Buy Praj Industries; target of Rs 815: Prabhudas Lilladher

Prabhudas Lilladher's research report on Praj Industries

We recently interacted with Praj Industries’ management team, wherein they highlighted opportunities across energy transition & climate action (ETCA), compressed biogas (CBG), SAF, low-carbon ethanol, and services, which will propel the company to achieve its target of 3x revenue growth by 2030. Growth will be largely driven by exports, with Praj looking to increase export revenue share to ~50% by 2030 (vs ~19% currently). Globally, increased focus on ETCA by oil & gas majors is leading to strong traction in modularization solutions. There is also a significant opportunity to convert ethanol plants in the US to low-carbon to cater to the country’s 3bn gallon SAF capacity target by 2030. Brazil market is opening up as well with a growing pipeline of grainbased ethanol plants. In India, CBG continues to remain a robust opportunity, while there is also potential for ethanol blending in diesel. Meanwhile, Praj is focusing on expanding its services business to ~10% of revenue by 2030 (vs ~4% currently). We remain positive on PRJ in the long run given 1) its leadership in domestic ethanol (50-55% market share), 2) large domestic CBG pipeline, 3) healthy export outlook in Engineering driven by ETCA, 4) focus on new technologies such as 2G ethanol, SAF, bio-manufacturing, and multi-feedstock plants, and 5) improving margins owing to growing share of exports & services.

Outlook

The stock is trading at a P/E of 37.4x/29.2x FY25/26E. We maintain ‘Buy’ rating on the stock with a revised TP of Rs815 (Rs671 earlier), valuing the stock at a P/E of 34x F26E (28x FY26E earlier) factoring in substantial long-term growth opportunities amid a stable policy environment.