Buy Prakash Industries - Motilal Oswal

PRAKASH INDS 3QFY11: Margins compressed, but back on track; 125MW power & 200ktpa DRI to drive growth; Buy

Net sales declined 9% QoQ (up 6% YoY) to Rs3.8b due to 14% QoQ drop in steel volumes.

EBITDA declined 21% QoQ to Rs717m due to higher raw material costs and lower saleable steel volumes. EBITDA per ton declined 16% QoQ to Rs5843/ton.

Billet sales declined 29% QoQ to 13,006 tons. Gross realization of billet however increased 2.2% QoQ to Rs26,465/ton.

Sponge iron production increased 10% QoQ to 114,354 tons (up 40% YoY) as third DRI kiln has been stabilized successfully in last quarter.

Expansion plans in power remains on track. Commissioning of 125MW power plant is expected to get completed by end 1QFY12.

Over FY10-13, we expect 20% earnings CAGR on successful commissioning of 125MW power plant and partial raw material integration. The stock trades at attractive PE of 2.7x FY12E, EV/EBITDA of 2.9x FY12E, and P/BV of 0.7xFY11 and 0.5x FY12. Maintain Buy.

Source : Equity Bulls

Keywords