Prakash Industries: Strong operational performance leads the growth story

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Prakash Industries Q1FY19 Results

Key Highlights

  • Company achieved highest ever quarterly sales volume of around 2.4 lac tons (+26% YoY)
  • Net sales grew 36% YoY to Rs. 985 crores
  • EBITDA grew 121% YoY to Rs. 242 crores, EBITDA margin expanded by 940 bps to 24.5%
  • PAT for the company grew by 184% YoY to Rs. 169 crores, PAT margins expanded by 636 bps YoY to 10.8%.
  • Realisation per ton during the quarter stood at ~ Rs. 37,300/t whereas consolidated EBITDA/t from steel and power business stood at ~ Rs. 9,500/t.

Result

Key Insights and likely impact

  • The growth in profitability was on the back of better sales realization (Rs. 37,200/t), higher volumes (2.4 Lac tons), and major cost savings through operational savings.
  • Company is operating at ~ 88% of its capacity, capacity utilization to go above 90%
  • Company is in process of obtaining final approval for commencing operations in Iron ore mine in Orissa having annual production capacity of 0.5 million ton, ~20% of its iron ore need.
  • Company is on track of expanding its sponge iron capacity upto 1.4 Mn tons by Mar’19. It plans to expand steel making shop capacity also in future.
  • The company has successfully commissioned Flexible Packaging plant to manufacture high performance barrier films and laminates.
  • The company has received consent from key stakeholders for demerging its PVC Pipes & Fittings business

Way forward

  • Higher capacity utilization to boost the revenues
  • Captive sourcing of iron ore mines to decrease iron ore cost for the company as ~20% of iron ore needs will be sourced from captive mines
  • Replacement of old furnaces by new ones to improve productivity and reduce power costs
  • Demerger of PVC business to prove value unlocking for the business as Steel business margins are higher than the PVC business
  • Company to increase steel melting shop capacity in phased manner once sponge iron plant capacity is increased.

How it fares among the peers?

Peers

The company is trading at EV/EBITDA of 5.5x FY18 and a P/E of 6.5x FY18 which is lowest among the peers.

Prakash Industries (CMP Rs. 160, M Cap 2,508 crores, EV/EBITDA 5.5x FY18)

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