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ASSIGNMENT OF SECURITY ANALYSIS

SUBMITTED BY:
MANSHA ANAND
13BSP0395
Prakash Industries
Prakash Industries Ltd was started in the year 1980. With focused vision in the core
competence areas of Mining, Steel and Power, Prakash Industries Ltd. is rapidly carving its niche
in the Indian steel industry and has emerged as one of the key producers of value added steel
products in the country. For highest value addition, company has always emphasized on
forward & backward integration.

Michael Porter Analysis
Bargaining Power of Suppliers Low
Major Players have their own iron Ore Mines
Bargaining Power of Buyers High
Large number of suppliers and Access to Global Markets.
Barriers to Entry High
Huge Capital Requirement
Huge Economies of Scale
Well Established distribution network for existing players
Threat of Substitutes Moderate
Aluminum and Plastics can be used by the automobile industry
Industry Rivalry-High
Large no of unorganized players
Major players are competing among themselves






CARE downgrades Prakash Industries' issuer rating from BBB+ to BB+

CARE Ratings has downgraded the issuer rating for Prakash Industries Ltd (PIL) from 'BBB+' to
'BB+', on the weakness in its credit profile due to uncertainty over raising resources to redeem
foreign currency convertible bonds worth $77.1 million.

This along with the arrest of company's Chairman Ved Prakash Agarwal and Director Vipul
Agarwal by CBI in connection with the Syndicate Bank bribery scam has dented the company's
image resulting in a massive sell-off in the recent past.

CBI alleged Prakash Industries had misrepresented facts about the net worth of the firm while
applying for coal blocks. Ved Prakash Agarwal is also alleged to have offered bribe to improve
the credit quality of the company. PIL had raised $77.1 mn through FCCBs in two tranches
$17.1 mn in FY10 and $60 mn in FY11. These are due for redemption in October 2014 and April
2015, respectively. The company planned to refinance tranche-I of the FCCB via external
commercial borrowing from Syndicate Bank and expects conversion of tranche-II into equity as
per CARE.

According to Manoj Aggarwal, company secretary of PIL- The company has enough resources
to repay the FCCB. The company has a net profit of Rs 61 crore in the first quarter ended June
and has net worth of Rs 3,000 crore."
CARE would continue to monitor the developments regarding the FCCB redemption and their
impact on the credit profile. The rating continues to be constrained by risks associated with the
project under implementation, past history of debt restructuring, legal risk with respect to the
ongoing CBI enquiry on coal mining and cyclicality inherent in the steel business, it said.

FINANCIAL HIGHLIGHTS OF PRAKASH INDUSTRIES
LIQUIDITY & SOLVENCY RATIOS

2013 2012 2011 2010 2009
Current Ratio 1.79 1.83 1.99 2.03 1.63
Quick Ratio 1.53 1.43 1.71 1.63 1.31
Debt Equity Ratio 0.39 0.45 0.43 0.19 0.30

Current ratio of the company is consistent since current assets are greater than current liabilities.
However it is not meeting the ideal ratio of 2:1 in any year.
Debt Equity ratio is less than 2:1 which means that the company has financed its fixed assets
more by debt than by equity.



Profitability Ratios


2013 2012 2011 2010 2009
Gross Profit Margin(%) 8.75 13.64 16.42 19.16 16.97
Net Profit Margin(%) 6.56 12.71 16.02 16.96 13.34
Return On Capital Employed(%) 7.62 10.23 12.17 20.02 22.85
Return On Net Worth(%) 7.87 13.69 17.59 22.46 24.55

GP and NP has increased for all the years except for 2013 where it has reduced drastically.
ROCE and ROE is also decreasing for 2013 because of reduced EBIT and PAT.


Debt Coverage Ratios

2013 2012 2011 2010 2009
Interest Cover 4.02 20.92 51.77 11.97 4.30
Total Debt to Owners Fund 0.39 0.45 0.43 0.19 0.30


Turnover Ratios


2013 2012 2011 2010 2009
Inventory Turnover Ratio 12.21 12.91 13.04 21.39 29.32
Debtors Turnover Ratio 27.74 23.58 19.76 16.45 13.69
Fixed Assets Turnover Ratio 0.93 0.85 0.91 0.88 1.00
Total Assets Turnover Ratio 0.86 0.76 0.74 1.05 1.35









ALTMAN Z SCORE:

Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
= 0.6

Where:

A = Working Capital/Total Assets
B = Retained Earnings/Total Assets
C = Earnings Before Interest & Tax/Total Assets
D = Market Value of Equity/Total Liabilities
E = Sales/Total Assets

In general, the lower the score, the higher the chance of bankruptcy. For example, a Z-
Score above 3.0 indicates financial soundness; below 1.8 suggests a high likelihood
of bankruptcy.

Prakash industries has a z score of 0.6 which means there are very high chances of bankruptcy.




UNITED BANK OF INDIA

ICRA downgrades United Bank's credit ratings from A+ to BBB- as Bad Loans
mounts
Icra Ltd has downgraded the credit rating on Kolkata-based United Bank of India (UBI) and also
put it on watch with negative implications citing deterioration in the banks asset quality.
Rating on the banks Rs.950 crore tier II bonds programme has been cut to A- (minus) from AA-
(minus), while its Rs.575 crore upper tier II bond programme has been cut below investment
grade to BBB- (minus) from A+ (plus).

United Bank posted a Rs.1,238.08 crore loss in the December quarter, following a Rs.489.47
crore loss in the preceding quarter, eroding the banks net worth and cutting its capital
adequacy ratio to a bare minimum 9%. The banks core tier I capital, or equity and reserves, has
dropped below 6%, which means that the bank will not be able to give loans any more for lack
of capital.

RBI has already ordered a forensic audit of the banks books late last year and restrained its
management from giving high-value loans after the bank announced a Rs.438 crore loss and a
50% jump in gross bad loans in the previous quarter. But its health deteriorated further in the
December quarter with gross bad assets crossing Rs.8,500 crore and touching 10.82% of
advances.



MICHAEL PORTER ANALYSIS

Bargaining Power of Suppliers to Banking industry

The Bargaining Power of Suppliers is high as there is rise in investment avenues like Mutual
Funds, Tax-free bonds, Equity market etc. Providers of funds could be more demanding. As
quality of services provided with minimum time matters a lot.

Bargaining Power of Customers for Banking industry

Bargaining power of customers is very high, as banks have also forayed into the long-term
finance. Similarly, the bargaining power of customers determines how much customers can
impose pressure on margins and volumes.

Threat of New Entrants for banking industry

Licensing and Government and RBI requirements, investment in technology, skills required for
financial management, distribution reach, good branch networks. The entry of foreign banks is
posing a big challenge.

Threat of Substitutes for banking industry

Threat of substitutes is also high as there are large numbers of investment and borrowing
avenues. NBFCs and small co-operative banks are also posing a major threat to the market
share of the bank.


Competitive Rivalry between Existing Players for banking industry

There are numerous informal financing in the rural area. There is intense competition due to
the large number of capital markets in India for investing.





FINANCIAL ANALYSIS

LIQUIDITY RATIOS 2013 2012 2011 2010 2009
Current Ratio 0.02 0.02 0.02 0.03 0.02
Quick Ratio 19.40 23.96 29.22 14.36 12.12

PROFITABILITY RATIOS

Net Profit Margin -10.27 3.79 7.34 7.65 5.47
Return on Long Term Fund(%) 122.67 121.44 128.17 110.94 123.66
Return on Net Worth(%) -27.06 6.37 13.44 13.05 10.59

Debt Coverage Ratios


Credit Deposit Ratio

63.48

69.53

69.80

65.63

63.34
Investment Deposit Ratio 36.92 32.95 33.13 35.83 35.85
Cash Deposit Ratio 4.77 4.71 6.61 7.29 7.53
Total Debt to Owners Fund 25.05 19.96 21.72 22.07 23.69


Earnings Per Share
-21.87 8.64 15.42 13.51 9.71


ALTMAN Z SCORE:

Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
= 0

Where:

A = Working Capital/Total Assets
B = Retained Earnings/Total Assets
C = Earnings Before Interest & Tax/Total Assets
D = Market Value of Equity/Total Liabilities
E = Sales/Total Assets

In general, the lower the score, the higher the chance of bankruptcy. For example, a Z-
Score above 3.0 indicates financial soundness; below 1.8 suggests a high likelihood
of bankruptcy.

United Bank of India has a z score of 0 which means that there are very high chances of
bankruptcy.