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Revenues in line with estimates; EBITDA disappoints
Prakash Industries (PIL) reported net sales of INR 4.2 bn, in line with our
estimates, up 11.5% Y-o-Y and down 9.4% Q-o-Q. Total steel sales volumes, at
129 kt, were less than our assumption of 139 kt. However, blended realisations,
at INR 31.8k/t, came in than our assumption of INR 25.2k/t, leading to revenues
being in line with estimates. EBITDA, at INR 910 mn, remained flat both Y-o-Y
and Q-o-Q; it was lower than our estimate of INR 992 mn, primarily due to
higher cost of iron ore and procured sponge iron. Net profit (INR 716 mn) came
in higher than our estimate of INR 675 mn on account of lower tax rate, and was
up 1.8% Q-o-Q and 4.6% Y-o-Y.
Expansion plans for power and steel on schedule
PIL’s upcoming 625 MW (5x125) power plant is on track with the first unit
expected to be commissioned by January 2011 (our assumption is June 2011).
All major orders are placed for the first three units and balance orders are
expected to be placed during Q3FY11. The company is also expecting to receive
coal linkage for the same by the end of FY11 (we have assumed e-auction coal
throughout the life of the project). Steel expansion to 1 mtpa will also be
completed by end of FY11. Sponge iron capacity expansion is also on track to
reach 0.8 mtpa and 1 mtpa by end of FY11 and FY12, respectively. The company
has spent ~INR 3.2 bn in FY11 and has increased the capex run rate to ~INR
500 mn per month. FY12 capex guidance is INR 7 bn.
Chotia mine continues to operate at optimum capacity
PIL has reiterated its stand of not having any illegal mining/selling of coal from
its Chotia coal mine. During the current quarter, it produced ~250 kt of coal, but
also bought coal through e-auction. Additionally, the mining plan for the Orissa
iron ore mine has been approved and PIL expects all clearances by end of FY11.
No progress has been made on the other iron ore and coal mines. We have not
considered any benefits of further raw material integration in our estimates.
Outlook and valuations: Positive, maintain ‘BUY’
We continue to remain optimistic on PIL’s profitability due to the upcoming volume
growth, reduced external sourcing of metallics and billets and the expected cash
flows from the upcoming 625 MW power plant. We have not taken any benefits of
iron ore integration for the steel business or any coal linkage benefits for the
power plant. We value PIL on a SOTP basis at INR 265/share, comprising INR
222/share for the steel business (5x FY12E EV/EBITDA) and INR 45/share for 125
MW (considering only the first unit). We maintain ‘BUY’ on the stock.
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