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Prakash Industries good for portfolio investors

opinionPrakash Industries good for portfolio investors

Prakash Industries Ltd was established in 1980 and is in the business of manufacturing steel products in the country. The company operates in three segments, namely, power, steel and PVC pipes. It produces sponge, iron, steel billets, ferro alloys, wire products and TMT bars for various applications in different industries, including infrastructure and the construction industry. It also manufactures and supplies PVC pipes for the irrigation and sewerage industry.

Indian government’s noteworthy initiatives like affordable housing, housing for all by 2022, power for all by 2019, 100 smart cities by 2022, Atal Mission for Rejuvenation and Urban Transportation, expansion of railway networks, development of the domestic ship building industry, opening up the defence sector for private participation and the anticipated growth in the automobile sector are all expected to create significant demand for steel in the country in the next couple of years. It is expected that the demand will grow threefold in the next 10-15 years to reach a demand of around 2,205 million tonnes. Prakash Industries Ltd’s performance of the steel division was quite satisfactory, with steel production recording a 14% growth over last year. This was due to the company re-commissioning its structural mill at Raipur, enhancing the capacity of the steel melting shop, replacing the existing furnaces with higher energy efficient furnaces.

Prakash Industries Ltd also secured medium term coal linkages for a period of five years for its steel and power operations, thereby improving its self reliant quotient significantly. A very positive for the company is that it operates a captive power generation plant for its integrated steel plant, thus making it self-reliant in power. On the other hand, the PVC Pipes division recorded its highest ever production on the back of robust market demand, contributing to higher operating margins. Encouraged by the performance of this division and taking into consideration the future growth potential of this sector, Prakash Industries has undertaken capacity expansion at its PVC pipe plant. The current growth trajectory is expected to be supported by the government’s focus on housing, rural infrastructure, agriculture and irrigation. The company is awaiting final regulatory clearances for its iron ore mine at Odisha and expects mining operations to start by April 2018 while the iron ore mine in Chhattisgarh is likely to be commissioned by April 2019. The financial outlook for the company is extremely bright with the earnings expected for the next few years to be Rs 22 and Rs 27 for FY18 and FY19 respectively. Even the sales and net profit of the company are expected to grow at a CAGR of 15% and 50%, respectively, across next the few years. On the basis of these fundamentals and the undergoing expansion plans, the Prakash Industries stock price currently at Rs 220 can give good returns to portfolio investors. The stock price can double from the present levels in two years.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

 

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