Prakash Industries :: TP: INR99 Buy :Motilal Oswal

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Prakash Industries 3QFY12 results were in-line; Greater focus on sponge iron and power sales boosts earnings
 Prakash Industries’ 3QFY12 Adj PAT grew 20% QoQ to INR668m (v/s est INR668m) due to stronger market for
sponge iron and power. EBITDA at INR910m was also broadly in line with our estimate of INR956m.
 Sponge iron realization increased 9% QoQ. PKI sold more sponge iron and power at the cost of steel production
to capitalize on stronger market.
 PKI has entered into a contract with Andhra Pradesh SEB for sale of 27MW power at an average rate of INR3.75/
kwh for next 5 months. Another 40MW capacity will be available for external sales after stabilization of all the
units.
 New Fe-Mn capacity of 24ktpa is being planned in FY13 at a capex of INR600m to leverage on enhanced power.
 Steel production is now being optimized to gain from improved market.
 Stock trades at very attractive FY13E P/E of 2.5x, EV/EBITDA of 2.7x, and P/BV of 0.3x. Maintain Buy.

Buy Prakash Industries :: 2QFY2012 Result Update :: Angel Broking

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Higher realization drives top-line growth: For 2QFY2012, PIL’s net sales grew by
8.8% yoy to `458cr mainly on account of higher realization across product
categories, partially offset by the decline in sales volumes. Gross realization of
basic steel and wire rods increased by 26.1% yoy each. Basic steel sales volumes
increased by 55.1% yoy to 27,923 tonnes, while wire rod sales volumes
decreased by 28.9% yoy to 78,969 tonnes in 2QFY2012.
High input costs dents PIL’s profitability: Raw-material costs increased by 21.8%
yoy to `306cr on the back of increased input costs, mainly iron ore.
Consequently, EBITDA margin slipped by 483bp yoy to 16.8% and EBITDA
decreased by 15.5% yoy to `77cr. Interest expenses grew by 573.0% yoy to
`2cr. Hence, net profit decreased by 22.7% yoy to `55cr in 2QFY2012.
125MW power plant delayed again: PIL has delayed the commissioning of the
first 125MW unit (5x25MW) to 4QFY2012 (earlier December 2011). On account
of slow-moving regulatory hurdles, the company’s Fatehpur coal mine could take
longer time than the company’s anticipation.
Outlook and valuation: While PIL has slowed down its power expansion plans, we
expect PIL’s EBITDA to witness strong growth once the benefits of increased
capacities of sponge iron and power commence production. PIL is currently
trading at inexpensive valuations of 3.0x and 2.6x FY2012E and FY2013E
EV/EBITDA, respectively. On P/B basis, it is trading at 0.3x each on FY2012E and
FY2013E, respectively. We maintain our Buy recommendation on the stock with a
revised target price of `61, valuing the stock at 2.9x FY2013E EV/EBITDA.

Buy Prakash Industries ::Motilal Oswal

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 Prakash Industries' adjusted 2QFY12 PAT declined 22% QoQ to INR555m; below estimate of INR687m on lower
steel sales volume on account of sluggish demand. EBITDA at INR769m was below our estimates of INR935m while
EBITDA/ton at INR7140/ton were in line with our estimates.
 Revenues declined 8% QoQ to INR4.6b due to lower steel volumes and flat realizations. Crude steel production
decreased 14% QoQ to 99,358 tons as company stopped buying external power for billet production.
 Commissioning of 125MW power plant has started in phases. Two units aggregating 50MW are already operational
and are running at 90% PLF since October. Though the merchant rates have improved, the margins are still thin due
to high cost of purchased coal. Remaining 75MW is expected to be commissioned by January 2012.
 Further capex for next phase of 200MW is being slowed down in order to time it with opening of captive coal mine.
Forest clearance is still awaited and it will take another 2-3 years for mines to be operational. Steel expansion is also
being slowed down due to sluggish demand; utilization from existing facility is low.
 Over FY11-13, we expect earnings to remain flat on sluggish steel demand. Though 125MW power plants will
increase captive power generation, the margins remain thin due to high cost of purchased coal.
 The stock trades at attractive FY12E 2.4x P/E, 3.4x EV/EBITDA and 0.3x P/BV. Maintain Buy.

52-Week Flop: Prakash Industries :Business Line,

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The shares of steel and merchant power producer Prakash Industries has been hammered by 62 per cent over the last one year amidst allegations of misappropriating coal meant for captive use. Higher raw material costs too have taken their toll on the business .

The company operates in three segments: Steel, Power and PVC Pipes. Steel is the company's largest segment by sales with power being a distant second followed by PVC pipes .

Power contributed 82 per cent of the company's profits during the nine months ended December 2010. Unlike the captive coal advantage on the power front, the company enjoys few cost advantages over peers on the Steel and PVC pipes front. These businesses accounted for around 12 and five per cent of operating profits respectively during the same period.

The company's sales during the nine months ended December 2010 rose by 17 per cent to Rs 1,388 crore, while net profit growth remained almost mute at Rs194 crore due to higher raw material costs. This crimped the company's operating margins by three percentage points to 20.2 per cent. This condition was exacerbated during the quarter ended December 2010 as sales rose by eight per cent and net profits sank by 18 per cent. Other factors which have dampened investor sentiment over the last one year are delays and cost-over runs in commissioning 625-MW power and iron ore mines.

PRAKASH INDUSTRIES , Target- 119, BUY: Anand Rathi

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Investment Rationale
• Capacity enhancement improves future outlook
- Steel Capacity Enhancement
- Power Capacity Enhancement
• Internal source of raw material will help to improve
profitability
• Strong Financials y-o-y and q-o-q

Buy Prakash Industries: Growth outlook intact -Motilal Oswal

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Growth outlook intact
 Prakash Industries (PKI) has emerged as an integrated steel producer through its
focus on backward integration over the last 8-10 years. It has a steelmaking capacity
of 0.7mtpa, backed by 0.6mtpa sponge iron units and 112MW of captive power.
Most of the crude steel it produces is converted into value-added products such
as structural/TMT (capacity of 0.3mtpa) and wire rods (capacity of 0.45mtpa).
 PKI is setting up a 625MW thermal power plant at a capex of Rs25b in phases as
part of its Rs33b modular expansion in steel and power. The first phase of 125MW
is expected to get commissioned by the end of 1QFY12. Its steel operations
require ~130MW of power; we expect ~70MW of power to be available for merchant
sale.
 BTG equipment for the next phases of 200MW and 300MW has already been
ordered. PKI expects the first unit of 100MW (of phase-II) to be commissioned in
June 2012 and rest 100MW by March 2013. We expect power generation to grow
at a CAGR of 84% to 386MU over FY11-13.
 The company has recently expanded its steel capacity from 550ktpa to 700ktpa
as part of its expansion to 1mtpa. However, it has temporarily delayed further steel
expansion due to current volatility in the steel market and delays in receiving iron
ore mining approvals. PKI has spent ~Rs350m out of the Rs1b steel capex.
 Sponge iron capacity is expected to increase to 0.8mtpa by 1QFY12 as the fourth
200ktpa DRI kiln is under commissioning. DRI production is likely to grow at a
CAGR of 22% over FY11-13 to 640k tons. This will help to reduce external purchase
of metallic further.
 PKI had applied for captive mine allocation in 2003 and received three coal mining
blocks and two iron ore mines. Its captive mines have reserves of 150mt of coal
and 85mt of iron ore. Its Chotia coal mine has been operational for the last four
years. It produces ~1m tons of coal per year, which is used by PKI's sponge and
power plants.
 Commissioning of its Madanpur coal mine is delayed due to the MoEF's "No-Go"
classification. Work on the Fatehpur mine (allotted for 625MW IPP) is on track.
Bank guarantees have been submitted and it is expected to start production in the
next 30 months.
 The company has applied for tapering coal linkage for the 625MW IPP, which is
expected to receive coal from March 2011. Currently, it has a captive power
generation capacity of 112MW and imports the rest of its power requirement from
the grid.
 Production from captive iron ore mines has been delayed by three quarters due to
procedural delays in Orissa and delays on account of stringent implementation of
environment and forest norms by MoEF.
 Though the mining plan for the Sirkaguttu (Orissa) mine has been approved, it will
take 5-6 months to start operations, subject to receipt of mining lease. We have
cut our FY12 iron ore integration assumption to just 30%. If we assume zero iron
ore integration for FY12, our EPS estimate will get downgraded further by 21% to
Rs21.2 from the current Rs27.


 PKI has planned the entire capacity addition schedule in such a way that it will be
able to execute it with internal accruals and modest debt. However, looking at the
existing difficult scenario in the steel market, we expect PKI to add ~Rs3b of debt,
which would take its peak debt to Rs7.8b (including FCCB) in FY12.
 PKI's earnings will be driven by margin expansion due to increased production of
sponge iron and topline growth on account of volume growth in the steel business
and sale of surplus power from its 625MW over five years. Early start of captive iron
ore mines will be a bonus, which will drive up margins significantly.
 We expect earnings to grow at a CAGR of 18% over FY10-13 on commissioning of
125MW power plant and partial raw material integration. The stock trades at 2.9x
FY12E EPS, 0.5x FY12E BV and at an EV of 2.9x FY12E EBITDA. Maintain Buy.

Angel Broking- Buy on Prakash Industries -Target Rs. 124.- 3QFY2011 Update

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  Prakash Industries – 3QFY2011 Result Update

           Angel Broking maintains a Buy on Prakash Industries with a Target Price of Rs. 124.

Higher realisation aid top-line growth: For 3QFY2011, Prakash Industries (PIL)

reported a 6.1% yoy increase in net sales to `382cr due to higher realisations and

power and sponge iron sales. In December 2010, PIL sold 15MW of power to

CSEB at `3.15/unit. During 3QFY2011, PIL sold 11kt of sponge iron (nil in

3QFY2010). Billet sales increased by 17.3% to 13kt, while wire rod sales declined

by 6.6% yoy to 99kt. Average net realisations for sponge iron, billet and wire rod

stood at `17,900, `24,000 and `27,000, respectively.

PRAKASH INDUSTRIES: Existing capacities and expansion projects: PINC

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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).

Prakash Industries:Motilal Oswal

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Prakash Industries (PKI IN; Mkt Cap USD0.5b, CMP Rs141, Buy)

Net sales declined 9% QoQ (up 12% YoY) to Rs4.2b, EBITDA declined 3% QoQ to Rs903m due to lower volumes , adjusted 2QFY11 PAT increased 1% QoQ to 

Rs709m.     

With consistent increase in volumes of saleable steel and excess power over FY10-14 and gradual increase in raw material integration, we believe Prakash is set to  

 outperform its peers in 12-18 months. The stock trades at a P/E of 5.4x FY12E and EV/EBITDA of 4.2x FY12E. Maintain Buy. 

PRAKASH INDUSTRIES In line performance:Edelweiss

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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.

Prakash Industries – 2QFY2011 Result Update Angel Broking

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Prakash Industries – 2QFY2011 Result Update

Angel Broking maintains a Buy on Prakash Industries with a revised Target Price of Rs205.

Another quarter of stellar performance: For 2QFY2011, Prakash Industries (PIL)

reported an 11.5% yoy increase in net revenue to `421cr. Sponge iron production

increased by 28.0% yoy and 9.4% qoq to 103,917 tonnes. Billet and wire rod

sales increased by 9.2% yoy and 9.4% yoy to 18,000 tonnes and 111,000

tonnes, respectively. Average gross realisations for billet and wire rod increased

by 17.7% yoy and 9.1% qoq to `25,545/tonne and `29,729/tonne, respectively.