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We visited steel plant and captive coal mine of Prakash
Industries (PIL). Part of the ‘Surya Roshni Group’, PIL has
emerged as an integrated steel manufacturer with presence
in Sponge Iron, Mild Steel, Ferro Alloys, Wire Rod,
Structural, TMT. The company is currently focused on
increasing its presence in power (project of 625MW power
plant underway).
Existing capacities and expansion projects
Steel making: Currently, PIL has 0.6mn tpa of DRI kiln, which is
used captively in steel melting shop (current capacity of 0.7mn
tpa by induction furnace route). The company has plans to raise
DRI capacity to 1.2mn tpa and billet capacity to 1.0mn tpa by
FY13. The company primarily consumes billets captively in 0.75mn
tpa rolling facility in Raipur (0.45mn tpa wire rods, 0.15mn tpa
TMT and structurals mill each).
Focus on Power: PIL currently has 115MW CPP, which it is
planning to increase by 625MW in 3 phases at a capex of Rs25bn.
1st phase of 125MW (5 x 25MW) is expected to be commissioned
by Q1FY12, while entire 625MW is targeted by FY15.
Raw material integration – Another key focus area: We visited
PIL’s operational opencast coal mine at Chotia with reserves of
50mnt and output of 1.0mn tpa, which is at a distance of ~120km
from the company’s Champa facility. PIL has also been allotted 2
more coal mines with reserves of 96mnt and 2 iron ore mines with
reserves of 85mnt. (See pg 9 for further details on allotted mines).
VALUATIONS
At CMP of Rs 108, the stock is trading at 3.0x EV/EBITDA and
4.4x P/E on FY10 basis. On H1FY11 annualised basis, the stock
is trading at 3.6x EV/EBITDA and 5.0x P/E. We currently don’t
have a rating on the stock.
Financial performance
H1FY11 performance: Prakash’s H1FY11 revenue increased by 19% YoY to Rs8.9bn.
Operating profit grew by 9% YoY to Rs1.9bn and adjusted net profit by 11% YoY to Rs1.4bn.
OPM in H1FY11 contracted to 20.9% from 22.9% in H1FY10.
Financial leverage: With a total debt of Rs3,491mn the company has Debt/Equity ratio
of 0.2x.
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