Tata Metaliks, BUY

Tata Metaliks, BUY

CMP: Rs 164 Target: Rs 219

Tata Steel raises stake in TML to 50%

Valuation

Earnings multiple lowered to factor in higher business uncertainty; Maintain Buy TML is currently trading at an EV/EBIDTA of 2.8x and P/E multiple of 4x on FY09E earnings. We have valued the stock using the average of the P/E and EV/EBITDA valuation methods. While we have maintained our P/E valuation multiple of 5x on FY09E, we are reducing our EV/EBITDA multiple for the company to 4x from 4.5x earlier, mainly on the back of the increased uncertainty in the business environment. This together with our reduced earnings estimates gives us a revised target price of Rs 219 for the stock as against Rs 234 earlier.

We continue to believe that the stock offers an attractive investment opportunity with a relatively lower downside risk. The commissioning of DI pipes will be a key growth area for TML going forward.