Accumulate Praj Industries; target of Rs 618: Prabhudas Lilladher

Prabhudas Lilladher's research report on Praj Industries

We revise our FY24/25E estimate by 1%/6.3% post factoring in improved visibility from CBG plants and its engineering business (Modular process equipment), however, downgrade the rating to ‘Accumulate’ from Buy given recent steep run up in share price. We met with Mr. Shishir Joshipura, CEO and MD of PRAJ Industries (PRJ) where management highlighted that Global Biofuels Alliance (GBA) announced at G20 event is positive development for Bio-energy. Traction is witnessed from Compressed Bio Gas (CBG) plants and management expects tenders of 100 CBG plants to be out in next one year totaling to opportunity worth Rs100bn (~Rs1bn/plant). Post ethanol blending with petrol and CBG, upcoming opportunity arises from SAF from FY27 onwards. PRJ has been continuously focusing on R&D and has setup PRAJ Matrix with investment of US$30mn, which will focus on development of new technology and Renewable Chemicals and Materials (RCM). We remain positive on PRJ in long run, given 1) its strong leadership in domestic ethanol plant (~50-55% market share), 2) increasing traction from CBG plants, 3) focus on future-ready technologies like 2G plants, CBG, ECTA, SAF etc. 4) healthy outlook for engineering segment from exports market and 5) upcoming opportunity from SAF post FY27.

Outlook

The stock is trading at PE of 35.4x/31.1x on FY24/25E. We revise our TP to Rs618 (Rs475 earlier), valuing it at PE of 33x FY25E (27x FY25 earlier), factoring in improved revenue visibility, amidst opportunities arising from CBG and Sustainable Aviation Fuel (SAF) in long run. Downgrade to ‘Accumulate’.