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Near-term headwind persists

Praj Industries (PRJ IN) reported yet another muted quarter, with execution constrained amid continued slowdown in domestic greenfield ethanol projects following EBP20 saturation. While engineering and HiPurity segments are gradually gaining share, helping diversify the revenue mix, these are yet to fully offset the softness in core bioenergy. Margins remained under pressure due to lower operating leverage, adverse export mix and fixed-cost under-absorption at the GenX facility, alongside impact of a one-time employee-related charge that led to net loss. Although orderbook provides reasonable visibility and engineering traction is improving, a meaningful earnings recovery depends on stronger capacity utilization and faster conversion of opportunities. We cut our earnings by 25% for FY26E, by 20% for FY27E and by 15% for FY28E. We retain Sell with a lower TP of INR 285 on FY28E P/E of 27x.

Subdued topline, margin pressure continues: Revenue declined 1% YoY to INR 8.4bn in Q3FY26, as weaker bioenergy execution amid continued slowdown in domestic greenfield ethanol projects offset steady engineering performance and growth in HiPurity. EBITDA fell 19% YoY to INR 473mn, with margins contracting 124bps YoY to 5.6%, impacted by lower export realizations (higher Africa execution mix), under-absorption of fixed costs at the GenX facility, and an adverse project mix. Q3 also included an exceptional charge of INR 344mn towards incremental employee benefit liabilities following implementation of the new labor codes. Consequently, PRJ reported a net loss and adjusted PAT of INR 221mn, down 46% YoY from INR 411mn in Q3FY25.

Muted 1G ordering offsets engineering momentum: Order inflows moderated 13% YoY to INR 9.14bn in Q3FY26 versus INR 10.53bn in Q3FY25, reflecting continued slowdown in domestic 1G ethanol greenfield ordering amid funding constraints and post-EBP20 capacity saturation. Importantly, the mix has structurally shifted, with bioenergy contributing 45% to inflows compared with historically higher levels, while engineering (42%) and HiPurity (13%) gained share, supported by traction in GenX, brewery and ZLD. Management highlighted that the CCUS skid order marks the first breakthrough under a framework agreement, signaling early monetization of GenX capabilities, although scale-up will depend on further customer approvals and order conversion in the next few quarters. Domestic orders comprised 68% of intake, indicating reliance on recovery of local demand. Order backlog increased to INR 44.91bn (versus INR 43.49bn YoY), with bioenergy still forming 77% of the book, implying that near-term revenue visibility remains skewed toward ethanol-linked projects. However, the pace of execution and margin recovery will hinge on faster conversion of brownfield opportunities and sustained traction in emerging segments such as carbon capture utilization storage, compressed biogas and advanced biofuels.  

Retain Sell with lower TP of INR 285: Near-term recovery hinges on better conversion in domestic bioenergy, normalization of export mix and improved GenX capacity utilization. Sustained earnings rebound will depend on policy clarity and pick-up in inflows. Retain Sell with a lower TP of INR 285 (INR 320 earlier), valuing PRJ at unchanged P/E of 27x on FY28E and cut our earnings estimates by 25% for FY26E, by 20% for FY27E and by 15% for FY28E.

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