This Co. May Benefit From Ethanol Plants, Bio Gas & 2G Plants, Buy Stock, Says PL

Bokerage firm, Prabhudas Lilladher has a "buy" call on the stock of Praj Industries and has placed a "buy" call. The company believes that its its strong leadership in domestic ethanol plants (50% market share), global presence and focus on future-ready technologies like 2G plants, Compressed Bio Gas would help.

Revising estimates

Prabhudas Lilladher has revised its FY23/24 estimates by 6.6%/-2.3%, factoring in strong Q3 performance and completion of legacy orders in medium term. "Praj Industries (PRJ) reported healthy quarterly revenue (up 55% YoY), along with EBITDA margins improving 139bps YoY to 9.5%. The company has turned selective on taking profitable orders to protect its margins, especially in starchy-based 1G-plants orders from new customers. Nonetheless, order for ~4.5-5bn liter is yet to be tendered out to meet EBP20 target, for which it's addressable opportunity is ~Rs60bn. PRJ is in advance stage of discussion for 2G ethanol plant offerings in Europe. Management guided 1) EBP20 (1G plant) to be short term growth driver, 2) CBG and 2G plants both to drive medium term growth and 3) Sustainable Aviation Fuel (SAF) to drive growth in the long run," the brokerage has said.

Buy the stock of Praj Industries with a price target of Rs 495

Prabhudas Lilladher believes Praj is well poised to benefit from upcoming opportunities given 1) its strong leadership in domestic ethanol plants (50% market share), global presence and focus on future-ready technologies like 2G plants, Compressed Bio Gas (CBG) etc. "We roll forward to FY25E and maintain 'BUY' rating at revised target price of Rs 495 (Rs 520 earlier) valuing 28x FY25E EPS," the brokerage has said.

Key segments drives revenue growth of 55% YoY

Praj Industries reported strong revenue growth of 55.4% YoY to Rs 9.1 billion (vs PL estimate of Rs 9.2 billion). "On segmental front, Bioenergy reported a strong revenue growth of 48% YoY to Rs 6.6 billion, Engineering business grew 87.6% YoY to Rs1.6bn and Hi-Purity segment grew 45.9% YoY to Rs728mn. EBITDA grew 82.3% YoY to Rs860mn (PL estimate of Rs721mn), with EBITDA margin expanding by 139bps YoY to 9.5%, on account of better absorption of fixed overheads and older orders getting to near completion level. PAT grew 68.2% YoY to Rs623mn (vs Prabhudas Lilladher estimate of Rs 527 mn), mainly due to strong operating performance," the brokerage has said.

Healthy order book at Rs 33.8bn

According to PL, order inflows came in at Rs9.4bn (down 1.3% YoY), mainly driven by healthy growth in Bioenergy segment up 26.5% YoY to Rs7.7bn. "Engineering business order inflows were down 67% YoY to Rs 944 bn, due to high base. Enquiry pipeline continues to remain strong from 1G ethanol plant in near term. Order book stands healthy at Rs33.8bn (1x TTM revenue), comprising of Bioenergy (81%), HiPurity (1%) and Engineering segment (18%). Automobile sector is gearing up for ethanol adoption beyond EBP20 (flex flue engine), which will drive demand post EBP20. CBG is likely to witness traction, with government focus on clean energy and introduction of 5% CBG mandate for organizations selling natural and Bio Gas," the brokerage has said.