PL Stock Report: Praj Industries (PRJ IN) - Q2FY24 Result Update – Mixed performance; all eyes on order inflows - Accumulate

Praj Industries (PRJ IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs534 | TP: Rs611

Q2FY24 Result Update – Mixed performance; all eyes on order inflows

Quick Pointers:

• Order inflows came in at Rs10.6bn up 8.4% YoY, driven by strong growth in engineering segment.
• Gross margins expanded to 43.4% vs 34.5%, mainly due to business mix and normalized commodities prices.

Praj Industries (PRJ) reported mix quarterly performance with revenue remaining flat YoY, while EBITDA margins expanded 147bps YoY to 8.8%, amidst softening commodities prices. Revenue was impacted due to slowdown in execution of ongoing grain based plants owing to constrain on diversion of rice for ethanol production. However, execution in H2FY24 is expected to pick-up on back of upward revision of rates for grain based Ethanol from OMC’s. EBITDA margins are likely to improve on back of execution of newer contracts and likely pickup of exports orders. Increasing traction from CBG plants and exports opportunities for Engineering and Bio-Energy (low carbon ethanol plant opportunity in USA) segment to drive ordering activities going forward. Company is strengthening its distribution channel in Brazil and USA to expand its services business.

We remain positive on PRJ in long run, given 1) its strong leadership in domestic ethanol plant (~50-55% market share), 2) increasing traction from CBG plants, 3) focus on future-ready technologies like 2G plants, CBG, ETCA, SAF etc. 4) healthy outlook for engineering segment from exports market and 5) upcoming opportunity from SAF post FY27. The stock is trading at PE of 32.7x/28.6x/24.4x on FY24/25/26E. We roll forward to Sep’25E and maintain ‘Accumulate’ rating on stock with revised TP of Rs 611 (Rs618 earlier) valuing at PE of 30x Sep’25E (33x FY25 earlier).

Higher Other income aided PAT growth of ~29% YoY: Consolidated revenue came in at Rs8.8bn, broadly flat YoY (vs PLe ~Rs9.5bn), on back of continued execution of opening order book (Rs37.8bn as on Q1FY24). Gross margins came in at 43.4% vs 34.5% in Q2FY23 (low base), due to business mix and normalized commodities prices. EBITDA grew 20.2% YoY to Rs778mn (PLe ~Rs952mn), with EBITDA margin expanding by 147bps YoY to 8.8% (PLe of 10%), partly impacted due to higher employee cost (up 35.7% YoY) and other expenses (up 24.7%, YoY). PAT grew ~29.4% YoY to Rs623mn (vs PLe Rs702mn) aided by higher other income (up 87.1% to Rs171mn).

Order book stands healthy at Rs39.6bn: Order inflows for Q2FY24 came in at ~Rs10.6bn, (up 8.4% YoY), owing to strong growth in Engineering Business (up 117% YoY to Rs2.3bn) and HiPurity (up 171% to Rs1nn), while it declined for Bio-energy (down 13% YoY to Rs7.2bn). Order book stands at Rs39.6bn (1.1x TTM revenue) comprising of Bio energy (75%), Hi-Purity (6%) and Engineering (19%).