Prakash Industries Ltd. (Prakash)


([email protected]) #298

hi @tejas2677 Is that a right way of reporting the numbers from a tax outgo point of view?


(yudiagg) #299

Interesting update from equity bull site, This seems highly positive - especially 60% increase in topline in FY 19

http://equitybulls.com/admin/news2006/news_det.asp?id=226791


(Akshay Kumar) #300

Prakash Industries Ltd announces Q4, FY18 results
Posted On: 2018-04-30 16:23:24

During FY2018, Prakash Industries Ltd has achieved Net Sales of Rs. 2935 Crores and EBIDTA of Rs. 596 Crores, reflecting growth of 35% and 125% respectively over the last financial year. After providing for interest, depreciation and tax, the Net Profit of the Company for FY2018 zoomed by 392% to Rs. 384 Crores as against Rs. 78 Crores in last financial year. The increase in the profitability is due to focused management approach on constant improvement in operational efficiencies, higher production volumes and better sales realisation.

During Q4 FY2018, the Company has achieved Net Sales of Rs. 910 Crores and EBIDTA of Rs. 210 Crores, reflecting growth of 45% and 139% respectively over the corresponding quarter of the last financial year. After providing for interest, depreciation and tax, the Net Profit of the Company for Q4FY2018 zoomed by 347% to Rs. 152 Crores as against Rs. 34 Crores in Q4FY2017. Further, Company’s rating has been upgraded to “CARE BB” with stable outlook.

Future Outlook:

  • Sales Realisation at All Time High

The Steel industry is in the midst of multi-year up-cycle driven by higher spreads. Presently, the sales realisation of the Company is at All Time High, as the prices have improved by over 30% from the level of April, 2017.

  • Targeting Four Times Revenue at around Rs. 12000 Crores by FY 2023

The Company has undertaken expansion plans to increase its Integrated steel plant capacity from 1.20 Million tonnes per annum to 3.00 Million tonnes per annum over the next 5 years through Internal accruals at its existing location in Champa, Chhattisgarh.

  • Expansion in Sponge Iron, Steel and Power co-generation capacity in FY 2019

The Company successfully commissioned 0.20 Million tonnes per annum Sponge Iron Rotary Kiln alongwith 15 MW Waste Heat Power co-generation in April, 2017. Further, in the current year, the Company is expanding the capacity of Sponge Iron Plant by 0.40 Million tonnes per annum i.e. 0.20 Million tonnes per annum by September, 2018 and 0.20 Million tonnes per annum by March, 2019 and power co-generation capacity by 30 MW, i.e. 15 MW by September, 2018 and 15 MW by March, 2019.

  • Efficient Raw Material Management

The Company has signed Long Term Fuel Supply Agreement with Coal India Limited for its coal requirements at stable prices. Further the company has tied up the supplies of iron ore from Odisha miners and NMDC on long term basis.

  • Captive Iron Ore Mining

The Sirkaguttu Iron Ore Mine of the Company in Odisha is going to commence production in the current quarter. Further, the Kawardha mine in Chhattisgarh is likely to be operational by April, 2019.

  • PVC Pipe Division

The Company is doubling its PVC Pipes and Fittings production capacity by next year.

The Company, in its newly ventured Flexible Plastic Packaging business, will manufacture high performance barrier films and laminates that find application in packaging of food, beverages, oil, personal care and pharmaceutical products and the production is likely to commence by June, 2018.

The Demerger of the PVC Pipe business is progressing fast as NSE & BSE have already conveyed their consent to the Draft Scheme of Arrangement and other clearances are in progress.

  • Preferential Issue to Promoters

The Company had issued Convertible Equity Warrants (Warrants) to the Promoters of the Company for a total amount aggregating to Rs. 208 crores. Promoters have since subscribed to the Warrants.

Further, in view of higher Internal Accruals and funds being raised through Preferential Issue of Warrants to the Promoters, the Company does not envisage raising of funds through Qualified Institutional Placement (QIP).

Forward Guidance:

The Revenue of the Company is likely to grow over 60% in FY 2019(YoY) to around Rs. 4,700 crores with improved EBITDA margin of around 25% owing to expansion, higher utilisation of capacities, better sales realisation and start of mining operations at its Sirkaguttu Iron Ore Mine in Odisha this quarter.

Source: Equity Bulls


(tejas2677) #301

how do u view company’s major profit (79%) coming from power, while revenue is largely (75%) from steel?


(phreak) #303

What you need to look at is the EBITDA margin which is around 22%. What goes into producing steel? Iron ore, coal, alloying materials like Mn, Cr and power (loads of it) for the furnaces. Since the power required is supplied by the captive unit, they save on spending outside the company. This is what is accounted under the revenue segmentation. If you look at their power assets (about 1500 Cr) and the power revenue 173 Cr and profits of 148 Cr, you can see that the return on the power assets is about 10% which is normal.

Going forward, the company will be mining its own ore as well from the leased mines, in terms of backward integration.


(tejas2677) #304

may be now I got it.
if the profit frm power segment reflects earnings by selling power to its own subsidiary which is making steel, then the numbers dont cause any concerns for me.


(tejas2677) #305

for Q4, PI has paid Rs 34.77 cr as MAT. but the credit has been claimed only for Rs 32.68?
why to pay this Rs 2 cr?


(VALUE2017) #306

If you go by the annual reports you will find that more then 99% of Power sale is intersegmental I.e from Power segment to Steel Segment


(VALUE2017) #307

There are some accounting norms to avail MAT credit,may be because of that reason they are not able to avail entire MAT credit…A person who is more strong with accounting may throw some light.

https://prakash.com/2018/04/30/financial-results-for-the-financial-year-and-quarter-ended-31st-march-2018/


(Akshay Kumar) #308

CARE view on steel sector


#309

Good results but on expected lines. We need to see power and steel as one since they do not sell power outside. I like to analyse wrt what they promised. let’s see few misses -

  • They promised 25% EBITDA margin in Q4 but achieved 22% which could be due to hike in iron ore prices by NMDC. This has corrected a bit in April. They have achieved approx Rs 8k/t EBITDA which looks healthy without raw material integration.
  • Deleveraging - In an interview to ET he promised 300cr debt by FY18 but actual debt is 870cr+ (ST Debt+LT Debt + Other financial liabilities). There may be genuine reasons but they need to specify it and provide the forward looking plan.
  • FY19 guidance: lacks specifics like breakup of PVC and Steel biz. Looks like they are assuming EBIDTA/t for the steel segment at Rs 10k which is again achievable only when they start their own iron ore mine, If the guidnace pans out, we have 100% return available here.
  • FY23 guidance: completely avoidable and gives the feeling of mungerilal ke haseen sapne. They are assuming 40k/t steel price with 3mt capacity. Neither capacity/producton nor steel price is certain. However, this is completely achievable scenario. This reminds me of my early days when I made 60% in the first 6 months of my investing journey and started building 4-5 yr scenario without going into risks.

I am also intrigued by the scale of wealth these promoters have or going to have if they could arrange 200cr fund to infuse into the company.

Disc: Invested


(Mridul) #311

Unsolicited advice - Be very cautious with this mgmt. They have got a very notorious past. Take guidance with a pinch of salt. Its a commodity play and things can change in a blink. Couple that with such mgmt which lacks complete credibility on corporate governance front. Look at long term chart of this company, will get an idea. It’s a combination of commodity and mgmt misdoings.

I know many people will say we should look ahead and not backward and all that. But one needs to be very cautious with the management pedigree while ignoring the past. These guys have been involved in every scam in the industry, black money allegations, and what not. So ignoring that is very risky.

Industry is doing well as steel prices are rising and these guys have got backward integration in form of coal and ore. But giving guidance for 2023, as if they know what is going to happen to steel by 2023! Guidance change with changing circumstances.

Disclaimer: I have been with this company from quite a few years. Made an exit some time back.


(VALUE2017) #312

The company had initially thought of QIP for reduction of debt, however as the same did not materialised the debt reduction was only 112 Cr instead of promised 300 Cr. Further the company is in CAPEX mode hence significant debt reduction does not seems to be possible.

The guidance for FY 2018-19 seems to be achievable, however with regard to 5 years target, I think it is not practical and the company should also avoid making such promises as such statements reduce the credibility of the management.
But one good thing is that the CAPEX will be funded by internal accruals and not by way of equity dilution or Debt. The company should be reasonable and more practical in making future projections.


(VALUE2017) #313

I totally agree with you with regard to the track record of management in the past and all the news associated with them. The management has not yet got the clean chit with regard to corporate governance issues.
But what one thing gave me confidence to invest in the company was consistent healthy cash flow from operations even during the cyclical downtrend of Steel Cycle. I personally feel the management is competent in running the Steel business.

I wish they could do some effort for improving corporate governance also.
I think one such step was not subscribing to the warrants at Rs 140 and then subscribing it at 208 Cr. The promoters have to shell out extra 68 Cr. I think at least this act is commendable…however still no clean chit


#314

I was going through Q3 Investor presentation and management guided for 35% volume growth and 60% revenue growth in Q4. However, revenue growth was just 45%.
Secondly, they highlighted for 25% EBITDA margin. However, it fell short by 2% and was infact 23%.
And, PVC division has also just seen 2% growth in Q4.

Debt has not reduced much from Q2 (infact gross debt has increased by 39cr) because most of the cash flows have gone into Fixed assets. Fixed assets have increased by 226cr in last 6 months probably due to expansion.

Further, I think tax would be applicable from FY19. Q4 net profit margins are 16.7% and if we apply tax @30%, it will fall to 11.7%.

I think these factors might have caused share price fall even after good results.
I am new to Valuepickr and views are invited.


(Krupesh Desai) #315

Agree they missed margin by 2% - but that’s not a big miss and the management explained that it is on account of existing orders.fresh orders have margin of 25%

On the volume front, as per the Q3 investor presentation, agree they had guided for 60% revenue growth YOY, but somewhere earlier during an interview (not able to get the video) with CNBC they had mentioned revenue target of INR 3k Cr for 2018 which hey achieved - not sure why the difference in projections

Even if we discount the management projections for FY 19 by 20-25% and apply a tax rate of 25-30%, we are still getting this stock at ~5 P/E …that’s cheap (or i should say undervalued) according to me.


(VALUE2017) #316

The MAT Credit outstanding as on 31/03/2017 was 240.86 Cr. The company utilised the MAT credit for Rs 82.72 during the Financial Year 2017-18. As per auditors report the MAT credit expired (i.e MAT credit which could be utilised within prescribed period) during the FY 2017-18 was Rs 49.31 Cr. So the MAT credit available with the company for the current financial year is Rs 240.86- 82.72-49.31 =108.83 Cr.

Conclusion : The tax liability in the current financial year is also expected to be low due to availability of MAT Credit.

Accounting experts are requested to comment.


(VALUE2017) #317

(VALUE2017) #318

Q4 PRESENTATION.pdf (649.0 KB)


(Purohit) #319

Any information on utilization levels of the plants in Q4Fy18?