Stock To Buy: This Multibagger Stock Reported Strong 64.6% YoY Revenue Growth, Brokerage Sees 23% Upside

Prabhudas Lilladher has a buy call on Praj Industries Ltd.(Praj) stock with a target price of Rs 520 per share. According to the brokerage's target price, the stock can rise 23% from its current level in 12 months.

Praj Industries Ltd, founded in 1985 and headquartered in Pune, is an Engineering sector company. It has a global presence with over 750 references in over 75 countries. It began as a supplier of an ethanol plant and has since grown to become a global company offering a variety of solutions with a focus on the environment, energy, and agri-process industries.

Stock Outlook & Returns

This is a small-cap capital goods stock having a market cap of Rs 7,806.11 crore. The current market price (CMP) of the stock is Rs 435.05 per share on NSE. Its 52-week low level is Rs 289.05 and its 52-week high is Rs 461.60, respectively.

In the past 1 week, the stock fell 3.48%, giving a negative return. Whereas in the past 1 and 3 months, it surged 4.62% and 11.05%, giving a positive return on investments. It gave a 32.31% positive return over the past 1 year. In the past 3 and 5 years, it has given multibagger returns of 295.93% and 522.88%, respectively.

Commodity inflation, revenue mix impacts margin

PRAJ reported strong revenue growth of 64.6% YoY to Rs8.8bn (vs PLe ~Rs8.7bn). On segmental front, Bioenergy reported a strong revenue growth of ~66.9% YoY to Rs6.6bn, Engineering business grew 84% YoY to Rs1.7bn and Hi-Purity segment grew 9.8% YoY to Rs526mn. EBITDA grew 46.6% YoY to Rs676mn (PLe ~Rs721mn), while EBITDA margin declined 62bps YoY to 7.4% (vs PLe ~ 8.3%), majorly impacted due to lower gross margins (34.7% in Q2FY23 vs 37.2% in Q2FY22). PAT grew 44.3% YoY to Rs481mn (vs PLeRs541mn).

 

Healthy order book

Order inflows came in at Rs9.8bn up 31.7% YoY, mainly driven by healthy growth in Bioenergy segment up 44.8% YoY to Rs8.4bn. Order book stands healthy at Rs33.5bn (1.1x TTM revenue) comprising of Bioenergy (79%), HiPurity (4%) and Engineering segment (17%).

 

Outlook - Brokerage's comments

Praj Industries (PRAJ) reported a reasonable quarterly performance with revenue growth of 64.6% YoY. EBITDA margin were impacted during the quarter owing to higher contribution of domestic revenue, commodity inflation and supply chain issues. Though margins are likely to improve from H2FY23 with commodity softening, improving supply chain conditions and favorable business mix. Praj's domestic market share has increased from 60% to 66% in 1G ethanol plant during the quarter, with increasing focus of customers on quality products. On exports front, healthy traction in order inflows is likely to be witnessed from H2FY23 onwards, led by increasing ethanol blending opportunities in geographies like Canada and Mexico, while CPES exports likely to be driven by modular process equipment in green hydrogen space.

 

Buy for a target price of Rs 520 per share

Commenting in the valuation, Prabhuda Lilladher said, "We believe PRAJ is well poised for growth in the coming years given 1) its strong leadership in domestic ethanol plants (~60-65% market share), 2) global presence (+100 countries) 3) focus on future-ready technologies like 2G plants, Compressed Bio Gas (CBG) and 4) diversification in Wastewater Treatment (ZLD), Critical Process Equipment's & System (CPES) & HiPurity business. Factoring in lower margins in H1FY23 and revenue mix skid towards domestic market, we lower our FY23E EPS by 5.4%, but keep it unchanged for FY24E and FY25E. The stock is trading at 37x/25.7x/24.5x FY23/24/25E. We roll forward our TP to Sep'24E with revised TP of Rs520 (Rs507 earlier) valuing it at 30x Sep24E EPS and maintain 'Buy' rating."

 

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.