Buy Praj Industries Ltd For Target Rs.532 - Centrum Broking
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All time high quarterly revenue booking
thanks to burgeoning order backlog Praj reported all time high revenues for the quarter at Rs8,766mn primarily led by Bioenergy division (Rs6,552mn, +YoY 66%) followed by engineering (Rs1,713mn, +YoY 89%) and Hi?purity division (Rs502mn, +YoY 5%). On geographical basis, domestic revenues continued to dominate with 83% share in line with share in order backlog. For 1HFY23, PRJ has clocked revenue jump of 75% to Rs16,065mn vs. Rs9,187mn in 1HFY22.
Order inflow key going ahead given stupendous execution
We believe given heightened execution by PRJ order inflow would be of paramount monitorable for investors. Order inflow for the quarter/1H came in at healthy Rs9,810/ 20,750mn posting a YoY jump of 32%/48% respectively, primarily led by bio?energy space. Ordering pipeline remains robust as India marches ahead towards its E20 target under EBP. As per the management, 500cr ethanol production capacity ordering (which would entail capital expenditure of Rs150?180bn) is expected in next couple of years which augurs well for the company. PRJ claims to have increased their market share from 60% to 66% in markets they operate.
Earnings estimate revision by 5%/1% for FY23/FY24
We are marginally pruning our margin estimates (?150/?90 bps; to factor in poor performance on margin front) coupled with increase in revenue estimate (+9/14%; to factor in robust order inflow) for FY23/24, respectively. On earnings front, our earnings are pruned by 5%/1% for FY23/24.
Maintain BUY with a revised target price of Rs532
We expect PRJ to post healthy revenue CAGR of 27% over FY22?25E on the back of robust order backlog (Rs33.5bn) and continuing momentum in order booking. Further, we expect PRJ to register 32% earnings CAGR over FY22?25E driven by operating leverage benefits. Consistent earnings growth should drive ROE expansion to 25% in FY25E from 18% in FY22. We assign a PE multiple of 30x on 1HFY25E earnings and arrive at a target price of Rs532, a potential upside of 23%. We believe strong focus on execution, improvement in return ratios and healthy cash flow generation will support its valuation.
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