Buy Prakash Industries - Elara Capital

• Rating : Buy
• Target Price : INR245
• Upside : 42%
• CMP : INR173 (as on 28 May 2010)

Powering ahead

Impressive performance continues

Prakash Industries (PKI) reported 44.5% YoY growth in revenues on the back of strong volume growth and improvement in realizations. The revenues in QoQ increased 28.9%. The EBITDA for the quarter stood at INR 990mn indicating an increase of 27% YoY and 12.4% QoQ. The adjusted PAT for the quarter improved 64.2% YoY and 14.5% QoQ to INR 763mn.

For the full year FY10, the EBITDA increased 18.3% to INR3,571mn as compared to INR3,019mn in FY09. The EBITDA increased mainly on account of higher volume sales as well as improved realizations during the year. The adjusted PAT for FY10 stood at INR 2,708mn as compared to INR2,001mn in FY09. Higher EBITDA and lower interest expenses accounted for the improvement in the PAT for the company. PKI has reduced its debt burden to INR1,020mn at the end of FY10 from INR2,593mn which has cut interest expenses during the year by 58%.

Operational highlights

• Finished steel sales in Q4FY10 up 28.7% to 142,761 tonnes.
• Ferro alloys sales in Q4FY10 surged by 56.7% to 9,477 tonnes.

Continue to maintain BUY with a target price of INR245

As the management is anticipating delays in the start of iron ore mining, we have reduced our estimates to give effect for these delays. But we remain confident on the EBITDA margin expansion due to higher sponge iron and billet production, benefits from the power plant in FY11 and iron ore integration from FY12 onwards. We maintain our BUY rating on the stock with a target price of INR 245/share. Our valuation is based on 5x EV/EBITDA for FY11 for steel business and has considered only 35% of the DCF value for the merchant power business as the timeline for the commissioning of the entire project is still some time away.

Source : Equity Bulls

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