Buy Praj Industries; target of Rs 85: Edelweiss

Edelweiss' research report on Praj Industries

Praj Industries (Praj) extended dismal performance for the second successive quarter - Q1FY18 revenue and order intake declined 10%/41% YoY respectively, as ethanol business grappled with a challenging environment (both international and domestic). Domestic market is expected to see some revival on: 1) Favourable monsoon; 2) Rise in import duty on sugar from 40% to 50%; and 3) Higher international prices, which could propel downstream ethanol investments. While near-term headwinds persist, we expect Praj’s focus on scalable businesses like 2G ethanol, high purity and critical process equipment to be key growth drivers over next 2‐3 years. Maintain ‘BUY’.

Outlook

We trim FY18/19E EPS by 7%/10% in FY18E/FY19E as we anticipate delays in execution of the Petrobras order (20% of OB) and margin pressure in ethanol business. Key downside risks to our earnings estimates remain deletion of Petrobras order from OB and delayed ordering in 2G ethanol space. However, over next 2‐3 years, we envisage Praj to focus on scalable businesses like high purity, critical process equipment and 2G ethanol which would drive future growth. At CMP, stock trades at 17x FY19E. Maintain ‘BUY’ with revised TP of INR85 (INR94 earlier), based on 20x FY19E.