Mr. Vipul Agarwal, Whole-time Director, Prakash Industries Ltd. He is a Chartered Accountant and has a long working experience of over 20 years. He is working as a Whole-time Director w.e.f. March 18, 2000 in the Company. Because of his experience, his re-appointment would be beneficial to the Company. He is not holding Directorship in any other Company. Mr. Agarwal has been associated with Prakash Industries for more than 15 years now.
Prakash Industries Ltd. (PIL) is a business house with interests in steel, mining power. The Company is operating its integrated Steel and Power plant along with captive mines in Chhattisgarh. It has manufacturing facilities for Sponge Iron, Steel Billets/Blooms, and Ferro Alloys along with power generation. As a step towards further integration, the Company has set up facilities to manufacture Wire Rod, HB Wire, TMT bars and Structurals. PIL has always emphasized on backward integration to ensure uninterrupted supply of quality raw materials. Captive coal mines of the Company in Chhattisgarh are already in operation. The Company has been allotted three coal blocks at Chotia, Madanpur and Fatehpur in Chhattisgarh. Operations of Chotia Coal mines were started in record time of 33 months. It also owns Iron Ore mines to fulfill raw material requirement for Sponge Iron manufacturing, which are yet to be operated as various statutory clearances are under processing. The company operates a captive power generation plant, making it self reliant in power.
Hemant P. Maradia of IIFL presents key takeaways from the analyst conference call held by the management of Prakash Industries Ltd. recently after the Company’s Q4 and FY12 financial results.
“Total capex in FY13 will be Rs 3bn. This money will be spent on the fifth Sponge Iron kiln and on the second phase power capacity expansion,” says Mr. Vipul Agarwal.
Highlights of Fourth Quarter and Annual results?
The net turnover for FY12 is ~Rs 21bn as against Rs 16.64bn recorded in the previous fiscal year. This works out to ~27% increase in the topline.
Overall volumes across segments, including Sponge Iron and Steel, have risen by 10-12% while prices of finished products went up by almost 25% in FY12.
The EBIDTA for FY13 came in at Rs 3.68bn as against Rs 3.59bn in the previous year. Thus, there is a small increase of ~5% in overall EBIDTA.
There is an increase in Depreciation on account of the new projects that have been commissioned during FY12. Depreciation costs have gone up to Rs 750mn versus Rs 670mn last year.
Finance costs have risen to Rs 140mn in FY12 from Rs 50mn in FY11.
After providing for taxes, the net profit for FY12 works out to Rs 2.68bn, which is almost the same as last year.
What about volumes in various segments?
Volumes in Sponge Iron have gone up by 14% in FY12. They stand at 4,64,000 MT vs. 4,06,000 MT in FY11. This was largely on the back of a new Sponge Iron kiln that we commissioned in the fourth quarter of FY12.
In Finished Steel segment, we have seen growth in Structural Products and TMT bars while production of Wire Rods. Finished Steel Products’ output in FY12 stood at 3,81,104 MT vs. 4,26,532 Mt last year.
The production of Ferro Alloys during FY12 remained largely flat compared to FY11 (41,208 MT vs. 40,529 MT).
Production of power rose from 620 units last year to 770mn units in FY12. This is up 25% year on year.
Realisations in Wire Rods have gone up by ~25% while in Sponge Iron they have increased by 12-15%. We don’t sell Sponge Iron but whatever we sold during FY12 we got better price for the same. Similarly, Billets prices also rose by ~25%.
In Q4 FY12, the Wire Rod realisation stood at Rs 36,500 per ton while for TMT it was Rs 37,200 a ton. At present, we are getting ~Rs 38,000 a ton in Wire Rods and same in TMT as well.
Sponge Iron realisations in Q4 FY12 stood at Rs 23,000 a ton. We don’t sell large quantity of Sponge Iron, so you won’t the correct picture on prices.
What is your total capacity in Sponge Iron at present?
Our total capacity in Sponge Iron stands at 0.8 MT per annum. We commissioned the fourth Sponge Iron kiln at the end of February. The fifth kiln we expect to commission between September and December 2013.
We have spent Rs 350mn on the expansion of capacity in Billets. We are planning to spend another Rs 250mn on the expansion of Billets capacity.
However, the expansion of Sponge Iron capacity from 0.7 MT to 1 MT is on hold as of now.
What led to a drop in margins?
The prices of iron ore were more or less stable in FY12. However, towards the end of the fiscal year, particularly from March onwards, the iron ore prices have started going up again. This has impacted the margins.
The average price of iron ore in Q4 was ~Rs 7,800 per ton and currently it is even higher. Currently, this should be ~Rs 8,000 a ton.
Coal prices also went up substantially last year.
As a result, the Raw Material costs as a percentage of Net Sales have gone up.
Do you expect relief on iron ore prices?
I don’t see any drop in iron ore prices. Monsoon will also set in soon. So, any drop will materialise after August/September. Till then, iron ore prices are likely to remain firm.
Tell us about your expansion in power generation?
We have completed the first phase of the 100 MW expansion in our power capacity. This is part of the 635 MW expansion. Our total power generation capacity is 215 MW now. We are planning to commission more than 500 MW.
Actually, the addition in power generation capacity is 115 MW; the balance 10 MW will be added when we commission the next Sponge Iron kiln. 4x25 MW addition in power was planned through coal while the remaining 25 MW was planned through the waste-heat-recovery process.
We have spent Rs 4.5bn in the first phase of power capacity expansion. We have also spent Rs 2bn plus on the future phases of power capacity addition.
We have started basic work on the next 100 MW of power capacity addition. We should be able to start project work from October/November of this year. It will take about two-and-a-half years to complete that project.
Power sales are to the tune of 30-40 MW on average every month. Currently, we get close to Rs 4 per unit of power under a contract, which has been running for the past five months.
What is the situation on debt front?
Gross debt, including FCCBs is Rs 9.7bn. Excluding FCCBs, it is Rs 5.7bn.
Cash balance is Rs 500mn. Investments are Rs 500mn.
What kind of volume growth do you expect for FY13?
Wire Rod and TMT put together, we are expecting a volume of 500,000 MT in FY13. Sponge Iron volumes should be close to 600,000 MT and Billets should be 550,000 MT. We should be making about 500,000 MT of steel on an integrated basis. This could vary depending on the prices and profitability of each segment because sometimes we sell Sponge Iron and sometimes we sell Billets.
How are you placed in terms of coal?
We buy coal from three sources. One is our captive mines, secondly through coal linkages and third is via the e-auction route.
Weighted average coal cost is currently close to Rs 2,000 per ton.
There has not been any meaningful progress on the coal mining front in the last quarter.
We are not importing any coal; we buy through the domestic sources only, including e-auctions. We have coal linkages for about 30,000 MT a month. We buy another 40,000 MT through e-auctions every month.
From captive mines we get around 1mn MT of coal per annum, or 85,000 MT a month.
What kind of capex is planned for FY13?
Total capex in FY13 will be Rs 3bn. This money will be spent on the fifth Sponge Iron kiln and on the second phase power capacity expansion of 100 MW. We will also add capacity in Ferro Alloys. Excluding Power, the capex in FY13 will be ~Rs 1.5bn.