Praj Industries - Powered by Ethanol
Updated: Jan 13
Company Name – Praj Industries Ltd (Praj)
Current Share Price – INR 333(June 8, 2022)
Market Cap – INR 6,112 cr
1. What is interesting about the stock?
Praj Industries Ltd is a bio-based engineering and technology company specializing in TEMPO (Technology, Engineering, Manufacturing, Project Management, and Operations and Maintenance). It was established in November 1985 as Praj Counseltech Pvt Ltd. Praj Industries Ltd is a world leader in designing, engineering, manufacturing, and commissioning biofuels, breweries, industrial wastewater treatment, bio-consumables, and process equipment and systems. While ethanol process technologies, plants, and equipment, and brewery plants and equipment provide considerable income, Praj is also developing a sizable portfolio of business from water and wastewater treatment systems, high-purity systems, and key process equipment. Praj, headquartered in Pune, India, has a global presence, with 1,000+ references in 100+ countries on all five continents. It operates four manufacturing plants, primarily in Gujarat and Maharashtra. Furthermore, the Company has around 300 patents. Its segment-wise revenue distribution is HiPurity (12%), Engineering (20%), and Bioenergy (68%). Its region-wise revenue distribution is Domestic (77%) and Export (23%).
Praj’s' sustainability systems monitor the essential parameters, targeting that every new generating plant exceeds previous production, water, energy, and effluent standards. In addition, the business offers a variety of innovations under the Biomobility Platform:
SHIFT: High Brix fermentation technique for lowering the effluent volume and water and energy requirements in the Evaporation (ZLD) sector.
Maximol: The capacity of ethanol dehydration facilities has been increased by 30% when employing this technology thereby assisting clients in increasing plant capacity.
Bio-syrup technology allows customers to boost their ethanol output while also retaining sugar-rich streams for more extended periods.
Alcohol MVR: Integration of MVR with distillation section reduces thermal energy (greenhouse gas emissions).
Rengas Technique is an advanced bio methanation technology based on a patented microbiological pre-treatment for manufacturing Compressed Biogas (renewable methane gas) from agricultural leftovers and pressmud.
To manufacture ethanol from softwood, CellunitiTM Technology is being developed.
Sustainable Aviation Fuel: Praj is also in the process of developing and commercializing sustainable aviation fuel (SAF) technology for aircrafts.
Co-product maximization: Human-grade proteins are in high demand. The business is working on a technique that will allow it to produce human-grade protein as a valued co-product of grain-based distilleries.
In addition to the technologies indicated above for the Bio MobilityTM platform, the Company has launched Pharma Grade Ethanol, a one-of-a-kind capex and opex optimized solution for worldwide clients to fulfill their local regulatory standards for pharma quality ethanol production.
Praj Industries Ltd was placed second in the US-based Biofuels Digest's list of 50 Hottest firms in the bio-economy for 2021 in the Low Carbon Fuels and Sustainable Chemicals category and third in the newly created Bio-design & Engineering category. As a result, Praj industries is gaining a lot of international attention.
The Indian government has targeted 20% ethanol-blending in gasoline by 2023. This will necessitate the production of 100 crores liters of ethanol throughout the country. As Praj is a technology provider for manufacturing ethanol for the particular feedstock, it could be a big beneficiary of this thrust.
Praj is working on a binder with the Automotive Research Association of India (ARAI) to assist combining ethanol and diesel fuel. The invention of a binder that can help in the mixing of ethanol and diesel will be significant. This is because diesel usage, at 8,820 crore liters in 2020, was more than double that of petrol (3,720 crore liters).
The Company is constructing three commercial-scale second-generation ethanol plants for oil marketing companies, including IOCL, HPCL, and BPCL. The first factory is expected to open in the second half of this year. The cellulosic feedstock is essentially agricultural waste that remains on the field after the crop is harvested, and the Company has developed an innovative technology to convert it to ethanol.
The Company has extended its expertise into different domains too. With a big order for water and wastewater treatment systems, including Zero Liquid Discharge for their Acrylic/Oxo-Alcohol Project, Praj made a massive breakthrough in the refinery and petrochemical sector. It will filter water from start to finish, saving 4.7 million liters of water each day.
In Himachal Pradesh, the Company is utilising its sanitary manufacturing and process expertise to develop India's largest apple juice concentrate facility. On the international front, Praj increased its influence in Africa, winning important strategic orders from Niger and Kenya.
Praj has long been the leading brand in the installation of home ethanol plants and equipment and the installation of home breweries. It provides 10% of the world's ethanol output; on the other hand, it has a 67% market share in India for ethanol.
It is a patents-driven company that creates solutions to boost plant output and efficiency while lowering costs. As a result, repeat clients account for about 40% of the Company's revenue.
Praj Matrix, the Innovation Centre, is the central pillar of the Company's technology development. It is a state-of-the-art facility with 16 laboratories for molecular biology, microbiology and bioprocess technology, process engineering, scale-up, and chemical sciences.
A flexible technical team, four super-production facilities, and convenient access to ports and roads complement the Company's manufacturing capabilities. These are in Maharashtra's Sanaswadi, Urawade, and Wada and Kandla's Special Economic Zone (SEZ) (Gujarat).
To diversify away from the ethanol industry, Praj has moved into sectors such as water and wastewater management, essential process equipment, bio-nutrients, and HiPurity Systems. In fiscal 2021, these areas, which are divided into two business divisions – HiPurity and Engineering – contributed 32% of total revenue.
The Indian government created the SATAT plan to generate 5,000 Compressed Bio-Gas (CBG) units by 2023-24. Due to its technical knowledge and track record, Praj would be a significant benefactor of these operations. It is now working on three large-scale CBG projects in the United States.
Highly dependent on government regulations
Company had flat revenue from FY12 – 20 period with EBITDA margin fluctuating between 6-11%
Dr. Pramod Chaudhari founded Praj to grow it into a world-class technology firm specializing in agricultural processing. He is the first Indian to get the renowned 'George Washington Carver Award 2020' from BIO-Impact in Washington, DC, USA.
2. Key Historical Financials
Praj recorded the highest-ever quarterly revenue of INR 829 crore, up 46% YoY for Q4FY22 due to a solid order book and excellent project execution. The EBITDA was INR 74 crore, up 57% QoQ (flat on YoY basis). As operational leverage kicked in and raw material prices showed stability, Praj reported an EBITDA margin of 9%. PAT increased by 11% YoY to INR 58 crore from INR 52 crore in Q4FY21. The business continues to perform strongly this quarter, with an order book above INR 900 crores, with around two-thirds of these orders for ethanol industry and roughly one-third on other sectors.
Praj delivered solid growth of 79% in FY22 on YoY basis with PAT increasing by 85%. Cash flow convertibility (CFO/EBITDA), ROCE/ROE was also quite healthy.
3. What is my view on company valuation?
The Company is trading at a PE (TTM) of 40x compared to the industry P/E ratio of about 20x. Over the last five years, the profitability of the Company has shown a CAGR of 28%.
Praj is seeing strong growth in BioEnergy segment in the domestic market, with the overall demand-supply gap for ethanol, increased interest in grain-based distilleries, and the underlying motivation of decarbonization boding well for the Company. It has also diversified and used its expertise to develop other verticals. These tailwinds should help the Company deliver strong growth and revenue visibility over the next 3-5 years.
As a result, Praj might be a good long-term investment option. Investors could consider adding the Company at lower levels.
4. What are the risks to the investment analysis?
Praj operates in the capital goods business, which is essentially cyclical, with demand driven by the end-user industries' capital expenditure (Capex) cycle. Therefore, any slowdown in end-user industry growth forecasts influences Praj's topline and efficiency.
Changes in input costs, such as steel, impacts the cost structure and, as a result, the Company's profitability. Because Praj usually enters into fixed-price contracts, increase in raw material costs impacts the Company's gross margins.
About the Author
I write about the stock market, cryptocurrency, blockchain. I have Bachelor of Arts degree with more than 10 years of experience in finance and cryptocurrencies.
I have no stock, option or similar derivative position in any of the companies mentioned since last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.
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