This Small Cap Stock Grew 499.56% In 5 Years, Brokerage Suggests Buy For Rs 477 Target Price

Axis Securities suggests "buy" Praj Industries Limited Stock for potential gains of up to 13% with an estimated target price of Rs 477 per share. Praj Industries is among Axis Securities' top-pick stocks for October 2022. This small-cap industrial sector stock has a market capitalisation of Rs 7,794.17 crore.

Praj Industries Ltd, incorporated in 1985 and headquartered in Pune is a supplier/constructor of ethanol plants, a global company providing various engineering solutions with a focus on the environment, energy, and agri-process industry. Praj has a presence across the globe with more than 750 references in more than 75 countries. It is the Indian market leader in the Ethanol Plant market and among the top ZLD players in the country.

Stock Outlook & Returns

The current market price of Praj Industries stock is Rs 424.35 per share on NSE. In a week, the stock surged 2.34%, and in 1 month, it surged by 2.18%, respectively. It has given 10.55% in the past 3 months, whereas, in the past 1 year, it has given 25.16%. In terms, if a high return on investments, the stock performed well on long-term investments. It has given a multibagger return of 295.3% in the past 3 years and a whooping multibagger return of 499.36% returns in the past 5 years. Its ROE is 16.40%, which is the highest among its peer funds. It is a debt-free stock.

Strong Demand for Domestic Grain

During Q4FY22, 66% of the new order book was for Grain-based capacity (starchy feedstock), indicating momentum in Grain-based distilleries. This will ensure a wide spread of Ethanol across the country and help in achieving preponed EBP-20 targets. During the current quarter, the company received orders worth 433 Cr from grain-based distilleries. The BSPD has announced the availability of 17 MMT of surplus grains which will help the company continue its starchy feedstock momentum.

 

Key Business Updates

India has achieved the highest-ever Ethanol blend of ~10% in 2022. The government announced a cap of 10 MMT on Sugar Exports which will help to improve the availability of sugar in the country. On the International front, the company is seeing good momentum in capacity building in North and South America (the company commissioned its first plant in Brazil).

Strong Execution

The company is witnessing more growth in Grain- based distilleries which has reduced the seasonality of the business which was predominantly based on the sugar cycle. This has led to year-round utilisation of assets resulting in an improved asset turnover ratio from 0.98 to 1.23 in FY22. This has also led to less strain on the supply chain.

 

CBG Update

The government hiked the price of CBG from Rs 46 to Rs 54 and has indexed it to the price of CNG. This, along with the positive traction in the co-product development, shall improve the overall commercial feasibility of the CBG plant.

Improving demand for CPS and ZLD business

Praj CPS business is expected to do well with the increasing focus on Hydrogen based energy development we shall see good traction. Increasing Environmental focus shall abode well for ZLDS business.

Buy for a target price of Rs 477 per share

According to the brokerage, Praj is witnessing strong growth in its key segment Bioenergy in Domestic business, the overall demand-supply gap of Ethanol, increased interest in grain-based distilleries and decarbonization impetus is auguring well for Praj along with development in other key verticals such as CPS, ZLD & High Purity gaining traction. Praj is a key beneficiary of multiple tailwinds provided by the bio-economic revolution, giving strong growth & revenue visibility for the next 3-5 years. "The company's key growth levers remain strong & therefore we maintain our BUY rating with a Target Price of Rs 477 valuing the company at 22xFY24 EPS," the brokerage has said.

Key risks: a) Raw material cost pressure in steel; b) Volatile RM weighing on operating profitability in the near term; c) Russia-Ukraine crisis to dampen business in the Euro region.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. 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.