“Riding High – Key Drivers Behind the Momentum of this small-cap stock”
This small-cap stock is poised to reap the benefits of the government’s ethanol blending program, a significant step towards promoting biofuels and facilitating the energy transition.
According to analysts, Praj Industries’ stock has surged by approximately 40 percent from its April low of Rs 302.95, which was slightly above its 52-week low of Rs 299 at the end of March. This increase in stock price was in line with the overall market correction, which saw the headline index Nifty 50 dipping below the 17,000 mark.
However, with the market showing signs of improvement, Praj Industries has also witnessed increased buying interest. Analysts foresee further growth, expecting the stock to gain over 20 percent in the near future.
Also Read: “Revolutionizing the Ethanol Industry: The Growth Story”
Revenue Growth and Diverse Segments
Although consolidated revenue witnessed a modest one percent growth at Rs 736.7 crore, Praj Industries is making strides in diverse segments.
Its bioenergy business offers technologies and products for ethanol plants, Compressed bio-gas (CBG), Sustainable Aviation Fuel (SAF), and more.
Meanwhile, in the engineering sector, the company provides critical equipment and skids used in various industries.
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Key Ratios:
- ROCE 31.0 %
- ROE23.7 %
- OPM 9.57 %
- Debt ₹ 42.1 Cr.
- Debt to equity 0.04
- Qtr Profit Var 42.2 %
- Qtr Sales Var 0.65 %
- Free Cash Flow ₹ 127 Cr.
Opportunities in CBG and SAF
Praj Industries is poised for growth in the near to medium term due to the increasing popularity of Compressed Biogas (CBG) plants and lucrative opportunities in the engineering segment’s export market.
The company is set to benefit from blending mandates in countries like Indonesia, Mexico, and Africa, bolstering its international order bookings.
Eyeing Sustainable Aviation Fuel (SAF)
The company is actively exploring opportunities in Sustainable Aviation Fuel (SAF), a game-changing development in the aviation industry’s quest for reduced carbon emissions.
Praj Industries sees immense potential in India, where a one percent blending of SAF would necessitate around 280 million liters of ethanol.
Moreover, the US market anticipates a demand of 30 billion gallons of SAF over the next five years.
Government Initiatives as a Boost
Praj Industries draws strength from various government initiatives promoting ethanol production and blending.
Oil marketing companies inviting Expression of Interest for additional ethanol capacity and state-level policies, like the Ethanol Production Promotion Policy-2022 in Jharkhand and TN Ethanol Blending Policy-2023 in Tamil Nadu, offer fresh opportunities for Praj’s expansion.
Future-Ready Technologies
Embracing future-ready technologies such as
-2G plants, CBG, ECTA, and SAF,
Praj Industries is positioning itself as a leader in the green revolution.
Investment in Praj GenX: Embracing Energy Transition and Climate Action
To capitalize on the emerging demand in energy transition and climate action (ETCA), Praj Industries is investing Rs 100 crore in capacity addition under its new subsidiary, Praj GenX.
This move aims to meet the growing requirements for sustainable solutions and position the company as a leader in the clean energy sector.
Praj GenX is expected to be operational by Q4 of FY24 and is estimated to have a maximum revenue potential of Rs 1,500 crore.
R&D and Demo Plant for Bio-Plastics
Praj Industries is not only focused on biofuels but also taking steps towards promoting a circular economy. The company is setting up a demo plant with an investment of Rs 60 crore near Pune to produce bio-plastics.
By venturing into bio-plastics, Praj Industries is contributing to reducing plastic waste and embracing greener alternatives for various industries.
Exploring Opportunities in Semiconductors Space
The management of Praj Industries has identified opportunities in the semiconductors space within its high-purity business.
By venturing into this area, the company aims to cater to the increasing demand for semiconductors and related applications while ensuring a sustainable approach to manufacturing processes.
Joint Venture with IOCL – A Sustainable Future
Praj Industries has taken a significant step towards a sustainable future through a joint venture with Indian Oil Corporation Limited (IOCL).
This partnership aims to set up biofuel production facilities and market various clean energy products, including Compressed bio-gas (CBG), Ethanol, SAF, biodiesel, and other intermediates.
The joint venture is expected to be operational within the next 5-6 months, further bolstering Praj Industries’ position as a key player in the clean energy market.
Fundamentals
- Market Cap ₹ 7,877 Cr.
- Current Price ₹ 429
- High / Low ₹ 462 / 299
- Stock P/E 30.6
- Industry PE 36.3
- Book Value ₹ 58.7
- Dividend Yield 1.05 %
- Face Value ₹ 2.00
- Return over 1year 10.4 %
- PEG Ratio 0.65
Brokerage Calls: Acknowledging Growth Prospects
The long-term growth prospects of Praj Industries have garnered attention from brokerage firms.
Prabhudas Lilladher remains positive about the company’s future due to its leadership position in the domestic ethanol plant market with a market share of around 50-55 percent.
The firm also highlights Praj’s traction in CBG plants and its focus on future-ready technologies like 2G plants, CBG, ECTA, and SAF.
Additionally, the engineering segment’s healthy outlook and opportunities in the export market further add to the company’s growth potential.
However, Kotak Securities has taken note of the recent run-up in the company’s share price and downgraded its rating from ‘buy’ to ‘add.’ Despite this, Kotak Securities maintains an unchanged fair value of Rs 450 for Praj Industries, valuing the stock at 26 times its FY25 earnings.
Conclusion: Praj Industries – A Trailblazer in Climate Action
Praj Industries’ remarkable growth journey is fueled by its strong foothold in the ethanol market, a diverse portfolio of sustainable solutions, and a focus on future-ready technologies.
As the world gravitates towards cleaner energy sources and climate-conscious practices, Praj Industries stands at the forefront, leading the charge in energy transition and climate action both locally and globally. With innovative projects, robust investments, and strategic collaborations, the company is well-positioned to make a significant impact on climate change mitigation and sustainable development.:
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