported disappointing numbers for Q1FY09. While sales increased in line with our estimates at 49% year-on-year (y-o-y), net profit came in below expectations at Rs202 million vis-à-vis Rs256 million as estimated.
A sharp rise in iron ore and coke cost has adversely impacted the company’s performance, reducing profit growth. EBITDA margin for the quarter under review contracted 195bps to 10.6%. Operating profit thus grew at a slower pace of 26% y-o-y to Rs335 million, while declining by 15% quarter-on-quarter.
Although higher other income aided a 31% y-o-y growth in net profit, the sequential profits dipped 21% on rising costs.
We believe the going is getting tougher for the company due to strong external negative influences. We have downgraded the stock to HOLD with a reduced target of Rs176, which reflects the negative impact of higher raw material costs on our earnings estimates.