Prakash Industries

Khandwala Securities on Prakash Industries - Target price Rs 380

Khandwala Securities has issued a buy call on Prakash Industries (PIL).

In a report issued on November 20, the brokerage house has said, the stock currently trades at 5.1x 1-year forward EB/EBITDA and 1.2x 1-year forward P/BV and the company is transforming itself from a steel producer to a power company.

Mining and power would ensure 43% CAGR in EBITDA during FY09-13 while cash generation from steel would fund further power capex, says Khandwala recommending a 'BUY' with target price of Rs 380 (FY12), 166% upside from current market price.

PIL is likely to post an EBITDA and PAT growth of 43% and 50% during FY09-13, while EPS growth would tickle down to 44% due to dilution from conversion of FCCB and warrants. The company is trading at P/E of 5.2x, 2.9x and 1.9x for FY11, FY12 and FY13 respectively, while EV/EBITDA multiple for company stood at 5.0x, 2.6x and 1.4x for the same period. Investors should enter this stock with 2-3 years perspective to take the benefits of entire expansion. We assign ‘BUY’ rating with FY12 target price of Rs 380 (4x FY13 EV/EBITDA); 20% discount to 1-year forward EV/EBITDA of 5x for last five years. However, we may see more upside following higher multiple to power business going forward.

Prakash Industries (PIL) has forayed into mining and power as new growth area. The company has shown tremendous resilience during the downturn and attained a healthy 21% EBITDA margins during 2HFY09 (peak of the crisis), thanks to its backward integration in coal and power.