Prakash Industries Ltd. (Prakash)

[VALUE2017]

One thing to add is HRC is flat product, where as prakash deals in long products.

[maven26]

Yes, as I mentioned Rebars landed cost is even higher than HRC. Given Rebars is good 400-500 yuan costlier than HRC. Rebars is at least 50K per ton if imported from China. Logistic cost not included (because I dont know the actual shipping cost).

[Mahendra243]

ED (dir_ed)

[maven26]

I am not defending Prakash here and believe this ED move is really a bad news for Prakash at least in short term or till the dust settles

But this ED move is against which CoalBlock case? The coal blocks which were cancelled by supreme courts? or is it a fresh issue? Asking because I never tracked these cases.

If it is old issue then whats going to come out of is really a question… I believe a case was filed against it in 2013-14 and nothing came out then… Is this case reopened on the fact that Supreme courts have pressed the investigating agencies on the issue or is there any substantial evidence found?

Nothing is known clearly today

[Shikhar]

e2b49468-7bb4-4fe2-9437-7a3b2697f9e2.pdf

-During Q3FY2019, the Company has achieved Net Sales of Rs.1026 Crores and EBITDA of Rs.206 Crores, reflecting growth of 41 % and 35% respectively over the corresponding
quarter of the last financial year

• PAT growth of 40 % , 140 cr vs 100 cr last year
  -The increase in the profitability is due to higher production volumes and operational efficiencies.

[sunilgct]

Prakash Industries …
11 year FCF = - 324 crores(Negative cash flow)
11 year profit = 2174 crores…

where is the money invested ? company generated 2174 crores in net profit and invested around 2500 crores , ?
where is the return on capital

Company has never paid dividend
Company has never buyback its shares
Share capital increased from 108 to 163 crores .

[narmad]

Pipes Demerger

Prakash Industries announced that the hearing of the scheme of arrangement between Prakash Industries and Prakash Pipes (demerger scheme of PVC pipes undertaking) was listed on 10 January 2019 before Hon’ble National Company Law Tribunal, Chandigarh.After the hearing , the order has been reserved by the Hon’ble bench.

[VALUE2017]

Free cash flow are after considering CAPEX, one will also have to check the CAPEX done and change in capacity during last 10 years.

One can observe the increases in sales during last 10 years, Price of steel is almost at the same level at it was in 2007-08, volume increase can come with only CAPEX

2007 932
2008 1,252
2009 1,523
2010 1,563
2011 1,658
2012 2,100
2013 2,510
2014 2,595
2015 2,830
2016 2,053
2017 2,174
2018 2,935
2019 4000 (Estimates)

[krups]

CAPEX for the last 10 years has been ~3346 Cr. However we can also see sales improving. I believe rather than looking at last 10 years, we should look at the picture post restructuring. ROCE is definitely low for this company but this has been improving recently.Cost of debt ~15% is quite high and even the improved ROCE is not even to even match this. So business doesn’t look attractive from ROCE .
Another major concern is the tax payment- Does anyone know till when will the company continue getting MAT credit, after that the profits would reduce by ~35%

Disc: Invested with next 2-3 year view

[manan1379]

supply disruption expected in pellets due to the incident in vale brazil

source https://www.steelmint.com/news/indian-pellet-export-prices-set-to-rise-on-vale-supply-disruption-reports-131118
https://www.bloomberg.com/news/articles/2019-01-30/global-iron-ore-market-convulsed-as-vale-flags-supply-disruption

[maven26]

[ffaizan]

Company consistently improving effeciencies and expanding. Also it has taken 3000 rs increase in prices. I think the promoter pledging and bad news weighs down on this stock. Though the company is having good time.

[krups]

Not sure how much of the pressure is due to pledge, I guess its more to do with the bad news. I was invested in Bhansali engineering where promoters had pledged ~65% of their holdings. The stock remained silent for a long time.With future expansions, better visibility and improving financials, the stock got re-rated. This is not to say that pledge is not negative.

[maven26]

The rise in Iron Ore prices globally and not locally. Domestic Iron ore prices are lower than global ones but what it does is it makes the global steel prices (which could get imported to India) costly and hence a tad more un-feasible to import.

The price hike taken recently is good for the company however the bad news is weighing more in short term which can be taken care off by the following

• Company does announce integration of Iron ore mines (Profitability boast to the company)
• Short term trigger is movement on demerger or pipes business.
• Company report improved results with good steel cycle (not in control of the company)
• Completion of expansion
• Reducing further debt and or subscribing of warrants

So short term pain remains but long term gain is dependent upon several factors.

My attempt to talk to company personal via email/phone has not been fruitful.

From here share prices can go down with end product prices going down… so risk is steel cycle and also it could be the reason more gain also

[ayushmit]

As rightly mentioned by you, the global steel prices seem to have jumped up by 15% or so from the lows created couple of months back - https://tradingeconomics.com/commodity/steel on back of rising iron ore pricing.

Interestingly it seems the iron ore prices haven’t risen much in India and hence the steel sector should continue to do well. I’m quite surprised to see absolutely no interest in most of the small/mid sized steel stocks (GPIL, Prakash etc) or even iron ore companies (Sandur, NMDC etc). Most of the companies in the sector are trading at very low PE multiples (and perhaps much lower than replacement costs) even when the sector seems to be on a good footing. While when stock prices were doing well there was so much of buzz and details on global development etc.
I think some of these cos might be offering lot of value given that the cycle is continuing. Or am i missing something?

Views Invited

[ramanhp]

I am bit hesitant to comment here since I know very little. But as an question - Is not considered that buying a low PE commodity stock might actually a trap.

" This is why Peter Lynch said the worst time to buy a cyclical stock was when the past financial performance was at its best. In another words, when the trailing PE ratio of a cyclical stock is low, it usually means the stock is nearing the end of the cycle.*

This is where investors get on the wrong ride. They think they are buying a cheap stock. Then the cycle turns and the price falls. They’re stuck on a train going down fast, and it could be years before the cycle turns up again."

[Shikhar]

When a commodity stock is nearing the end of its cycle , its P/B will be high. This is not the case with any of the companies discussed above ( prakash, gpil, sandur, etc.). Infact some of them are available a price lower than their book value.
Also when the market is rebounding from a bear market these commodity stocks are the first to run up.

( taken from yogesh sanes thread)
Hence I believe commodity stocks offer a lot of value right now

[ayushmit]

this is what most people are saying/thinking. However if one looks at some of the prices of commodities, for eg iron ore - it’s at 5 year high…yet there is no movement in any of the stocks. This is a bit unlikely.

[ramanhp]

I checked Prakash Industries P/B is .0.52.

[maven26]

The point is not only Prakash but many players in Steel and Iron Ore have low P/B. Sector up for re-rating if this prices continue!