Welcome to the latest edition of Hidden Gems Weekly. In earlier weeks, we dug deep into a real estate stock, a packaging company and an engineering gem. This week, we turn to something that’s core to the economy – steel.
In steel, turning points rarely arrive with drama. They arrive quietly, usually inside the cost structure, long before the market notices.
Prakash Industries is in that phase right now.
The conversation in the market is stuck on coal.
But coal is only the first advantage the company is unlocking. What is more interesting is how that single development is combining with integration depth, domestic infrastructure exposure, rising volumes, disciplined finances, stable ferro alloy spreads and a stronger boardroom.
Each piece feeds into the next. The result is a smallcap steelmaker that is finally building a margin compass instead of drifting through the cycle.
Prakash Industries reported net sales of Rs 4,014 crore in the financial year ending March 2025. Operating profit stood at Rs 520 crore with margins at 14%. The company sold 9.78 lakh tonnes of steel products, its highest ever.
On the surface, these numbers look solid, albeit predictable. They do not scream re-rating.
The Bhaskarpara Factor: From Cost Center to Profit Center
Then comes the coal story. The Bhaskarpara commercial coal mine started production in February 2025 and delivered 76,351 metric tonnes before year-end. Management believes the first full year of operation will take coal extraction to about one million tonnes.
For a company of Prakash’s size, this is not a small operational win.
It changes the cost arithmetic.
A steel plant buying coal at market prices absorbs every shock. A steel plant with captive coal absorbs fewer and converts more of every tonne into profit.
Once Bhaskarpara stabilizes, the company expects substantial cost reduction and improved operational efficiency.
Coal is the first domino. But it is not the only one that has fallen into place.
Integration depth that most smallcaps cannot match
Most smallcap steelmakers in India are single vertical operators who depend on the market for inputs and external suppliers for stability.
Prakash has quietly built a more complete ecosystem. It manufactures sponge iron, billets, ferro alloys and finished products such as wire rods, TMT bars and high bond wire.
It runs sinter and oxygen plants. It has captive power generation and even wind power capacity.
This allows Prakash to run a tighter cost ship across the value chain. Mainly as when raw material volatility hits the sector, integrated players usually survive better. Simply because they control conversion processes and energy inputs.
Thus backward integration is not flashy; it is functional.
Every tonne that flows through an integrated chain keeps more margin inside the company instead of leaking to suppliers.
A direct play on India’s construction boom
Prakash sells the exact products that India’s construction and infrastructure cycle consumes.
Wire rods. TMT bars. High bond wire.
These categories do not depend on export prices or global volatility. They depend on domestic cement demand, road building, urban housing and government project execution.
That cycle has been strong for several years and shows no sign of losing momentum. If the infrastructure cycle continues to expand, Prakash benefits directly through product volumes rather than abstract macro projections.
The Efficiency Engine: Record Sales Without the Coal Kicker
This is where the story becomes sharper.
The company achieved its highest ever steel sales volume in FY25, even before the coal mine was operational for a full quarter.
The Champa plant continues to run efficiently. Moreover, once stable coal supplies flow internally instead of through purchase contracts, the plant can operate at more predictable utilization levels.
This helps with volume growth without reckless debt. Something that investors look for in old economy stocks.
The Q2 FY26 results prove that, but they also show where the pressure came from.
Net sales for the quarter were about Rs 723 crore, down roughly 33% year-on-year from the Rs 1,077 crore reported in Q2 FY25.
Profit after tax came in at about Rs 62 crore, compared to about Rs 90 crore a year earlier, a decline of around 31%.
The softness was largely due to an extended monsoon that hit both steel dispatches and coal extraction. Even then, the company mined about 1.97 lakh tonnes of coal in the quarter, which shows that Bhaskarpara has moved from commissioning to scale.
The ferro alloys advantage that smoothens margins
Ferro alloy production is not common in smallcap steel companies. It requires additional technical capability and integration.
Prakash has this vertical.
This helps smoothen margin swings because ferro alloy spreads often behave differently from commodity steel spreads. When one part of the value chain softens, ferro alloys can provide a buffer.
A balance sheet built for downcycles
Prakash Industries has built a financial profile very different from the debt-heavy stereotype of the sector.
Interest cost has fallen year after year.
Debt is almost negligible with a debt equity ratio of 0.13. Interest coverage is healthy at 9 times.
There has been no reckless expansion or debt-fuelled growth.
This has allowed the company to be generous towards its investors with a solid dividend yield of 1.5%.
Conservative finances matter even more. Investors reward companies that grow within their means.
A boardroom that blends promoter drive with oversight
Prakash is a promoter driven company led by Chairman V. P. Agarwal, Managing Director Vikram Agarwal and Joint Managing Director Kanha Agarwal.
The nine member board includes five independent directors.
Institutional investors watch board composition closely in capital heavy, regulatory sensitive sectors. A balanced board is a form of risk insurance.
As of the latest shareholding, 7.96% of promoter shares are pledged. The number has improved over the past year, but it is still a point large investors will not ignore.
Pledged shares introduce financial risk because they are linked to promoter borrowings, and any stress at the promoter level can create selling pressure in the stock. The improvement is positive, but the presence of pledging keeps is something investors must watch closely.
Valuation rarely waits for perfection
Prakash is still being priced like a company stuck in the old cycle. At about 7.4 times earnings, just below its own five year median, the market seems to be paying for the past rather than the cost reset taking shape.
The coal advantage, cleaner balance sheet and steadier margins have not made it into the multiple yet. If the new economics hold, the rerating usually follows before anyone realises it has begun.
The risks investors must still respect
Mining is never a straight line.
Output can vary with rainfall, logistics and permitting.
Steel demand is cyclical and tied to macro momentum.
Raw material markets remain unpredictable even with captive coal. There is also an active legal overhang from coal block allocation matters that must be tracked. None of these risks are trivial.
Why all of this adds up to a different kind of steel story
Even after acknowledging the risks, the larger picture is hard to miss.
Prakash is stacking multiple structural levers at the same time. Captive coal. Integrated operations. Ferro alloy stability. Domestic infrastructure demand. Volume growth. Clean balance sheet. Efficiency processes. Stronger board oversight.
Each lever reinforces the others. This is how industrial companies move from unpredictable to dependable. And when a steel company becomes more predictable, the market usually notices.
Investors should not focus on the coal mine alone.
The real story is the combination. Coal lowers cost. Integration cushions volatility. Infrastructure lifts volumes. Ferro alloys stabilise spreads. Financial discipline reduces risk. Operational efficiency improves yield. Governance builds confidence.
There are very few smallcap steel companies in India where so many pieces are clicking at the same time.
Prakash Industries is not a momentum trade. It is a structural shift taking shape inside a company that has kept its head down for years. If the coal mine delivers the volumes management expects and the steel plant crosses one million tonnes of output with controlled costs, the market may begin valuing Prakash for what it is becoming. Not just a steel producer, but a stable industrial platform built layer by layer.
And that is exactly the kind of story big investors accumulate before the rest of the market catches on.
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.
Disclosure: The writer and her dependents do not hold the stocks discussed in this article. The website managers, its employee(s) and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.