Buy Praj Industries; target of Rs 475: Prabhudas Lilladher

Prabhudas Lilladher's research report on Praj Industries

Praj reported healthy quarterly performance with revenue growth of ~21% and EBITDA margin expansion of 148bps YoY to 10.4%. FY23 order inflows came in at Rs50.6bn, up 17% YoY, driven by 1G ethanol orders in Bio Energy segment (up 22%-Rs33bn). As 1G order inflows are likely to peak out in FY24, order inflows sustainability in FY25 from newer opportunities will be closely watched. Recent trials of commercial flight with blend of Sustainable Aviation Fuel (SAF) by Praj, IOCL and Air Asia, augers well for future opportunities. (likely requirement of 140mn ltr SAF/yr to meet 1% blending). Praj has envisaged capex of ~Rs2bn, including 1) setting up a modern manufacturing facility for Energy Transition and Climate Action (ETCA) segment (Rs1bnhaving revenue potential of 30-40x over time) and 2) demo plant for Polylactic Acid (PLA) for commercialization of bioplastics (Rs600mn). We believe PRJ is well poised to benefit from upcoming opportunities given 1) its strong leadership in domestic ethanol plants (~50% market share), 2) global presence and 3) focus on future-ready technologies like 2G plants, Compressed Bio Gas (CBG), ECTA, SAF etc. We expect PRJ to report revenue/PAT CAGR of ~8%/16% from FY23-25E. The stock is currently trading at PE of 23x/21.3x FY24/25E.

Outlook

We maintain ‘BUY’ rating with revised TP of Rs475 (Rs495 earlier) valuing 27x FY25E (28x FY25E earlier), owing to plateauing order visibility post FY24.

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