Recommendation From Iron & Steel/Interm. Products Sectors

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon 

STEEL YOUR GAINS WITH PRAKASH INDUSTRIES 

BSE Code: 506022
CMP: Rs 91.25
FV: Rs 10
BSE Volume: 84,160 

HERE IS WHY
Positive financial performance
Good growth prospects
Improving operational efficiencies
 

Prakash Industries (PIL) is one of the largest integrated steel manufacturers in India. It operates across diverse segments such as power and steel, mining, PVC pipes, packaging and wind power. It has established facilities to manufacture wire rods, HB wires, TMT bars, structurals, PVC pipes & fittings and flexible packaging. 

On the standalone front, the total income from operations stood at Rs 1,025.81 crore in Q3FY19 as against Rs 725.97 crore in Q3FY18, posting a growth of 41.30 per cent. EBITDA rose to Rs 206 crore in Q3FY19 from Rs 152 crore in Q3FY18, registering an increase of 35 per cent. Net profit climbed to Rs 141.32 crore in Q3FY19 in comparison to Rs 101.35 crore in Q3FY18, thereby rising 39.44 per cent. Consequently, EPS soared to Rs 8.64 in Q3FY19 from Rs 6.68 in Q3FY18, thereby surging 29.34 per cent. On an annualized basis, the nine-month EPS works out to be Rs 36.56. During the nine months ended December 2018, PIL registered net sales of Rs 2,962 crore, posting a YoY growth of 46 per cent. The EBITDA for the period was recorded at Rs 639 crore, reflecting a YoY growth of 66 per cent. The net profit of the company jumped by 89 per cent YoY to Rs 439 crore. In FY17-18, the company registered Return on Equity (RoE) of 14.11 per cent, Return on Capital Employed (RoCE) of 14.09 per cent and Return on Assets (RoA) of 9.92 per cent. Total debt/equity stood at 0.26x and EV/EBITDA multiple stood at 5.58x. 

The quarter ended December 2018 is a milestone quarter as the company crossed the Rs 1,000 crore net sales mark for the first time ever. The quarterly sales volume of 2,57,484 tonnes registered a growth of 22 per cent YoY. The higher capacity utilisation and operational efficiencies triggered by modernisation and enhancement initiatives were responsible for the improvement in performance. 

Towards the end of the present quarter, the company will finish its sixth sponge iron rotary kiln project, which will result in additional capacity creation of 2 lakh tonnes per annum along with 15 MW waste heat power co-generation. Furthermore, it received stage-I approval for diversion of revenue forest land for its Sirkaguttu iron ore mine in Odisha. Upon receiving final clearances, PIL is likely to commence mining operations in the ongoing quarter. 

During the nine months ended December 2018, the sales volume of PVC pipes business registered a growth of 12 per cent YoY. On the back of rising demand and realisation in finished steel, PIL has modernized its fourth rolling mill at Raipur, Chhattisgarh. This was done with the hope of enhancing the production of value-added products like wire rods. The steel prices have risen worldwide since last fortnight. Thus, the company too raised its steel prices by more than Rs 3,000 per tonne, which is nearly 8 per cent more than the previous price. 

Overall, the government's thrust on agriculture and infrastructure development through initiatives like Housing for All by 2020 bodes well for the steel industry and the company as a consequence. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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