Buy Prakash Industries; target of Rs 163: Sushil Finance

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Buy Prakash Industries; target of Rs 163: Sushil Finance

Sushil Finance is bullish on Prakash Industries and has recommended buy rating on the stock with a target of Rs 163 in its August 16, 2011 research report.

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Sushil Finance is bullish on Prakash Industries and has recommended buy rating on the stock with a target of Rs 163 in its August 16, 2011 research report.

"During the quarter ended Q1FY12, Prakash Industries Revenue is up by 7.3% YoY and 25.8% QoQ to Rs.4985.4 Mn. The company's finished steel production volume has seen de-growth of 6.1% YoY to 115,430 tonnes and the ferro alloy by 14.7% YoY to 9,814 tonnes. However on a QoQ basis the finished steel production is up by 29.7% while the ferro alloy production is flat. The company has reported a sequential growth in sales volume of 28.9% to 114,800 tonnes. Wire Rod sales volume has increased by 19.7% QoQ to 91,000 tonnes, while the TMT sales volume has almost doubled on a QoQ basis to 23,800."

"The company had witnessed exceptionally low demand in Q3FY11 which was prevalent till Jan-2011; however things seem to have improved from the month of February-11 for the company, visible from the sequential growth. The company has now resumed the production of TMT structural on full scale. The Wire Rod sales realization was up 21% YoY and 3% QoQ to Rs.34000/tonne. The TMT realization for the quarter stood at Rs.32300/MT vs Rs.28100/MT of Q1FY11. According to the management the realizations and raw material cost seemed to have stabilized since the last 2-3 months. Its Operating Profit is down by 2.3% YoY to Rs.907.1 Mn."

"However on a QoQ basis the operating profit is up by 6.7%. Its Operating Profit Margin stands at 18.2% which is down by 180bps YoY and 320bps QoQ. Relatively lower margin is mainly because of higher raw material prices. The iron ore cost for the quarter has increased by ~35% YoY and 8% QoQ to Rs.7000/tonne. PIL's Net Profit is up by just 2% YoY to Rs.711 Mn in Q1FY12. It's Net Profit Margin has decreased by 70bps YoY and 390 bps QoQ to 14.3%. Its other income has decreased by 70.5% YoY and 90.5% QoQ to Rs.5.2Mn as there were no sales of unused iron ore fines during the quarter."

"The company is on track for its fully integrated steel operations. We have assumed 100% captive sponge iron consumption as the company's sponge iron expansion is well on track. The company's Orissa iron ore mine is getting delayed due to clearance issues. This mine is yet to obtain environment and forest clearance, while the Chattisgarh iron ore mine has still not received approval for the mining plan. We have not considered captive iron ore sourcing in our FY13 numbers as well till any further clearance is obtained. We maintain our BUY rating on the stock with a target price of Rs 163," says Sushil Finance research report.

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