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Dismal Q2; GenX ramp-up key to recovery

We revise our FY28E/FY29E EPS estimates by -14.7%/-7.8% as domestic ethanol execution, elongated project cycles and continued GenX and R&D investments weigh on revenue conversion and profitability. Praj Industries (PRAJ) reported a weak Q2FY27 performance with revenue increasing ~0.9% YoY and EBITDA margin contracting 47bps YoY on lower gross margins and an unfavourable mix. Domestic 1G ethanol execution remains subdued amid customer funding constraints and the ethanol supply-demand imbalance, particularly in sugar-based projects. However, international markets have opportunities across the US, Brazil, Argentina, Southeast Asia and Africa building into a pipeline of ~INR10bn over the next few quarters. CBG also offers growth visibility, with the proposed JV with BPCL, backed by an identified pipeline of 8–10 projects worth INR8–10bn. GenX is gaining traction, with approvals from 18 international customers and four operational framework agreements across oil & gas, fertilisers and LNG, although revenue contribution is expected to build gradually. Datacentre opportunities across geographies provide revenue visibility of INR5–6bn over the next 12 months, with breakeven expected within the same period. SAF and Bio-IBA offer longer-term growth potential, with construction of the first Bio-IBA plant expected to be completed by year-end and an international ethanol-to-SAF project progressing towards FID in Q1FY28. While the timing of conversion across these opportunities remains uncertain, a gradually broadening opportunity base across international projects, newer biofuel technologies, data centres and emerging industrial end-markets provides some support to the medium-term growth outlook. The stock is currently trading at a P/E of 18.8x/14.6x on FY28/29E. We maintain our ‘Buy’ rating given the recent correction in the stock price as we roll forward to Sep’28E, valuing the stock at a PE of 24x Sep’28E (26x Mar’28E earlier) arriving at a TP of INR353 (TP of INR390 earlier).

While we remain watchful on order inflows, the management expects margins to have bottomed out and order booking to improve in H2, supported by international ethanol, CBG and GenX opportunities, with GenX revenue contribution expected to ramp-up in Q3–Q4. While recovery may remain gradual, the medium-to-long-term growth opportunity is supported by higher ethanol blending mandates, CBG adoption, SAF, Bio-IBA and data-centre investments.

Other income lifts profitability despite lower gross margin:

Consolidated revenue increased by 0.9% YoY to INR8.5bn (PLe: INR8.9bn). Export sales decreased by 18.2% YoY to INR3.2bn while domestic sales was up by 16.8% to INR5.3bn. Domestic/Export mix in Revenue mix shifted to 62%/38% in Q2 FY27 (vs 53%/47% in Q2FY26). Gross margin contracted by 1,112bps YoY to 43.3% (PLe: 45.5%) largely due to an unfavourable mix. EBITDA declined 6.2% YoY to INR524mn (Ple: INR529mn) while EBITDA margin contracted by 47bps YoY to 6.2% (PLe: 5.9%) primarily due to gross margin contraction, offset largely by operating leverage from decrease in other expenses (-28.4% YoY to INR2.3bn). Adj. PBT increased by 22.0% YoY to INR361mn (PLe: INR404mn) driven by higher other income (INR122mn vs. INR54mn in Q2FY26) and lower interest cost (-31.5% YoY to INR34mn). Adj. PAT increased by 20.1% YoY to INR232mn (PLe: INR299mn) as effective tax rate increased by 99bps to 35.9%.

Muted order intake however order book remains strong (INR44.6bn – 1.4x TTM revenue): Q2 order inflow decreased ~12% YoY to INR7.1bn driven by Engineering (+42.9% YoY to INR1.9bn) and Hi-Purity (+15.0% YoY to INR1.2bn, while Bio-Energy inflows decreased by 29.4% YoY to INR4.1bn). Domestic/export inflow mix stood at 67%/33% (vs 73%/27% in Q2FY26). Order book stands at INR44.6bn (1.4x TTM revenue) – 75%/6%/19% in BioEnergy/Hi-Purity/Engineering and 63%/37% in domestic/exports.

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