Buy Praj Industries; target of Rs 475: Prabhudas Lilladher

Prabhudas Lilladher's research report on Praj Industries

Praj Industries (PRJ) reported mix quarterly performance with revenue remaining flat YoY, while EBITDA margins expanded 250bps YoY to 9.7%. Margins likely to sustain owing to execution of newer fixed price contracts amid normalizing commodity prices and likely pickup in execution of exports led engineering segment H2FY24 onwards. Domestic 1G Grain-based ethanol orderings might witness challenges owing to government reviewing its policy to supply excess rice from Food Corporation of India (FCI) to ethanol plants owing to grain shortage. However, increasing traction from Compressed Bio Gas (CBG) plants and improving opportunities from exports market for engineering segment will likely drive order inflows in near to medium term. Blending mandates coming up in countries like Indonesia, Mexico and Africa will likely boost international order booking in coming years. Praj and Indian Oil signed term sheet for JV formation to strengthen biofuels production capacities in India which includes initiatives like SAF, CBG, Biodiesel etc. We remain positive on PRJ in losng 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. and 4) healthy outlook for engineering segment from exports market.

Outlook

The stock is trading at PE of 25.6x/23.7x on FY24/25E. We maintain ‘BUY’ rating with TP of Rs475 (same as earlier) valuing it at PE of 27x FY25E EPS.