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Another quarter of healthy numbers

Praj Industries (PRJ) reported its 3QFY23 numbers which were in line with our estimates mainly on the consolidated revenue front as PRJ posted YoY growth of 55.4% at Rs9100mn vs our estimates of Rs9033mn. However, on the consolidated earnings front PRJ posted an impressive 68.0% YoY increase to Rs623mn ~8.6% above our estimates (CentrumE of Rs574mn). This beat is primarily due to margin expansion. On the consolidated EBITDA margins front it posted 9.5% (vs. 8.1% in 3QFY22) higher than our estimates of 9.0%. These are best EBITDA margin reported by the company is last 7 quarters. We retain BUY rating with a revised target price of Rs532 based on 30x 1HFY25E EPS..

All time high quarterly revenue booking – thanks to burgeoning order backlog Praj reported all time high revenues for the quarter at Rs9,100mn primarily led by Bioenergy division (Rs6,618mn, +YoY 48%) followed by engineering (Rs1,785mn, +YoY 104%) and Hi-purity division (Rs69mn, +YoY 40%). On geographical basis, domestic revenues continued to dominate with 83% share in line with share in order backlog. For 9MFY23, PRJ has clocked revenue jump of 67% to Rs25,164mn, 7.8% higher than revenues recorded in whole of FY22.

Order inflow key going ahead given stupendous execution

PRJ exceeded expectations in its order bookings, reporting inflows of Rs9440mn in contrast to the anticipated slowdown during the quarter. The bioenergy sector remains the primary contributor, accounting for 82% of the total, while engineering and HPS followed with a share of 10% and 8%, respectively. PRJ ended the quarter with ATH order backlog of Rs33.8bn. The bioenergy sector remains the primary contributor, accounting for 81% of the total, while engineering and HPS followed with a share of 18% and 1%, respectively.

Other key highlights

IOCL Panipat is in pre-commissioning stages and expected to start ethanol production by end of March 2023. First rice straw based commercial plant is under final stages of commissioning. Expected completion by end of March 2023. Praj has entered into an MoU with Axens, France to work jointly on Sustainable Aviation Fuel related projects in India. SAF will be produced by deploying Praj’s integrated bioprocess technologies for Alcohol production and Axens Jetanol™ Alcohol-to-Jet (ATJ) technology.

Maintain BUY with a target price of Rs532

We expect PRJ to post healthy revenue CAGR of 27% over FY22-25E on the back of robust order backlog (Rs33.8bn) 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. We believe strong results & positive implications from recent budget augur well for stock outperformance.

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