Sugar rush for Praj Industries: Ethanol blending and decarbonisation themes to unfold

Healthy financials, debt-free balance sheet, superior return ratios, and reducing working capital cycle make Praj a favourite with analysts. Going forward, the company sees opportunities in SAF, E-27 flex fuel policy, bio-chemicals, and bio-plastics.

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The government’s ethanol blending initiative and the larger push towards biofuels and the energy transition seem to hold the key to a promising future for this advanced biotechnology and engineering company.
Over the last two years, Praj Industries has experienced significant growth, driven mainly by the opportunities arising from the ethanol blending program. It is the Indian market leader in the ethanol plant market and among the top zero liquid discharge players in the country.
“Praj is a key beneficiary of multiple tailwinds provided by the bio-economic revolution, giving strong growth and revenue visibility for the next three to five years. The company is a pure equity play on the global decarbonisation theme,” said Axis Securities.
Favouritism among investors is evident from the stock’s stellar run. It has given investors a return of 645 percent in the past three years.
Praj’s bioenergy business offers technologies, products, and services for all the requirements related to an ethanol plant (1G and 2G ethanol plants), compressed biogas (CBG), sustainable aviation fuel (SAF), marine biofuel, and biohydrogen, among other future fuels.
he Hi-Purity segment provides solutions for water systems, modular process systems, and value-added services, whereas in the engineering business, Praj provides critical equipment and skids such as reactors, high-pressure vessels, heat exchangers, process columns, and towers proprietary equipment.
The company’s order inflow was also subdued at Rs 1,101 crore, up a mere 0.6 percent from the same quarter in the previous year, increasing the order backlog to Rs 3,779 crore.
The order book stood at Rs 3,780 crore which is 1.1 times trailing 12-month revenue comprising Bio-energy (78 percent), Hi-Purity (5 percent) and Engineering (17 percent), pointed out Prabhudas Lilladher.
The stock is trading at price-to-earnings (PE) multiples of 25.6 times and 23.7 times FY24 and FY25 earnings, respectively, the brokerage firm added.
Besides, what has attracted analysts even more to this company are its healthy financials, with a debt-free balance sheet, superior return ratios, and reducing working capital cycle.
Consolidated net sales came in at Rs 736.72 crore in the June quarter of 2023, barely up 1 percent, whereas net profit jumped 42 percent on-year to Rs 58.65 crore.
CBG, export-led engineering biz ― next growth drivers
In the coming months and years, Praj Industries is projected to witness a surge in orders. This upswing is attributed to the increasing popularity of CBG facilities and improved prospects in the engineering export market, according to Prabhudas Lilladher.
The company is gaining traction from CBG plants and is prioritising advanced technologies such as 2G plants, CBG, ECTA, and SAF. Moreover, their engineering segment is set to experience positive growth due to opportunities in the global market.
Export margins are higher by approximately 500 basis points (bps) compared with domestic orders, as exports only involve the supply of equipment. Exports are mainly from the engineering segment, the company pointed out in a conference call with the media post Q1 earnings.
SAF ― new opportunity
During its conference call with analysts, Praj Industries said that after ethanol blending with petrol, it sees opportunities in SAF, E-27 flex fuel policy, bio-chemicals, and bio-plastics.
Praj is particularly optimistic because 1 percent blending of SAF would require around 280 million litres of ethanol in India alone. Additionally, there is a substantial opportunity in the US market, where a requirement of 30 billion gallons of SAF is anticipated over the next five years.
This means that companies and countries will have to ramp up SAF capacities from FY24 onward if they wish to adhere to the government guidelines for compulsory SAF blending.
Government support
Oil marketing companies (OMCs) have called for Expressions of Interest (EoIs) to add 300 crore litres of capacity, addressing ethanol shortfalls in eight states. This action is seen as opening the doors to opportunities worth Rs 4,000 crore in the foreseeable future.
Moreover, Jharkhand has rolled out the Ethanol Production Promotion Policy, 2022, providing up to a 25 percent subsidy or Rs 30 crore for state ethanol plants. And Tamil Nadu has launched the TN Ethanol Blending Policy, 2023, to attract Rs 5,000 crore investments in molasses or grain-based ethanol production.

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