Buy Prakash Industries; target of Rs 124: Angel Broking

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Buy Prakash Industries; target of Rs 124: Angel Broking

Angel Broking is bullish on Prakash Industries (PIL) and has recommended buy rating on the stock with a target of Rs 124 in its February 11, 2011 research report.

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RELATED NEWS Buy Bhushan Steel; target of Rs 516: Anand Rathi Securities Buy Monnet Ispat; target of Rs 697: PINC Research Sell Jindal Steel; target of Rs 570/560: Aditya Birla Money ALSO READ See previous views by Angel Broking See what other Experts & Brokerages are saying about Prakash Ind See messages about Prakash Ind Prakash Ind BSE | NSE 31/05/12 Are Mutual Funds betting on Prakash Ind?

Angel Broking is bullish on Prakash Industries (PIL) and has recommended buy rating on the stock with a target of Rs 124 in its February 11, 2011 research report.

"Prakash Industries (PIL) reported a 6.1% yoy increase in net sales to Rs 382 crore for 3QFY2011 due to higher realisations and power and sponge iron sales. In December 2010, PIL sold 15MW of power to CSEB at Rs 3.15/unit. During 3QFY2011, PIL sold 11kt of sponge iron (nil in 3QFY2010). Billet sales increased by 17.3% to 13kt, while wire rod sales declined by 6.6% yoy to 99kt. Average net realisations for sponge iron, billet and wire rod stood at Rs 17,900, Rs 24,000 and Rs 27,000, respectively."

"Raw-material cost during the quarter increased by 22.5% yoy to Rs 239 crore due to higher iron ore cost, which stood at Rs 5,500/tonne. Consequently, EBITDA margin contracted by 569bp yoy to 18.8% and EBITDA fell by 18.6% yoy to Rs 72 crore. Depreciation increased by 22.7% yoy to Rs 17 crore on account of commissioning of new units; however, interest expense declined by 84.5% yoy to Rs 1 crore. Thus, net income fell by 17.6% yoy to Rs 54 crore. PIL has delayed the commissioning of the first 125MW unit (5x25MW) to June 2011 (earlier January 2011). The 0.2mn-tonne sponge iron expansion has also been delayed by three months to June 2011, whereas billet expansion has been put on hold."

"PIL is currently trading at 4.1x and 3.5x FY2011E and FY2012E EV/EBITDA, respectively. With increased sponge iron and power capacities, we expect EBITDA to witness strong growth over the coming five years. Furthermore, given the steep decline in the stock price, we maintain our Buy recommendation on the stock with a revised target price of Rs 124 (Rs 205), valuing the stock at 4.5x FY2012E EV/EBITDA. A key catalyst for the stock would be commencement of mining operations at the company's Orissa mine," says Angel Broking research report.

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To read the full report click on the attachment