Ace Investors Dolly Khanna, Mukul Agrawal Add Stake in this Multibagger Steel Stock

Following a lackluster August 2023, Indian indices made a remarkable turnaround in September 2023.

The benchmark Sensex recorded a 1.5% increase during the month, while the broader Nifty 50 index saw gains of 2%. In comparison, both indices were down 2.5% in August.

Twelve smallcap stocks from the BSE smallcap index surged by over 20% in September alone, pushing their year-to-date returns up to 600%.

One notable inclusion among these smallcap winners was Prakash Industries.

This steel stock is currently at the centrestage as it has attracted not one but two investing gurus of India in the quarter gone by.

Dolly Khanna and Mukul Agrawal have added stake in this multibagger stock between July 2023-September 2023.

Let's find out why...

A Word About Dolly Khanna and Mukul Agrawal

Dolly Khanna is a Chennai-based investor, who is known for picking lesser-known midcaps and smallcaps. She has been investing in stocks since 1996.

Dolly Khanna's portfolio, which is managed by her husband, Rajiv Khanna, is usually inclined towards more conventional stocks in manufacturing, textile, chemical, and sugar stocks.

Meanwhile, Mukul Agrawal is a prominent investor in India known for his microcap stocks and smallcap stock picks.

His style of investment involves a mix of offence and defence, with the majority of the time an offensive strategy after proper analysis and keeping two separate portfolios for investing and trading.

In the most recent September 2023 quarter, both gurus bought stake in Prakash Industries.

What Factors Made Prakash Industries a Compelling Buy?

Prakash Industries is involved the business of steel and power generation and runs steel manufacturing units that produce a variety of steel products, including rods, bars, and wires.

The latest shareholding pattern of Prakash Industries shows that Dolly Khanna and Mukul Agrawal added 1% and 1.4% stake in the company, respectively, as of September 2023.

Notably, in the June 2023 quarter, their names were missing from the list of shareholders.

This means perhaps they had a partial stake already and have now decided to double down. Or they could have bought the entire stake in the quarter gone by.

Dolly Khanna's stake is now valued at Rs 269 million (m), while Mukul Agrawal's holding amounts to Rs 374 m.

While we don't know why they added shares of Prakash Industries, there are some reasons that we can guess.

#1 Commercial Coal Mining Clearance

On 20 September 2023, the steel products manufacturer received the environmental clearance for commercial coal mining at Bhaskarpara in Chhattisgarh.

The significance of this development lies in the rapid progress of the mine's development and the anticipated execution of the mining lease in the upcoming quarter.

The coal extracted from this new mine is expected to play a pivotal role in stabilizing the company's integrated steel operations and, equally important, in generating substantial cost savings.

What could have made this even more appealing to ace investors is the fact that Bhaskarpara is classified as a commercial mine, which means that the company can sell its coal in the open market.

This opens up new revenue streams and profit potential for the company, which is highly attractive to seasoned investors looking for growth and profitability in their investments.

This strong growth prospects and enhanced profitability through this new mine can be one of the reasons why the ace investors added this stock to their portfolio.

#2 Strong Sectoral Tailwinds

On 11 September 2023, the government took a significant step by imposing a five-year anti-dumping duty on specific Chinese steel products.

This decisive action was prompted by concerns expressed by the domestic steel industry regarding potential unfair trade practices by Chinese sellers. Such measures are expected to provide a substantial boost to the growth of the steel industry in India.

Moreover, in alignment with India's ambitious goal of becoming a US$ 5 trillion (tn) economy by 2030, the steel sector is poised to assume a pivotal role in driving this economic growth forward.

The Indian Steel Association predicts a 7.5% increase in steel consumption for the fiscal year, driven by robust demand from the construction, railways, and capital goods sectors.

This increasing demand for steel translates into higher revenues and profitability for steel companies, thereby boosting investor confidence.

A Close Look at the Financials

In the June 2023 quarter, the company reported an impressive 13.2% year-on-year increase in revenue from operations, reaching Rs 10.1 billion (bn).

Additionally, the net profit for the same quarter surged by an impressive 106.9% compared to the previous year, amounting to Rs 890 m.

This substantial improvement in financial performance is due to a reduction in raw material costs.

Over the past three years, the company has experienced a marginal 2.3% increase in revenue. This was due to an uncertain global and domestic outlook due to the ongoing Russia- Ukraine conflict and monetary policy tightening by major economies.

However, the net profit has exhibited substantial growth, with an impressive 25.9% increase. This remarkable growth in net profit can be linked to the company's commitment to cost efficiency and prudent financial management practices.

Furthermore, Prakash Industries has strategically expanded its production capacity in recent years. This expansion has played a pivotal role in enabling the company to meet the growing product demand, which has likely contributed to its overall financial success.

Financial Snapshot

(Rs m, Consolidated)	FY21	FY22	FY23
Net sales	32,159.00	39,287.00	34,438.00
Sales growth (%)	8.1	22.1	-12.3
Net profit	953	1,687.00	1,905.00
Net profit margin (%)	3	4.3	5.5

Data Source: Equitymaster

Prakash Industries plans to expand its product portfolio to include new products.

What Next?

Prakash Industries Ltd has secured additional long-term coal linkages of over 10 lakh MT per annum for the next five years in the coal linkage auction concluded recently by Coal India Limited.

With this, the total coal linkages with Coal India will increase to over 22 lakh MT per annum, covering production requirements and further insulating the company against the volatility in the coal prices.

This shall provide stability to the operations and further improve the financial performance.

The Indian government has implemented a series of policies and initiatives aimed at fostering the growth and development of the metal industry, including the steel sector.

Further, the government is planning to announce the second leg of the PLI scheme (PLI 2.0), with a focus on import substitution and taking care of the requirements of the Indian Railways.

These initiatives collectively underscore the promising outlook for the Indian steel industry, indicating substantial growth potential.

How Shares of Prakash Industries have Performed Recently

Over the last one year, the share price of Prakash Industries has gained 175%. In 2023 so far, the stock is up 150%.

Over the past six months, the stock has gained over 177%.

The company touched its 52-week high of Rs 151 today and its 52-week low of Rs 47.5 on 23 December 2022.

About Prakash Industries

Prakash Industries Limited is a leading Indian steel pipe and tubes manufacturer based in Jamnagar, Gujarat.

Prakash Industries produces a wide range of steel pipes and tubes, including seamless pipes, welded pipes, and coated pipes.

The company's products are used in a variety of applications, including construction, infrastructure, oil and gas, and water and irrigation.

Prakash Industries is one of the largest steel pipe and tubes manufacturers in India.

For more details, see the Prakash Industries company fact sheet and quarterly results.

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