IGI Logo

Margins expand but execution takes a breather

PRJ reported its 2QFY24 consolidated numbers which are lower than our estimates on revenue front but margin was substantial to post healthy earnings growth (+30%). PRJ posted YoY growth of 1% at Rs8824mn vs (CentrumE Rs9850mn). During the quarter, PRJ encountered challenges in execution due to the suspension of new customer acquisitions and the temporary halt of under-construction projects, mainly as a result of the FCI embargo, which disrupted operations for a few weeks. GMs for the quarter improved and came in at 43.5 - a YoY/QoQ improvement of +880/320bps. On the consolidated EBITDA margins print came in at 9.5% (vs. 7.7% in 2QFY23) in line with our estimates of 9.6% inspite of revenue disappointment. We believe Praj is currently progressing towards its desired growth trajectory, with a strategic emphasis on securing high-margin international orders. This approach is expected to further enhance the company's position and profitability. We retain ADD rating with a revised target price of Rs601 (TP Rs535) based on 30x 1HFY26E EPS.

Revenue booking disappoint due to one off event

Praj reported flattish revenues for the quarter at Rs8,824mn. Revenue mix continues to be in favour of Bioenergy division (Rs5,894mn, +YoY 5%) followed by engineering (Rs1,031mn, - 18% YoY) and HPS division (Rs516mn, +25% YoY). On geographical basis, domestic revenues continued to dominate with 84% share in line with share in order backlog. Margins for the quarter came in healthy at 9.5% (+200bps).

International order book now forms 26% vs. 13% as on 1HFY23

For the seventh consecutive quarter PRJ reported order bookings of ~Rs10bn. For 2QFY24, inflows came in at Rs10,630mn vs. Rs9,810 during the same quarter last year. The bioenergy sector accounted for 68%, while Engineering and HPS followed (22% and 10%, respectively). PRJ ended the quarter with ATH order backlog of Rs39.6bn with increasing share of higher margin international orders. In the 1HFY24, there was a remarkable 150% surge in international order inflow, while domestic order inflows experienced an decline of 18%. As a result, international orders now constitute a substantial 26% of the total order backlog (Rs39.6 billion), compared to the 13% share they held as of 1HFY23. This increased international presence provides us with confidence that PRJ would sustain higher profit margin profile.

CBG orders worth Rs4bn remain in pipeline

Regarding CBG, PRJ has commenced the execution of the first project (Rs1bn) among the five in their pipeline. PRJ is currently in the process of establishing the operational procedures for the remaining four projects in collaboration with the respective customers. It's worth noting that customer base in the CBG sector is quite diverse, including entities such as ESG funds, as well as both government and private OMCs.

Maintain ADD with a target price of Rs601

We project a healthy revenue CAGR of 12% for PRJ between FY23-26E. This is underpinned by a robust order backlog amounting to Rs39.6bn and a consistent trend in order bookings. Furthermore, we forecast an impressive 18% earnings CAGR for PRJ from FY23 to FY26, primarily driven by margin expansion, particularly due to the increasing contribution of international orders. By applying a PE multiple of 30x to 1HFY26E earnings, we have derived a target price of Rs601, indicating a potential upside of 12%.

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331