prakash industries 4q fy 2013

7/30/2019 Prakash Industries 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Quarterly Highlights (Standalone)

Particulars (` cr) 4QFY13 4QFY12 yoy (%) 3QFY13 qoq (%)

Net sales 602 630 (4.3) 605 (0.5)

EBITDA 80 107 (25.0) 65 24.0

EBITDA margin (%) 13.3 17.0 (368)bp 10.7 263bp

Net profit 39 76 (48.9) 21 82.2

Source: Company, Angel Research

Prakash Industries (PIL) reported a 48.9% yoy decline in profitability however

given cheap valuations we recommend a Buy rating on the stock.

Lower realizations dents top line: For 4QFY2013, PIL’s net sales declined by

4.3% yoy to ` 602cr mainly on account of lower realizations partially offset by

higher volumes. Sales volumes of structural steel/TMT and wire rods increased by

72.2% and 11.9% yoy to 55,749 tonne and 90,580/tonne, respectively. However,

average realizations of structural steel and basic steel segment declined by 8.1%

and 6.3% yoy respectively.

High costs dent PIL’s profitability: Raw material costs as a percentage to sales

increased to 66.2% compared to 65.4% in 4QFY2013. The EBITDA margin

slipped by 368bp yoy to 13.3% and EBITDA decreased by 25.0% yoy to ` 80cr.

Hence higher interest and depreciation costs led to the company posting a declineof 48.9% yoy to ` 39cr in 4QFY2013.

Outlook and valuation: PIL has slowed down its power expansion plans;

nevertheless, we expect PIL’s EBITDA to witness a modest growth beginning

FY2015 once the benefits of increased capacities of sponge iron and power

commence meaningful production. Moreover, PIL is currently trading at

inexpensive valuations of 3.6x and 3.3x FY2014E and FY2015E EV/EBITDA,

respectively. On P/BV basis, it is trading at 0.2x and 0.2x FY2014E and FY2015E,

respectively. Hence, we recommend a Buy rating on the stock with a target price

of ` 45, valuing the stock at 3.5x FY2015E EV/EBITDA.

Key financials (Standalone)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015E

Net sales 2,107 2,511 2,615 2,776

% chg 26.6 19.2 4.1 6.2

Adj. net profit 268 165 143 152

% chg 0.4 (38.5) (13.1) 6.0

EPS (`) 18.4 11.3 9.8 10.4

EBITDA margin (%) 17.4 13.0 12.1 12.0

P/E (x) 2.0 3.2 3.7 3.5

P/BV (x) 0.2 0.2 0.2 0.2

RoE (%) 14.6 8.1 6.5 6.5RoCE (%) 10.7 7.2 6.4 6.5

EV/Sales (x) 0.6 0.5 0.4 0.4

EV/EBITDA (x) 3.6 3.6 3.6 3.3


BUYCMP ` 36

Target Price ` 45

Investment Period 12 months

Stock Info

Sector

Bloomberg Code PKI@IN

Shareholding Pattern (%)

Promoters 46.5

MF / Banks / Indian Fls 3.8

FII / NRIs / OCBs 2.6 Indian Public / Others 47.2

Abs. (%) 3m 1yr 3yr

Sensex 1.8 23.4 19.6

Prakash Ind. (6.8) (20.4) (78.7)

10

19,674

5,967

PRKI.BO

482

1.1

64/32

92,542

782

Steel

Avg. Daily Volume

Market Cap ( ` cr)

Beta

52 Week High / Low

Net Debt ( ` cr)

Face Value ( ` )

BSE Sensex

Nifty

Reuters Code

Bhavesh Chauhan

Tel: 022- 3935 7800 Ext: [email protected]

Vinay Rachh

Tel: 022- 39357600 Ext: 6841

[email protected]

Prakash Industries

Performance highlights

4QFY2013 Result Update | Steel

May 23, 2013



Prakash Industries | 4QFY2013 Result Update

May 23, 2013 2

Exhibit 1: 4QFY2013 performance (Standalone)

(` cr) 4QFY13 4QFY12 yoy % 3QFY13 qoq % FY2013 FY2012 yoy %

Net sales 602 630 (4.3) 605 (0.5) 2,511 2,107 19.2

Raw material 399 412 (3.2) 435 (8.3) 1,737 1,394 24.6% of net sales 66.2 65.4 71.8 69.2 66.1

Staff cost 37 30 21.5 25 44.8 111 89 24.1

% of net sales 6.1 4.8 4.2 4.4 4.2

Other expenditure 87 80 7.6 80 7.8 337 258 30.4

% of net sales 14.4 12.8 13.3 13.4 12.3

Total expenditure 522 522 (0.1) 540 (3.4) 2,185 1,741 25.5

% of net sales 86.7 83.0 89.3 87.0 82.6

Operating profit 80 107 (25.0) 65 24.0 326 366 (10.8)

OPM(%) 13.3 17.0 10.7 13.0 17.4

Other operating income 0 0 0 0 0

EBIDTA 80 107 (25.0) 65 24.0 326 366 (10.8)

EBITDA margins (%) 13.3 17.0 10.7 13.0 17.4

Interest 15 6 132.8 15 (3.2) 55 14 299.2

Depreciation 27 24 15.9 28 (1.5) 106 78 35.9

Other income 1 0 377.3 0 517.6 2 2 0.0

Exceptional items - - - - -

Profit before tax 39 77 (49.4) 22 79.6 167 276 (39.5)

% of net sales 6.5 12.3 3.6 6.6 13.1

Tax 0.3 (1) (121.0) 0 (43.2) 2 8 (73.4)

% of PBT 0.6 (1.5) 2.0 1.3 2.9

Adj. Net income 39 76 (48.9) 21 82.2 167 276 (39.5)

% of net sales 6.5 12.1 3.5 6.6 13.1

EPS (`) 2.7 5.2 (48.9) 1.5 82.2 12.3 19.9 (38.5)





May 23, 2013 3

Result highlights

Lower realizations dents top line

For 4QFY2013, PIL’s net sales declined by 4.3% yoy to ` 602cr mainly onaccount of lower realizations partially offset by higher volumes. Sales volumes of

structural steel/TMT and wire rods increased by 72.2% and 11.9% yoy to 55,749

tonne and 90,580/tonne, respectively. The average realizations of structural steel

and basic steel segment declined by 8.1% and 6.3% yoy respectively.

Exhibit 2: Production volumes

(tonnes) 3QFY2012 4QFY2012 1QFY2013 2QFY2013 3QFY2013 4QFY2013

Sponge iron 116,227 123,595 137,859 134,978 147,406 154,252

Basic steel 92,958 138,271 143,993 151,290 152,628 144,891

Structural steel4,300 33,198 42,545 42,210 51,044 57,257

Wire rod 71,056 80,985 95,486 96,737 89,654 91,482

Ferro alloy 10,126 10,733 10,481 10,561 10,652 11,440

Power (mnunits)

223 224 232 213 213 199


Exhibit 3: Sales volumes


Basic steel 29,310 31,665 13,180 20,326 15,055 872

Structural steel2,771 32,380 42,002 40,672 49,250 55,749

Wire Rod 68,906 80,980 94,515 94,848 88,983 90,580

Silico Manganese 8,534 8,457 7,830 7,488 7,818 16,864


Exhibit 4: Gross realisation


Basic steel 33,593 35,296 36,859 34,635 32,547 35,206

Structural steel 39,841 41,086 42,619 38,557 38,146 37,769

Wire Rod 39,159 40,369 42,943 40,409 38,513 37,827

Silico Manganese 54,523 54,047 61,545 67,121 61,077 30,319


High input costs dent EBITDA margin

Raw material costs as a percentage to sales increased to 66.2% compared to

65.4% in 4QFY2013. The EBITDA margin slipped by 368bp yoy to 13.3% and

EBITDA decreased by 25.0% yoy to ` 80cr. Interest expenses stood at ` 15cr

compared to ` 6cr in 4QFY2012 and depreciation expenses also increased by

15.9% yoy to ` 27cr. Hence, the net profit decreased by 48.9% yoy to ` 39cr in

4QFY2013.




May 23, 2013 4

Exhibit 5: EBITDA margin trend


Exhibit 6: Net profit trend


Investment rationale

Expanding steel capacity to address imbalance and enhance integration

levels: Currently, PIL sources ~30% of its sponge iron requirement from third

parties. In its bid to reduce this dependence on external parties, PIL is

expanding its sponge iron capacity from 0.8mn tonne to 1.0mn tonne, the

benefits of which will be realized in FY2015.

Captive iron ore production to aid margin growth: During 2QFY2011, PIL had

received the mining plan approval for its Sirkaguttu iron ore mine in Odisha.

The company will steadily move towards a fully integrated business model with

the grant of new iron ore and coal mines along with the existing Chotia coal

mine, thus improving its margin drastically. However, given the slow-moving

regulatory procedures, we have not factored the benefits from this mine in our

model yet.

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May 23, 2013 6

Exhibit 9: P/BV band

Source: Bloomberg, Angel Research

Exhibit 10: Recommendation summary

Companies CMP Target Price Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

(`) (`) (` cr) (%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E

Sarda Energy 105 153 Buy 376 46 3.4 2.9 0.4 0.3 3.1 2.5 11.8 12.4 12.3 12.8

GPIL 82 118 Buy 260 44 2.5 1.8 0.3 0.2 3.7 2.9 11.2 13.1 11.6 12.5

PIL 36 45 Buy 482 24 3.7 3.5 0.2 0.2 3.6 3.3 6.5 6.5 6.4 6.5

Monnet Ispat 174 291 Buy 1,115 67 4.3 3.0 0.4 0.4 5.8 4.3 10.1 13.0 7.9 9.9


Company background

PIL manufactures steel, ferro alloys and PVC pipes. During FY2012, 86% of its

revenues were derived from steel and power. PIL’s steel capacity of 0.7mn tpa is

backed by a captive sponge iron capacity (0.8mn tpa). Its finished product

portfolio includes wire rods (0.45mn tpa), structural/TMT bars (0.3mn tpa) and

silico manganese (48k tpa). The company has a captive thermal coal mine for

making sponge iron while it is in the process of obtaining various approvals for

another coal mine (to feed upcoming power plants) and an iron mine.

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May 23, 2013 7

Profit & Loss Statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

Net sales 1,568 1,664 2,107 2,511 2,615 2,776

Other operating income - - - - - -Total operating income 1,568 1,664 2,107 2,511 2,615 2,776

% chg 2.8 6.2 26.6 19.2 4.1 6.2

Total expenditure 1,211 1,324 1,741 2,185 2,297 2,441

Net raw materials 891 1,007 1,394 1,737 1,833 1,949

Other mfg costs 195 188 258 337 268 284

Personnel 68 78 89 111 99 105

Other 57 51 - - 97 103

EBITDA 357 341 366 326 317 334

% chg 20.0 (4.6) 7.4 (10.8) (2.8) 5.4

(% of Net sales) 22.8 20.5 17.4 13.0 12.1 12.0

Depreciation 57 67 78 106 112 117

EBIT 300 273 287 220 205 217

% chg 17.7 (9.0) 5.2 (23.5) (6.6) 5.6

(% of Net sales) 19.2 16.4 13.6 8.8 7.9 7.8

Interest charges 25 6 14 55 61 64

Other income 3 9 2 2 2 3

(% of PBT) 1.1 3.2 0.9 1.5 1.7 1.7

Share in profit of asso. - - - - - -

Recurring PBT 278 276 276 167 147 156

% chg 39.9 (0.6) (0.1) (39.5) (12.0) 6.0

Extra. Inc/(Expense) (3) (2.7) - - - -

PBT (reported) 275 274 276 167 147 156

Tax 7 7 8 2 4 4

(% of PBT) 2.6 2.4 2.9 1.3 2.5 2.5

PAT (reported) 268 267 268 165 143 152

Add: Earnings of asso. - - - - - -

Less: Minority interest - - - - - -

Extra. Expense/(Inc.) (1.9) - - - - -

PAT after MI (reported) 266 267 268 165 143 152

ADJ. PAT 271 267 268 165 143 152

% chg 36.7 (1.4) 0.4 (38.5) (13.1) 6.0(% of Net sales) 17.3 16.0 12.7 6.6 5.5 5.5

Basic EPS (`) 23.2 20.9 19.9 12.3 10.7 11.3

Fully Diluted EPS (`) 20.1 18.3 18.4 11.3 9.8 10.4

% chg 17.4 (9.1) 0.4 (38.5) (13.1) 6.0




May 23, 2013 8

Balance Sheet (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

SOURCES OF FUNDS

Equity Share Capital 122 134 134 134 134 134Reserves & Surplus 1,244 1,584 1,824 1,989 2,132 2,284

Shareholders Funds 1,366 1,719 1,958 2,123 2,266 2,418

Share Warrants 65 - - - - -

Minority Interest - - - - - -

Total Loans 230 621 874 924 914 904

Deferred Tax Liability 77 80 81 81 81 81

Long Term Provisions - 11 13 13 13 13

Total Liabilities 1,738 2,431 2,925 3,140 3,273 3,415

APPLICATION OF FUNDS

Gross Block 1,783 1,826 2,497 2,647 2,807 2,957

Less: Acc. Depreciation 708 766 885 991 1,103 1,220

Net Block 1,075 1,060 1,612 1,656 1,704 1,737

Capital Work-in-Progress 303 912 842 892 942 992

Long Term loans and adv. - 308 313 313 313 313

Goodwill - - - - - -

Investments 2 27 50 50 50 50

Current Assets 523 352 359 498 536 599

Cash 102 63 50 212 236 282

Loans & Advances 237 40 38 38 38 38

Other 184 249 272 247 262 278

Current liabilities 180 228 252 269 272 276

Net Current Assets 342 124 108 229 264 323

Mis. Exp. not written off 16 - - - - -

Total Assets 1,738 2,431 2,925 3,140 3,273 3,415




May 23, 2013 9

Cash flow statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

Profit before tax 266 267 268 167 147 156

Depreciation 57 67 76 106 112 117Change in working capital (4) (148) 47 41 (12) (13)

Less: Other income (26) 4 11 - - -

Direct taxes paid 24 47 99 2 4 4

Cash flow from operations 270 143 302 313 243 256

(Inc.)/ Dec. in fixed assets (320) (622) (515) (200) (210) (200)

(Inc.)/ Dec. in investments 0.9 (25) (23) - - -

(Inc.)/ Dec. in loans and adv. - - 2 - - -

Other income 1.8 (32) (9) - - -

Cash flow from investing (317) (679) (545) (200) (210) (200)

Issue of equity - - - - - -

Inc./(Dec.) in loans 118 497 245 50 (10) (10)

Dividend paid - - 15 - - -

Others - - - - - -

Cash flow from financing 118 497 230 50 (10) (10)

Inc./(Dec.) in cash 70 (39) (13) 163 23 46

Opening cash bal. 31 102 63 50 212 236

Closing cash bal. 102 63 50 212 236 282




May 23, 2013 10

Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

Valuation ratio (x)

P/E (on FDEPS) 1.8 2.0 2.0 3.2 3.7 3.5P/CEPS 1.3 1.4 1.4 1.8 1.9 1.8

P/BV 0.3 0.3 0.2 0.2 0.2 0.2

Dividend yield (%) - - - - - -

EV/Sales 0.4 0.6 0.6 0.5 0.4 0.4

EV/EBITDA 1.7 3.1 3.6 3.6 3.6 3.3

EV/Total assets 0.4 0.4 0.4 0.4 0.4 0.3

Per share data (`)

EPS (Basic) 23.2 20.9 19.9 12.3 10.7 11.3

EPS (fully diluted) 20.1 18.3 18.4 11.3 9.8 10.4

Cash EPS 26.9 24.9 25.8 20.2 19.0 20.0

DPS - - - - - -

Book value 117.6 127.8 145.6 157.9 168.5 179.8

DuPont analysis

EBIT margin 19.2 16.4 13.6 8.8 7.9 7.8

Tax retention ratio (%) 97.4 97.6 97.1 98.7 97.5 97.5

Asset turnover (x) 1.1 0.8 0.8 0.9 0.9 0.9

RoIC (Post-tax) 19.6 13.3 10.7 7.5 6.7 6.9

Cost of debt (post tax) 10.1 1.3 1.8 6.1 6.5 6.9

Leverage (x) 0.1 0.3 0.4 0.3 0.3 0.2

Operating RoE 20.4 17.0 14.1 7.9 6.8 6.9

Returns (%)

RoCE (Pre-tax) 19.3 13.1 10.7 7.2 6.4 6.5

Angel RoIC (pre-tax) 24.6 19.6 16.5 10.8 9.9 10.2

RoE 21.5 17.0 14.6 8.1 6.5 6.5

Turnover ratios (x)

Asset turnover (gross block) 0.9 0.9 1.0 1.0 1.0 1.0

Inventory (days) 21 29 30 30 30 30

Receivables (days) 22 18 15 15 15 15

Payables (days) 37 27 11 11 11 11

WC cycle (days) 51 33 10 5 3 5

Solvency ratios (x)Net debt to equity 0.1 0.3 0.4 0.3 0.3 0.2

Net debt to EBITDA 0.4 1.6 2.1 2.0 2.0 1.7

Interest coverage 11.8 47.9 20.7 4.0 3.4 3.4




May 23 2013 11

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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risks of such an investment.

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Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

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fundamentals.

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Disclosure of Interest Statement Prakash Industries

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

prakash industries 4q fy 2013

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