Prakash Industries Ltd. (Prakash)

(VALUE2017) #79

The demerger approval from SEBI is a good news for the company and for its shareholders also. The demerger will definitely help the company in unlocking the value of PVC business segment. The PVC business of the company is performing very well however this segment is hardly getting noticed by investors.

The demerger approval from SEBI was anticiapted to come early however there was a delay due to the Shell Company issue. The management had already advised in its recent interview that after the clean chit the approval for demerger will be granted shortly by SEBI.

As already admitted I do not have much idea of valuing PVC buisness so I would request other senior members of this forum to come out with a tentative valuation of PVC business so that we can arrive at a fair valuation for Prakash Industries.

(VALUE2017) #80

The company also has proposed for a QIP, can any body advise regarding what will be the relevant date for determining the price at which shares will be allotted.

(VALUE2017) #81

Working on the valuations of PVC business, will submit my finding shortly in this forum.

(VALUE2017) #82

Again I have tried to keep my valuations as simple as possible :
Sales for 9 (Apri17 to Dec 17) months =255 Cr
Sales for 12 months = 255/3*4 = 340 Cr
EBIT for 9 months = 26.62 Cr
EBIT for 12 months =35.50 Cr
Net Profit ~ Rs 27 Cr, Equity Shares = 1.90 Cr
EPS = Rs 14.21
PE (for a growing PVC business on a conservative estimate) = 25
Share value if listed as a Separate entity = 14.21x25 = Rs 350
Locked value of PVC business in Prakash Industries = 350/8= Rs 43.75
Conservatively Rs 40/-
As per my conservative and laymen valuation the PVC segment has a valuation of Rs 40/- over and above the valuation for Steel division, which I had done earlier. The PVC business if listed separately should be quoted at around Rs 350 as per my valuation.

Experts opinion invited for correction in my valuation.

Disclosure : There may be lots of gap in my valuation as I am not an expert in this field , however with my little knowledge I have tried to broadly arrive at some figure.

(VALUE2017) #83

Now what is the opportunity for the PVC segment… Well sky is the limit, however one interesting fact I would like to share which I came across during my valuation, under the link for Astral Poly in this forum, the first message was posted by Hitesh and the figures of Astral Polylink in the 9 Months ended FY 11 were almost similar to that of PVC division of Prakash Industries. Infact the capacity of Astral was lower then that of current capacity of Prakash.

Astral Polytechnik had a fabulous performance during last several years, hope the same story may repeat in Prakash also.

(yudiagg) #84

Thanks. Great Job. Could you pl advise as to how did you arrive at the
figure of Eq Capital = 19.Cr. The present Eq of prakash is 152.6 Cr,

(VALUE2017) #85

The split ratio will be 1:8 so if you divide 152.6/8= ~ 19 Cr

(VALUE2017) #87

While analyzing old data for Prakash Industries I have observed that even during recessionary period of Steel Industry the company had consistently being investing substantial money for its Capital Expenditure for Ex:

FY 2007-08 Rs 167.15 Cr

FY 2008-09 Rs 230.09 Cr

FY 2009-10 Rs 317.35 Cr

FY 2010-11 Rs 678.78 Cr

FY 2011-12 Rs 503.35 Cr

FY 2012-13 Rs 132.83 Cr

FY 2013-14 Rs 229.87 Cr

FY 2014-15 Rs 108.87 Cr

FY 2015-16 Rs 149.22 Cr

FY 2016-17 Rs 247.67 Cr.

Further as per Annual Report for 31/03/2017 of Prakash Industries, the total Fixed Asset of the company was Rs 2719.58 Cr, however out of the total fixed assets the component of CWIP (Capital Work under Progress) is Rs 1141.45 Cr.

What is CWIP ???
CWIP is Capital expenditure on fixed assets which have not yet been commissioned or brought into production. In laymen words it means that company at present is not getting any return out of assets worth Rs 1141.45 Cr, however as when these assets (CWIP) will be commissioned i.e they will start production, (probably within 12 to 15 months from 31/03/2017), this will have a very positive impact on the performance of the company. It gives a clear performance visibility of the company for next 12 months from 31/03/2018.

The company plans to bring down its debt to Rs 470 Cr by 31/03/2017 against which the fixed assets of the company will be more then Rs 2800 Cr, which I think is a comfortable margin of safety.

(sunilgct) #88


Looks like
One most purchase is after results…

Dolly Khanna picks up Jhunjhunwala favourite; buys 4 lakh shares in this smallcap

(sunilgct) #89

(blueeyedinvestor) #90

The other way of looking at it is…when no one in the industry was investing in capex, this entity continue its capex spree…but that amount of huge capex never translated into fixed assets and largely remain as CWIP…Who knows if money has actually been spend or not or just taken out of the company in name of capex…

B&K recently 20 days, came out with a visit note on Prakash and potraying a super rosy picture…which is all futuristic…BUT THEN WHY HAVE NOT NOT RATED THE STOCK IF THE STORY IS SO BULLISH AND ADVISED THE CLIENTS TO GO ALL HOG IN BUYING THE STOCK.

There must be something which influenced B&K to held back its buy rating.

Governance I am not sure…how clean is the management…If somebody can throw light will be of great advantage…

Have not invested but eyeing it…

Just because Jhunjhunwala and Dolly Khanna checked in does not make the case stronger to buy…if the stock bust,it will have meager impact on their portfolio…BE CAREFUL and INVEST WISELY.

(VALUE2017) #91

Dear blueeyed,

Thanks for giving insight on the CWIP.

While analyzing the CWIP (Capital Work in Progress) data, I was also working on the conversion of CWIP into Fixed Asset and how much time it would actually take ?

However while going through the current Q2 results the company has reported that CWIP has substantially reduced from Rs 1141.45 Cr to 723.14 Cr that is project worth Rs 418.31 have been commissioned during first half of the current financial year.
Accordingly I had projected forward and advised that it may take 12 to 15 months from 31/03/2017.

Can you please advise full form for B&K ?

(blueeyedinvestor) #92

B&K stands for Batlivala and Karni.

My worry is not that in Q2 Management has notified that conversion to the extent of 400 cr has happened, but have they given any understanding in terms of towards what such conversion have happened and 400 cr addition to net block should add substantial jump in topline and bottomline as it is nearly 30% of March’17 net block base. But I dont think that is the case…

My worry and I believe it should raise apprehensions in everybody mind…why such CWIP got created and has been carried and years-after-years been increased despite the fact the cycle was going through its worst phase.

My memory of 2008-09 crisis and understanding of management philosophy during those periods were not encouraging and stock got solid beating because of lapse in controls, process and governance.

I request if somebody can though light on this. Request @jitenp to respond on this.

(VALUE2017) #93

Just comparing the instalIed capacity as on 31/03/2009 and 31/12/2018

Installed Capacities as on 31/03/2009
(As certified by the Management & relied upon by the Auditors)
Finished Steel 0.38 MT
Spone Iron 0.6 MT
Liquid Metal 0.5 MT
Ferro Alloys 45,000 Metric Ton
Rigid PVC Pipes 15,000 Metric Ton
Power Generation 100 MW (Approx)

  • Excluding items entirely for captive use
    ** Unit in lacs

Installed Capacities and Production 31/12/2018
(As certified by the Management )
Finished Steel MT 1.1 MT
Liquid Metal MT 1.1 MT
Sponge Iron MT 1 MT
Ferro Alloys MT 0.13 MT
Rigid PVC Pipes MT 55000
Power Generation MW 230 MW.

I observe substantial amount of capital expenditure and also significant increase in production capacities is observed when compared between 2009 and 2017.

However it has not been advised by the management regarding impact of recent commissioning of CAPEX worth Rs 400 on bottom line/top line.

Regarding Governance the company is yet to proove its record of good corporate governance.

There is a also a negative perception about the company in the market because of which its stock has beaten black and blue in the past.

I am also not assure of the track record of the management, however as described in my previous post i am willing to give the management a chance to come clear.

I think all the existing and proposed investors should mail at the Email id for investor‚Äôs correspondence: [email protected] and ask them to conduct a investor conference con-call so that we can get clarification on different matters.

Also they can post their personal queries on the company’s performance at the above mentioned E mail ID
This will also be step forward towards good corporate governance

(blueeyedinvestor) #94

The movement from CWIP to Net Block came in between Mar’17 and Sep’17, but no clarification highlighted.

Besides, regarding the governance - leaving aside the previous 2008-09 period, the FY2017 annual report speak a lot about the mess that has been created (the management may be now in course of clean up exercise - I don’t know). Go through the Auditor’s report and look into the qualified opinion of auditors.

(Mayank Narula) #96

Prices of steel continue to firm up.

(VALUE2017) #97

I have gone through qualified opinion given by the auditors in the current Annual Report. The auditors have given 3 qualifying opinions. The company has given satisfactory clarifications on all the three qualified opinion given by the auditors.

In my opinion the qualified opinion given by the auditors do not have any material impact on the operations or profitability of the company due to the following reasons.

(i) The fist qualified opinion given by the auditors will have an impact of Rs 2.36 in profitability which is materially insignificant.

(ii) The second opinion is with regard to the classification of liability only i.e as per auditor’s opinion, the outstanding FCCB liability, which the company has shown as long term should be shown as short term/current liability. The classification of liability generally has a direct impact the liquidity of the company. In the given case, the classification of liability done by the company will not have material impact because of following reasons

(a) The company is generating sufficient amount of surplus cash and there is no liquidity problem in the company.
(b) As on date the all outstanding FCCB have either been paid or restructured till 2002.

(iii) The third qualified opinion pertains to availing of MAT Credit, which has been suitably clarified by the company. The same qualified opinion is being given by the auditors every year since past several years and the same clarification is being repeated by the company every year.

All the accounting done by the company are as per Indian Accounting Standards and there is nothing wrong as per the law. However qualified opinion are given by the auditors as a prudent measure to give an insight to the shareholders so that they can assess the impact of transaction done by the company and take a conscious decision.

Now it is up to the investors to assess what maximum impact these qualified opinion made by the auditors will have on the performance o the company.

The qualified opinion given by the auditors and the clarification of the company in this regard are as under (both taken from Annual report for 31/03/2017)

Qualified Opinion given by Auditors :

a. Note 40 to the Ind AS financial statements, wherein in terms of a court order, the deferred tax liability of Rs 236 lakhs for the year ended on March 31, 2017 has been adjusted against Securities Premium reserve. Had the deferred tax liability been accounted for pursuant to Ind AS-12 _Income Taxes’, total comprehensive income after tax for the year ended on March 31, 2017 would have been higher by Rs 236 lakhs.

b. Note 41 to the Ind AS financial statements, wherein no provision for interest aggregating to Rs 1,126 lakhs for the year and Rs 2,178 lakhs as at March 31, 2017 has been made in respect of restructured Foreign Currency Bonds/Convertible Bonds. Also, no provision of interest (amount not ascertained) has been made in respect of other matured Foreign Currency Convertible Bonds as at March 31, 2017. Had such provision for interest been made, Capital work in progress and Other Current financial liabilities would have been higher to that extent. Further, the Company has classified matured Foreign Currency Convertible Bonds of Rs 15,756 lakhs as borrowings under the head ‚ÄúNon-Current Financial liabilities‚ÄĚ instead of ‚ÄúCurrent Financial liabilities‚ÄĚ.

c. Note 42 to the Ind AS financial statements, wherein MAT credit entitlement expired during the year amounting to Rs1709 lakhs has been adjusted against the retained earnings. Had this been adjusted in the Statement of Profit & Loss, profit for the year would have been lower by such amount.


The Auditors in their Report to the members, have given three qualified opinions and the explanations of Board with respect to it in pursuant to section 134( 3) (f) of Companies Act 2013 are as follows:

Explanations response to Point (a) of Independent Auditors Report

The net deferred tax liability computed in terms of Ind AS-12 ‚ÄúIncome Tax‚ÄĚ amounting to _ 236 Lakhs has been adjusted against Securities Premium Account. This has been in terms of Hon‚Äôble Punjab & Haryana High Court order dated 23rd August, 2007. Explanations response to Point

(b) of Independent Auditors Report The Company had restructured Foreign Currency Convertible Bonds (FCCB) of US $ 35.70 mn as per terms accepted by FCCB holders. The Company has partly paid interest on the same upto 30th September, 2015. The Company has initiated discussions with the bondholders for waiver of the interest and restructuring of these FCCB for further period of five years, which is in advanced stage. Accordingly, no provision of interest has been made in the books of accounts on these FCCB towards unpaid interest dues and matured FCCB of Rs 15756 Lakhs are continued to be shown as ‚ÄúNon-CurrentLiabilities‚ÄĚ Explanations response to Point.

© of Independent Auditors Report Considering the future profitability and taxable position in the subsequent years, the Company has recognized Minimum Alternate Tax (MAT) credit as an asset by crediting the Statement of Profit & Loss and including the same under "Other Non-Current Assets. In case the Company is not able to utilize this credit within the time limit prescribed under the Income Tax Act, the same is set off against the retained earnings as tax credit pertains to an earlier year.

Observations other than above made by the Statutory Auditors in their report for the Financial year ended
31st March, 2017 read with the explanatory notes therein are self-explanatory and therefore, do not call for any further explanation or comments from the Board under section 134(3) of the Companies Act, 2013.

Regarding CWIP to Net block between Apr 17 to Sept 17, i had already requested other members and existing/proposed investors to write E mail to the Investor relation of the company for conducting an investor con call.

I would like to have more negatives on the company so that we can asses over all risk in our investment.

Regarding Indian Steel Industry growth opportunity, I will try to post my findings in this weekend

(sunilgct) #98

How Prakash Industries managed a turnaround

(VALUE2017) #99

Juat got some relevant videos on Prakash Industries worth sahring
Bajaj Assurance life insurance has also bought around 5 Lac shares in Prakash Insutries as per E T Now report… Please find the link

Also some more news in ET now, worth watching for those who are already invested or propose to invest

Zee Buisness


(VALUE2017) #100

As per my valuation for PVC business, I had conservatively valued it at around Rs 665 Cr and Share price of around Rs 350 on listing, i.e unlocked value of PVC division at current price of Prakash Industries is at Rs 40,
however as per management guidance in the recent interview to ET Now, they are valuing the PVC division at around Rs 1000 Cr i.e Share price on listing of PVC division would be at around Rs 526 and unlocked value of PVC division at current price of Prakash Industries at around Rs 65.75.

I am happy that my valuation of PVC division was less and very conservative and therefore has sufficient margin of safety.

I further hope and wish that my valuation estimates which I had done in this forum for steel division of Prakash Industries should also be less and very conservative so that it offer sufficient margin of safety for the investments made by all of us.