PL Stock Report: Praj Industries (PRJ IN) - Management Meet Update - CBG, SAF to drive Bio-fuel theme post EBP-20 - Downgrade to 'Accumulate'

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

Rating: ACCUMULATE | CMP: Rs581 | TP: Rs618

Management Meet Update - CBG, SAF to drive Bio-fuel theme post EBP-20

We revise our FY24/25E estimate by 1%/6.3% post factoring in improved visibility from CBG plants and its engineering business (Modular process equipment), however, downgrade the rating to ‘Accumulate’ from Buy given recent steep run up in share price. We met with Mr. Shishir Joshipura, CEO and MD of PRAJ Industries (PRJ) where management highlighted that Global Biofuels Alliance (GBA) announced at G20 event is positive development for Bio-energy. Traction is witnessed from Compressed Bio Gas (CBG) plants and management expects tenders of 100 CBG plants to be out in next one year totaling to opportunity worth Rs100bn (~Rs1bn/plant). Post ethanol blending with petrol and CBG, upcoming opportunity arises from SAF from FY27 onwards. PRJ has been continuously focusing on R&D and has setup PRAJ Matrix with investment of US$30mn, which will focus on development of new technology and Renewable Chemicals and Materials (RCM).

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, ECTA, 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 35.4x/31.1x on FY24/25E. We revise our TP to Rs618 (Rs475 earlier), valuing it at PE of 33x FY25E (27x FY25 earlier), factoring in improved revenue visibility, amidst opportunities arising from CBG and Sustainable Aviation Fuel (SAF) in long run. Downgrade to ‘Accumulate’.

Key management meet takeaways

§ Global Biofuels Alliance (GBA) announced at G20 event is positive development for Bio-energy.

§ GBA will support worldwide development and deployment of sustainable biofuels by offering capacity-building exercises across the value chain, technical support for national programs and promoting policy lessons-sharing.

§ CBG: 100 projects worth Rs100bn are expected to be set up in next one year. Currently projects tendered out are for full orders. PRJ’s equipment’s accounts for 80% of total cost. The company has bagged orders for 4 plants to set up CBG, out which 3 is already commissioned and one is likely to be commissioned soon.

§ EBP-20: Off the total 11bn ltr of capacity required for EBP-20, ~5bn ltr capacity is yet to be tendered out.

§ Sustainable Aviation Fuel (SAF): SAF is global in nature and by 2027 world will need SAF. 1% blend of SAF will create opportunity for ~14 crores ltr of SAF in India itself. Successfully completed trail run for SAF from Pune to Delhi in Air Asia flight.

§ 2G ethanol plant Output: 1ton of rice straw can produce ~250lt of ethanol, Corn -300ltr etc.

§ PRAJ R&D Matrix Center: Invested ~US$30mn from internal accruals so far in the R&D units. PRJ has 375+ patents.

§ Capacity: Capacity to test from Lab level (0-10ltr) to Pilot scale plant (few thousand ltrs).

§ Feedstock tested: PRAJ Matrix has tested feedstock such as 1) Sugary based, 2) Starchy based, 3) lignocellulosic and 4) Oil based feedstock.

§ PRJ operates through two platforms 1) Bio-Mobility and 2) Bio-Prism.

§ Bio-Mobility focus towards Bio fuel and Bio Prism focus on Renewable Chemicals and Materials (RCM).

§ Bio-Prism portfolio comprises a variety of bio-industrial products, including bioplastics as a priority, along with cellulose-lignin refinery products and specialty products. These products have applications in industry sectors such as automotive, packaging, furnishing, construction, agriculture, and food.

§ RCM factory is under construction and expects it to be operational from March-24.

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