Hold Praj Industries Ltd for the Target Rs. 353 By Prabhudas Liladhar Capital Ltd
Softer Q2 execution; GenX pain persist
Quick Pointers:
* Liquidity challenges for customers continue to elongate Praj’s execution cycle and impact working capital due to accumulated Inventory and receivables.
* Previously identified ETCA projects for GenX facility have been stalled which led to Praj planning to cater varied customer base out of GenX facility.
We revise our FY27/28E EPS estimates by -10.3%/-3.2% accounting for lower domestic demand and delayed order booking and execution from GenX facility. The company reported a weak quarter, with revenue rising marginally by 3.1% YoY and EBITDA margin contracting sharply by 490bps YoY to 6.6%, impacted by GenX-related higher other expenses. Several ETCA projects earlier identified by Praj’s customers have been stalled, resulting in the GenX facility now serving a more diversified customer base. Persistent execution challenges and subdued demand for new ethanol plants post-achievement of EBP 20 continue to weigh on the domestic BioEnergy segment. Nonetheless, Praj’s diversification into CBG, Bio Bitumen, biopolymers, and SAF is gradually gaining traction, offering some visibility for medium-term growth. On the international front, prospects remain encouraging, aided by supportive policy measures across Latin America, Africa, and Asia, while the first-ever lowcarbon ethanol demo plant order from the USA improves positioning despite ongoing tariff headwinds.
Praj’s near-term prospects remain weak amid the continuing tariff related uncertainties, liquidity challenges in the domestic market and lack of visibility for greenfield 1G ethanol opportunities. However, its long-term growth may be aided by the prospective mandates for ethanol blending in petrol to 25%-30% and blending in diesel, along with co-product development opportunities with existing ethanol plants. The stock is trading at a P/E of 27.5x/22.3x on FY27/28E earnings. We roll forward to Sep’27E and maintain our ‘Hold’ rating valuing the stock at a PE of 26x Sep’27E (29x Mar’27E earlier) arriving at a revised TP of Rs353 (Rs393 earlier).
Softer revenue growth due to weaker execution in BioEnergy: Consolidated revenue grew by 3.1% YoY to Rs8.4bn (PLe: Rs7.7bn). Gross margin expanded by 698bps YoY to 54.4% (PLe: 48.0%). EBITDA declined 40.7% YoY to Rs558mn (Ple: Rs467mn) while EBITDA margin contracted by 490bps YoY to 6.6% primarily due to significantly higher other expenses (+51.5% YoY to Rs3.2bn). PBT declined 60.2% YoY to Rs296mn (PLe: Rs310mn) due to higher depreciation (+29.9% YoY to Rs267mn). PAT declined 64.2% YoY to Rs193mn (PLe: Rs233mn) as weaker operating performance was further impacted by higher effective tax rate (+719bps YoY to 34.9%).
Lack of 1G ethanol opportunities led to order intake decline in BioEnergy: Q2 order inflow fell by 11.7% YoY to Rs8.1bn primarily due to lower order intake in BioEnergy segment (-28.8% YoY to Rs5.8bn) partially offset by HiPurity (+91.3% YoY to Rs1.1bn) and Engineering segment (+135.4% YoY to Rs1.3bn vs lower base). Domestic/export inflow mix stood at 73%/27% (vs 94%/6% in Q2FY25). Order book stands at Rs44.2bn (1.4x TTM revenue) – 82%/5%/18% in BioEnergy/HiPurity/Engineering and 65%/35% in domestic/exports.
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