Prakash Industries

IN THE past two months, Prakash Industries' (PIL) stock price has declined gradually from its peak in tandem with its metal peers. Notwithstanding this drop, the company promises a strong growth ahead given the expansion plans and opportunities in domestic steel and power industry.

   A Rs 1,945-crore company, PIL belongs to the Surya Roshni Group. It is an integrated steel and power producer and manufacturers sponge iron, heavy and medium structural wire rod, ferroalloys and power generation. It has been aggressively ramping up capacity to take advantage of growing demand for steel and power in India.

   The company is expanding its steel capacity to 1 million tonnes per annum (mtpa) from 0.45 to mtpa mtpa. It is also ramping up its sponge iron capacity by 0.80 mtpa to 1.2 mtpa. It will also set up a 675-mw power plant in a phased manner.

   In the previous fiscal, PIL had taken the shareholders' approval to raise Rs 500 crore through FCCB. In October 2009, it had raised Rs 233 crore, nearly half of that to fund its power expansion project. Since the power segment is highly profitable, it intends to concentrate more on that segment. The company has its own captive coal and ore mines, which will help it to produce cheap power with high margins.

   PIL's decision to foray into power on top of the consolidation of the steel business can increase the company's revenue potential. Since India is a power-deficit country, the current demand for power is expected to remain consistent for at least the next 8-10 years.

   To some extent, PIL is insulated from global turbulence because of its domestic play. Moreover, it plans to augment its power generation from 175 megawatts to 775 megawatts by 2015. The stock trades at a seven-and-halftimes trailing 12-month earnings. The management foresees a 30%-plus growth level for the next few years. Given this, the company is expected to perform well in coming quarters.