Praj Industries (PRJ IN)

Rating: BUY | CMP: Rs474 | TP: Rs636

February 5, 2024 Robust opportunities across the bio-economy

Q3FY24 Result Update Quick Pointers:

☑ Change in Estimates | ☑ Target | ☑ Reco  Policy restricting use of sugar syrup as feedstock impacted Bio Energy
execution, leading to 9.1% YoY fall in quarterly revenue.
Change in Estimates

FY25E
Current
FY26E
Previous
FY25E FY26E
 Higher share of exports & services and lower RM costs drove margins higher.
Rating BUY ACCUMULATE
Target Price 636 611 We revise our FY24/25/26E EPS estimates by -5.2%/+2.1%/+9.2% factoring in
Sales (Rs. m) 42,316 51,165 43,873 48,809
lower execution this year followed by strong pipeline of opportunities across
% Chng. (3.5) 4.8
EBITDA (Rs. m) 4,570 5,833 4,563 5,369 segments going forward and upgrade to ‘Buy’ rating from Accumulate with a
% Chng. 0.2 8.6
EPS (Rs.) 19.1 23.9 18.7 21.9
revised TP of Rs647 (Rs611 earlier). Praj Industries (PRJ) reported mixed
% Chng. 2.0 9.2 quarterly performance with revenue declining 9.1% YoY, while EBITDA
margin expanded by 220bps YoY to 11.6%. Restriction on use of sugar syrup
Key Financials - Consolidated in ethanol production delayed execution (syrup-based contracts account for
Y/e Mar FY23 FY24E FY25E FY26E Rs2.5bn in the order book); however, we believe this is likely a temporary
Sales (Rs. m) 35,280 34,880 42,316 51,165
phenomenon. The company is aiming for 3x revenue growth by 2030 driven
EBITDA (Rs. m) 3,078 3,645 4,570 5,833
Margin (%) 8.7 10.5 10.8 11.4 by significant opportunities in exports (energy transition & climate action
PAT (Rs. m) 2,398 2,845 3,507 4,398 across the globe, low-carbon ethanol for SAF in US, etc.), ~Rs370bn
EPS (Rs.) 13.0 15.5 19.1 23.9
Gr. (%) 59.6 18.6 23.3 25.4 investment pipeline in CBG, and alternative feedstock in 1G & 2G ethanol.
DPS (Rs.) 4.5 6.2 7.6 9.6
Yield (%) 0.9 1.3 1.6 2.0 We remain positive on PRJ in long run given 1) its leadership in domestic
RoE (%) 24.1 24.5 25.9 27.6
ethanol (~50-55% market share), 2) large domestic CBG pipeline, 3) focus on
RoCE (%) 27.8 28.1 30.6 33.5
EV/Sales (x) 2.3 2.3 1.9 1.6 newer technologies like 2G ethanol, bio-manufacturing, SAF, multi feedstock
EV/EBITDA (x) 26.4 22.3 17.8 13.9 plants, etc. 4) healthy export outlook in Engineering driven by ETCA, and 5)
PE (x) 36.3 30.6 24.8 19.8
P/BV (x) 8.1 7.0 6.0 5.1
improving margins owing to growing share of services & exports. The stock
is trading at a P/E of 25.0x/19.9x FY25/26E. We roll-forward to Dec-25, valuing
the stock at a P/E of 28x Dec-25E (30x Sep-25E earlier). Upgrade to ‘Buy’.
Key Data PRAJ.BO | PRJ IN
52-W High / Low Rs.651 / Rs.299
Sensex / Nifty 71,731 / 21,772 Lower execution in Bio Energy drives revenue decline: Consolidated revenue
Market Cap Rs.87bn/ $ 1,049m
Shares Outstanding 184m fell 9.1% YoY to Rs8.3bn (PLe: Rs10.2bn), as domestic Bio Energy execution was
3M Avg. Daily Value Rs.788.76m impacted by the policy restriction on use of sugar syrup as feedstock, with revenue
falling 11.6% YoY to Rs5.9bn. Engineering revenue also fell 3.1% YoY to Rs1.7bn,
Shareholding Pattern (%) while HiPurity revenue was flattish at Rs700mn. Domestic revenue declined 13%
Promoter’s 32.81 YoY to Rs6.5bn, while exports rose 12% YoY to Rs1.7bn. Gross margin expanded
Foreign 17.37
Domestic Institution 13.09 by 700bps YoY to 45.7% (PLe: 42.8%) due to better mix (higher exports and
Public & Others 36.74
services) and softening material costs. EBITDA grew 12.1% YoY to Rs965mn (PLe:
Promoter Pledge (Rs bn) -
Rs.977mn). EBITDA margin increased by 220bps YoY to 11.6% (PLe: 9.6%), as
gross margin expansion was partly offset by higher employee costs (up 26.3% YoY
Stock Performance (%)
to Rs852mn). PAT rose 13.0% YoY to Rs704mn (PLe: Rs727mn), aided by better
1M 6M 12M
Absolute (13.5) 9.1 34.8 operating margins and a lower effective tax rate (23.4% vs 27.9% in Q3FY23),
Relative (13.2) (0.1) 14.3
despite interest costs rising sharply to Rs38mn (vs Rs8mn in Q3FY23).

Amit Anwani
Order book stands healthy at Rs39.5bn with increased export share: Q3 order
amitanwani@plindia.com | 91-22-66322250
inflow came in at Rs10.4bn (up 9.9% YoY) owing to healthy growth in Engineering
Shirom Kapur
shiromkapur@plindia.com | 91-22-66322344 (up 32% YoY to Rs1.2bn) and Bio Energy (up 9% YoY to Rs8.4bn), while HiPurity
fell 4% YoY to Rs0.7bn. Order book stands at Rs39.5bn (1.1x TTM revenue)
comprising of Bio Energy (77%), HiPurity (6%) and Engineering (17%).
Domestic/Export mix in the order book is 75/25% (vs 87/13% in Q3FY23).

February 5, 2024 1
 Praj Industries

Better mix (higher exports & services) and softening input costs drive EBITDA margin expansion of 220bps YoY
YoY gr. QoQ gr. YoY gr.
Y/e March (Rs mn) Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24 9MFY24 9MFY23
(%) (%) (%)
Revenue 9,115 10,040 7,367 8,824 8,286 (9.1) (6.1) 24,477 25,241 (3.0)
Total Revenues 9,115 10,040 7,367 8,824 8,286 (9.1) (6.1) 24,477 25,241 (3.0)
Expenditure 8,254 8,995 6,654 8,046 7,322 (11.3) (9.0) 22,022 23,208 (5.1)
as % of sales 90.6 89.6 90.3 91.2 88.4 90.0 91.9
Consumption of RM 5,583 5,925 4,395 4,990 4,496 (19.5) (9.9) 13,881 16,089 (13.7)
as % of sales 61.3 59.0 59.7 56.6 54.3 56.7 63.7
Employee Cost 675 705 628 889 852 26.3 (4.2) 2,369 1,871 26.6
as % of sales 7.4 7.0 8.5 10.1 10.3 9.7 7.4
Other expenditure 1,996 2,365 1,631 2,167 1,974 (1.1) (8.9) 5,772 5,248 10.0
as % of sales 21.9 23.6 22.1 24.6 23.8 23.6 20.8
EBITDA 860 1,045 713 778 965 12.1 24.1 2,456 2,033 20.8
Depreciation 72 95 88 91 109 50.8 19.7 287 208 38.3
EBIT 788 950 625 687 856 8.6 24.6 2,168 1,825 18.8
Other Income 79 200 163 171 101 28.3 (40.5) 435 258 68.6
Interest 8 22 11 10 38 360.7 274.1 60 24 149.5
PBT 859 1,128 777 847 919 7.0 8.5 2,543 2,059 23.5
Total Tax 236 247 190 224 215 (8.8) (4.2) 630 542 16.2
Adjusted PAT 623 881 587 623 704 13.0 13.1 1,914 1,517 26.1
(Profit)/loss from JV's/Ass/MI 0 0 0 0 0 (35.8) 24.5 0 0 -
PAT after MI 623 881 587 623 704 13.0 13.1 1,914 1,517 26.1
Extra ordinary items - - - - - - - - - -
Reported PAT 623 881 587 623 704 13.0 13.1 1,914 1,517 26.1
Adjusted EPS 3.4 4.8 3.2 3.4 3.8 13.0 13.1 10.4 8.3 26.1

Margins (%) Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24 bps bps 9MFY24 9MFY23 bps
Gross 38.7 41.0 40.3 43.4 45.7 700 230 43.3 36.3 703
EBITDA 9.4 10.4 9.7 8.8 11.6 220 283 10.0 8.1 198
EBIT 8.6 9.5 8.5 7.8 10.3 168 255 8.9 7.2 163
EBT 9.4 11.2 10.5 9.6 11.1 167 149 10.4 8.2 223
PAT 6.8 8.8 8.0 7.1 8.5 166 144 7.8 6.0 181
Effective Tax rate 27.5 21.9 24.5 26.5 23.4 (406) (310) 24.8 26.3 (156)
Source: Company, PL

February 5, 2024 2
 Praj Industries

Conference Call Highlights

 Policy restriction on use of sugar syrup as feedstock created a near-term
challenge in the market. Government revised the order to allow use of both
sugar syrup and B-heavy molasses, but with a cap of diversion of up to 1.7mn
MT of sugar for ethanol production.

 Government announced incentive of Rs6.87 per liter for encouraging ethanol

production from C-Heavy molasses, and an upward revision in price by Rs5.79
per liter to Rs71.86 per liter for ethanol produced from maize.

 1G Domestic: Unusual quarter with no order finalization for sugar-based

ethanol plants, though this should be a temporary situation. Offering solutions
to convert single feedstock plants to multi feed stock plants. Demand for
ethanol is not going away; need to create flexibility at the input side. Syrup-
based order book is ~Rs2.5bn – this execution is delayed. B-Heavy order book
is ~Rs4.5bn, but this also has option to use C-Heavy feedstock. Witnessed
steady flow of starchy feedstock-based inquiries getting converted into orders.

 2G Ethanol: IOCL Panipat plant recommissioning in progress. Delay has

occurred vs original target due to challenges in feedstock supply chain (quality
and physical availability). An agreed two-stage program with IOCL will
establish the performance of plant in Q1FY25.

 Engineering Services: Energy transition is a very important growth agenda

globally for the business. ~2/3rd third of the order book is from ETCA. GenX
Mangalore facility expected to start commercial production by mid-Feb. This is
facilitating diversification of order book with ETCA. ZLD is also seeing healthy
inquiry inflow. Establishing strong distribution network to offer solutions in
enzymes, yeast and performance enhancers.

 International business saw minor shifts in order booking cycle, but inquiries are
very healthy with energy transition as a clear phenomenon. GenX plant has
taken an additional quarter to get commissioned; hence there are delays in
orders from international engineering customers.

 Sustainable Aviation Fuel (SAF): IRF set goal in US of 3bn gallons of SAF
capacity by 2030 – 1.6bn via HEFA route and balance via alcohol to jet route,
which requires low-carbon ethanol. Accordingly, there is large opportunity to
convert ethanol plants in US to low-carbon. Every 2L of ethanol will give 1L of
SAF. Currently working on 6 engineering projects in US. Clarification on
Section 45Z of IRA is expected before Jun-24. This can help in converting the
engineering contracts into supply of equipment in H2FY25.

 Compressed Biogas (CBG): CBG Blending Obligation mandates blending of

CBG in CNG & PNG from FY26. Blending to reach 5% by FY29, creating
Rs370bn opportunity to establish 750 CBG projects by 2029. Capacity creation
will take time, but may see healthy inquiry volumes develop towards end of
FY25. Key question is on accessibility to feedstock; government announced
financial assistance for feedstock collection.

 Bio manufacturing: Installation of PLA demo plant is nearing completion;

expect operations to start by April-24.

February 5, 2024 3
 Praj Industries

Financials
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e Mar FY23 FY24E FY25E FY26E Y/e Mar FY23 FY24E FY25E FY26E

Net Revenues 35,280 34,880 42,316 51,165 Non-Current Assets

YoY gr. (%) 50.6 (1.1) 21.3 20.9
Cost of Goods Sold 22,014 19,742 23,867 28,525 Gross Block 5,361 6,661 7,361 7,861
Gross Profit 13,266 15,138 18,450 22,641 Tangibles 5,361 6,661 7,361 7,861
Margin (%) 37.6 43.4 43.6 44.3 Intangibles - - - -
Employee Cost 2,576 3,244 3,766 4,451
Other Expenses 1,675 1,971 2,581 3,300 Acc: Dep / Amortization 2,996 3,371 3,798 4,293
Tangibles 2,996 3,371 3,798 4,293
EBITDA 3,078 3,645 4,570 5,833 Intangibles - - - -
YoY gr. (%) 58.8 18.4 25.4 27.6
Margin (%) 8.7 10.5 10.8 11.4 Net fixed assets 2,366 3,291 3,564 3,569
Tangibles 2,366 3,291 3,564 3,569
Depreciation and Amortization 302 375 427 495 Intangibles - - - -

EBIT 2,776 3,270 4,143 5,338 Capital Work In Progress 735 735 735 735
Margin (%) 7.9 9.4 9.8 10.4 Goodwill - - - -
Non-Current Investments 1,105 1,121 1,151 1,288
Net Interest 46 70 47 56 Net Deferred tax assets 111 111 111 111
Other Income 458 593 592 599 Other Non-Current Assets 50 70 127 153

Profit Before Tax 3,187 3,793 4,689 5,880 Current Assets

Margin (%) 9.0 10.9 11.1 11.5 Investments 4,584 4,360 4,443 4,605
Inventories 3,336 4,300 5,101 5,958
Total Tax 789 948 1,182 1,482 Trade receivables 7,948 7,549 8,811 10,513
Effective tax rate (%) 24.8 25.0 25.2 25.2 Cash & Bank Balance 1,448 1,472 1,567 1,745
Other Current Assets 4,316 5,581 6,982 8,698
Profit after tax 2,398 2,845 3,507 4,398 Total Assets 26,075 28,653 32,692 37,622
Minority interest - - - -
Share Profit from Associate - - - - Equity
Equity Share Capital 367 367 367 367
Adjusted PAT 2,398 2,845 3,507 4,398 Other Equity 10,413 12,119 14,224 16,863
YoY gr. (%) 59.6 18.6 23.3 25.4 Total Networth 10,780 12,487 14,591 17,230
Margin (%) 6.8 8.2 8.3 8.6
Extra Ord. Income / (Exp) - - - - Non-Current Liabilities
Long Term borrowings - - - -
Reported PAT 2,398 2,845 3,507 4,398 Provisions - - - -
YoY gr. (%) 59.6 18.6 23.3 25.4 Other non current liabilities - - - -
Margin (%) 6.8 8.2 8.3 8.6
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt - - - -
Total Comprehensive Income 2,398 2,845 3,507 4,398 Trade payables 5,050 5,447 6,840 8,411
Equity Shares O/s (m) 184 184 184 184 Other current liabilities 10,356 10,830 11,371 12,092
EPS (Rs) 13.0 15.5 19.1 23.9 Total Equity & Liabilities 26,075 28,653 32,692 37,622
Source: Company Data, PL Research Source: Company Data, PL Research

February 5, 2024 4
 Praj Industries

Cash Flow (Rs m) Key Financial Metrics

Y/e Mar FY23 FY24E FY25E FY26E Year
Y/e Mar FY23 FY24E FY25E FY26E

PBT 3,187 3,793 4,689 5,880 Per Share(Rs)

Add. Depreciation 302 375 427 495 EPS 13.0 15.5 19.1 23.9
Add. Interest 11 70 47 56 CEPS 14.7 17.5 21.4 26.6
Less Financial Other Income 458 593 592 599 BVPS 58.6 67.9 79.4 93.7
Add. Other (32) - - - FCF 6.9 2.8 6.4 11.7
Op. profit before WC changes 3,468 4,238 5,163 6,431 DPS 4.5 6.2 7.6 9.6
Net Changes-WC (1,222) (1,470) (2,097) (2,295) Return Ratio(%)
Direct tax (625) (948) (1,182) (1,482) RoCE 27.8 28.1 30.6 33.5
Net cash from Op. activities 1,621 1,819 1,884 2,655 ROIC 53.1 42.3 41.2 41.8
Capital expenditures (353) (1,300) (700) (500) RoE 24.1 24.5 25.9 27.6
Interest / Dividend Income 80 - - - Balance Sheet
Others (571) 224 (83) (162) Net Debt : Equity (x) (0.6) (0.5) (0.4) (0.4)
Net Cash from Invt. activities (844) (1,076) (783) (662) Net Working Capital (Days) 64 67 61 58
Issue of share cap. / premium 4 - - - Valuation(x)
Debt changes - - - - PER 36.3 30.6 24.8 19.8
Dividend paid (771) (1,138) (1,403) (1,759) P/B 8.1 7.0 6.0 5.1
Interest paid (42) (70) (47) (56) P/CEPS 32.3 27.1 22.2 17.8
Others (125) 488 443 583 EV/EBITDA 26.4 22.3 17.8 13.9
Net cash from Fin. activities (934) (720) (1,006) (1,232) EV/Sales 2.3 2.3 1.9 1.6
Net change in cash (157) 24 94 761 Dividend Yield (%) 0.9 1.3 1.6 2.0
Free Cash Flow 1,269 519 1,184 2,155 Source: Company Data, PL Research
Source: Company Data, PL Research

Quarterly Financials (Rs m)

Y/e Mar Q4FY23 Q1FY24 Q2FY24 Q3FY24
Net Revenue 10,040 7,367 8,824 8,286
YoY gr. (%) 20.8 0.7 0.2 (9.1)
Raw Material Expenses 5,925 4,395 4,990 4,496
Gross Profit 4,115 2,972 3,834 3,790
Margin (%) 41.0 40.3 43.4 45.7
EBITDA 1,045 713 778 965
YoY gr. (%) 40.9 35.7 20.3 12.2
Margin (%) 10.4 9.7 8.8 11.6
Depreciation / Depletion 95 88 91 109
EBIT 950 625 687 856
Margin (%) 9.5 8.5 7.8 10.3
Net Interest 22 11 10 38
Other Income 200 163 171 101
Profit before Tax 1,128 777 847 919
Margin (%) 11.2 10.5 9.6 11.1
Total Tax 247 190 224 215
Effective tax rate (%) 21.9 24.5 26.5 23.4
Profit after Tax 881 587 623 704
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 881 587 623 704
YoY gr. (%) 52.9 42.2 29.4 13.0
Margin (%) 8.8 8.0 7.1 8.5
Extra Ord. Income / (Exp) - - - -
Reported PAT 881 587 623 704
YoY gr. (%) 52.9 42.2 29.4 13.0
Margin (%) 8.8 8.0 7.1 8.5
Other Comprehensive Income - - - -
Total Comprehensive Income 881 587 623 704
Avg. Shares O/s (m) 184 184 184 184
EPS (Rs) 4.8 3.2 3.4 3.8
Source: Company Data, PL Research

February 5, 2024 5
 Praj Industries
Price Chart Recommendation History

(Rs)
No. Date Rating TP (Rs.) Share Price (Rs.)
650
1 09-Jan-24 Accumulate 611 540

519 2 01-Nov-23 Accumulate 611 534

3 05-Oct-23 Accumulate 618 571
389
4 18-Sep-23 Accumulate 618 581
258 5 28-Jul-23 BUY 475 416
6 06-Jul-23 BUY 475 371
127

Jan - 24
Aug - 21

Feb - 22

Aug - 22

Aug - 23
Feb - 21

Feb - 23

7 26-May-23 BUY 475 374

8 11-Apr-23 BUY 495 343
9 06-Feb-23 BUY 495 364

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 ABB India Accumulate 4,984 4,753
2 Apar Industries Accumulate 6,890 6,069
3 Bharat Electronics Hold 182 186
4 BHEL UR - 195
5 Carborundum Universal BUY 1,347 1,116
6 Cummins India Hold 1,811 2,005
7 Engineers India BUY 166 199
8 GE T&D India UR - 585
9 Grindwell Norton BUY 2,604 2,283
10 Harsha Engineers International Accumulate 415 395
11 Hindustan Aeronautics BUY 2,266 2,996
12 Kalpataru Projects International BUY 740 737
13 KEC International Hold 686 657
14 Larsen & Toubro BUY 4,071 3,480
15 Praj Industries Accumulate 611 540
16 Siemens Accumulate 4,359 4,020
17 Thermax Hold 2,771 3,200
18 Triveni Turbine Accumulate 450 407
19 Voltamp Transformers Hold 7,619 7,910

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

February 5, 2024 6
 Praj Industries

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Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").
Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India | Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
www.plindia.com

February 5, 2024
Digitally signed by Amnish Aggarwal
DN: c=IN, st=Maharashtra,
7
Amnish Aggarwal
2.5.4.20=21151ea12dd366d1ac370cb42343ee44b6e851c37bdbac5f86aa4ff3e6948487,
postalCode=400018, street=570,SADHNA HOUSE,PB
MARG,WORLI,Mumbai,Maharashtra-400018,
pseudonym=5359cd84fad1bdb19c658b8fa14b58ef,
serialNumber=7a6f13691881d5a8af6353865a61b48b7040e72f4a1bf53182e368b3ca14
a5e4, ou=NA, o=PRABHUDAS LILLADHER PRIVATE LIMITED, cn=Amnish Aggarwal
Date: 2024.02.05 19:33:27 +05'30'