Prakash Industries - 1QFY2013 Result Update - Angel Broking

We resume coverage on Prakash Industries Ltd (PIL). For 1QFY2013, PIL reported a 34.8% top-line growth; however, its operating margins declined mainly due to higher iron ore prices. Given the inexpensive valuation, we recommend a Buy rating on the stock.

Higher realizations drives top-line growth: For 1QFY2013, PIL's net sales grew by 34.8% yoy to Rs.672cr mainly on account of higher realization across product categories. The gross realization of basic steel and structural steel/TMT increased by 17.2% and 19.6% yoy to Rs.36,859/tonne and Rs.42,619/tonne, respectively.

High iron ore costs dent PIL's profitability: Raw material costs increased by 40.2% yoy to Rs.460cr due to increase in prices of input costs, mainly iron ore. Consequently, the EBITDA margin slipped by 356bp yoy to 14.6%; however, the EBITDA increased by 8.4% yoy to Rs.98cr. Interest expenses stood at Rs.13cr compared to Rs.0.3cr in 1QFY2012. Hence, the net profit decreased by 15.5% yoy to Rs.60cr.

Outlook and valuation: PIL has slowed down its power expansion plans; Nevertheless, we expect PIL's EBITDA to witness a strong growth from FY2014 once the benefits of increased capacities of sponge iron and power commence meaningful production. Moreover, PIL is currently trading at an inexpensive valuations of 3.7x and 2.5x FY2013E and FY2014E EV/EBITDA, respectively. On P/B basis, it is trading at 0.4x and 0.3x FY2013E and FY2014E, respectively. Hence, we recommend a Buy rating on the stock with a target price of Rs.73, valuing the stock at 2.7x FY2014E EV/EBITDA.

Source : Equity Bulls

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