by Praj Industries Stock Fundamental Analysis, Recently there was a big announcement by the Indian government. The Indian government has advanced the target of 20 % ethanol blending in petrol to 2023. This target was earlier set for 2030. later it was preponed to 2025.
However, now the target is set to 2023 which is two years from now this would require 1000 crore liter of ethanol in the country after this news the share price of Praj industries came into the limelight, in fact, earlier this year in January us-based biofuel digestion.
Praj Industries Stock Fundamental Analysis
Praj Industries as the second hottest company in the global bio-economy in 2021 in the low carbon fuels and energy chemical category after that news the share price of Praj industry jumped 250 percent from 120 rupees to rupees 400.
What is the business of Praj Industries? Will it benefit from the big announcement of ethanol branding by the Indian government. What are the future price industries? will it give multipack returns in the next few years?
Let’s start understanding the business of the company its product portfolio, its leadership, key strength, competitors, key risk, and future growth. Then we’ll look at the financials of the company to understand if Praj Industries is fundamentally strong or not then we will do the evaluation analysis to understand if it is worth investing in the company at current levels or not.
But before I proceed this article is only for educational purposes the idea is to help you understand various aspects of the company.
So that you can make an informed investment decision I do not provide stock tips also I want to mention that someone commented in my previous article that the stock has already jumped and there’s no point covering this Stock well the entire stock market is at an all-time high with Sensex crossing 52000.
When the market is at its peak how can we expect good companies to be available at discounted prices but that doesn’t mean that the stock will only go up you’ll always get a chance to invest when the stock market fall or the share price fall.
If you want to learn how to identify quality stocks along with every aspect of money management you can explore my articles.
Business Model of Praj Industries
Let’s get started Company established in 1983 Praj Industries is India’s most successful company in the field of bio-based technologies and engineering with a presence all over the world with a humble beginning as a supplier of ethanol plants.
Today Praj Industries is a global leading company with a boutique of sustainable solutions for bioenergy it also includes high purity water critical process equipment breweries and industrial wastewater treatment.
Praj’s business is mainly divided into three segments bioenergy engineering and high purity bioenergy segments include technology solutions for first-generation ethanol, second-generation ethanol compressed biogas, and biodiesel systems.
Now ethanol is a very interesting product it has three major applications.
Uses of Ethanol
- the first usage is as fuel ethanol it can be used to replace petrol and diesel.
- the second usage is as beverage alcohol where it is the principal component of alcoholic beverages like whiskey rum vodka etc.
- the third usage is in industrial applications like paints, varnishes, perfume, pharmaceutical, an industrial solvent, etc.
How is Ethanol produced?
- Ethanol is produced from feedstocks like sugarcane, juice sugarcane, molasses grains like corn rice, and wheat.
- Ethanol derived from these sources is termed first-generation ethanol.
- second-generation ethanol is produced from aggro residues like your rice and wheat straw cane crash etc.
- Praj Industries has developed an innovative rain gas process technology to produce compressed biogas from solid organic waste as well as liquid waste with an engineering segment.
- It includes your critical process equipment and skids then brewery plants and equipment and wastewater treatment solution branch. Praj Industries has expertise in engineering to design to construction of breweries and process equipment.
In fact, Praj is a market leader in brewery construction the wastewater treatment division of Praj offers a comprehensive range of solutions for industrial liquid water treatment recycling and zero liquid discharge to customers across sectors including metal power, chemical fertilizer, FNB textile pharmaceutical, etc.
High Purity Business Segment
The third business segment is of high purity that is an end-to-end solution provider to the biopharmaceutical, biotech cosmetic, healthcare, etc. for application and production of products right from liquid oral to the production of assignment oncology formation, etc.
If you look at the revenue breakup in FY21 branch has revenue of 1970 crore and out of that 62 percent was from bioenergy 28 was from engineering and 10 were from high purity.
If you look at the geographical breakup in FY21, 74% of revenue is from domestic consumption and 26% is from exports if you look at the leadership Mr. Shishid Joshipura is the CEO and MD of Praj Industries.
Mr. Joshupura is a mechanical engineer from Bits Pilani and an advanced management graduate from Harvard business school prior to joining Praj. He was managing director and country manager of skf India limited from 2009.
He has over 35 years of work experience overall on the company its product portfolio and leadership I would rate it 10 on 10.private industry’s biggest strength is its leadership position.
Praj is one of the leading players in bioenergy solutions globally Praj is at the forefront of leading the future of transportation through its bio mobility platform which helps address challenges such as greenhouse gas emission air pollution and associated health hazards.
The second biggest strength is innovation is the growth engine of Praj Industries. for example, Praj is setting up Indias first batch of four commercial-scale, second-generation biorefinery this facility will produce multi-products such as ethanol compressed biogas and fertilizers from biogas feedstock while managing the lowest energy and water footprint.
It has been ranked number one among the best places to work in the advanced bio-economy 2020 by biofuel digest which is world widely read daily in bio-economy then some of the other strengths include experience management diversified business and presence all over the world.
If you look at the competitors of Praj Industries in ethanol manufacturing it is the first company to set up the second generation ethanol production in India within the engineering space it has competition from companies like Gmm polder then in water treatment, it has competition from NCC limited and Ion Exchange overall on the competitive strength. I would rate it 9 on 10.
Key Risk of Praj Industries
If you look at the key risk the major risk is that Praj operates in the cyclical capital good sector where demand is dependent on the capital expenditure cycle of its end-user.
Industries any slow down in the growth prospect of end-user industries would affect branch top line and its profitability with increasing demand for cleaner fuel and an attempt to reduce dependency on crude oil.
More than 60 countries in the world are at different stages of ethanol blending mandate branch industries has carved a unique position in the world of ethanol technology by virtue of its expertise which cut across a variety of sugar to starch-based feedstock collectively called first-generation feedstock.
Praj is one of the handfuls of companies of the world to successfully develop and demonstrate second-generation ethanol technology using Agri residues with its advanced solution for water conservation.
Future Growth of Praj Industry
Praj is ensuring zero liquid discharge and minimizing the water footprint for customers to understand the future growth for the Praj Industry.
It is important to understand the recent development in the ethanol space in India, so India has a high dependency on oil import and it constitutes a major portion of its expenses.
Moreover, it is a non-renewable source of energy and also pollutes the environment in an attempt to reduce the dependency on oil.
The Indian Government decided to blend ethanol with petrol so ethanol is a biofuel and blending it with petrol would have three major advantages are as follows:
- The first is that it would reduce the oil import cost by almost rupees 30,000 crores.
- The second benefit is that since ethanol is extracted from plant-based products like sugar cane it would benefit farmers.
- The third benefit is that it would reduce the environmental impact earlier the blending rate of ethanol with petrol was around five percent and the government set up a target of 10% blending by 2022 and 20% by 2030 later.
- The government announced the revised timeline of 20% ethanol blending by 2025.
However recently the government has announced 20% ethanol blinding by 2023. So in the next two years, the blending rate target is 20 percent just to give you a context the current ethanol production in India is around 624 crore liters.
In order to achieve the blending target of 20%, there would be a need for a 1000 crore liter of ethanol. Praj Industries has backed multiple big orders and the revenue pipeline is looking very strong recently price has backed an order from Godavari biorefinery to set up India’s largest capacity syrup-based ethanol plant in Karnataka.
Praj has also begged a prestigious breakthrough order from HPCL for setting up a compressed biogas project at baboon in Uttar Pradesh the project has the capacity to produce a 35000-meter ton of rice truss as feedstock to generate 5250 metric tons of compressed biogas annually not only this as the manufacturing sector would grow there would be strong demand in engineering sector like wastewater management in case you want to learn in-depth about the future growth.
I have shared a link to a recent interview of Mr. Shishi Joshupura it’s a one-hour video and would give you a very good picture of Praj’s future plan over all the future growth prospects of Praj Industry is looking very bright hence on future growth I would rate it 10 on 10. If you look at the revenues price industries’ revenue have been stagnant between 2015 till 2020.
There is a recent growth in the last year its profit has been volatile it decreased between 2015 till 2018. however, it has recovered from 39 crores to 81 crores and FY21.
Overall the revenue and profit growth are not that great and the profits have been volatile hence growth ratio I would rate it five one ten.
Financials of Praj Industry
- Branch operating margins are also very average it is between seven to eight percent.
- The recent operating margin is nine percent if we look at the roe and roc both ROE and ROC are looking average.
- ROE has fallen from12 percent to six percent then five percent then recovered to the recent level of 10.
- ROC is currently at 14.5 percent overall the profitability looks very average hence on profitability I would rate it six on ten.
- If you look at the debt to equity structure Praj is a completely debt-free company hence on debt to equity I would rate it 10 on 10.
- Company has a cash equivalent of around 132 crore by mass 21.
- If you look at the shareholding pattern of praj latest shareholding of promoteris 32.91 and it has been consistent over the past few quarters.
- FII’s have 11.61 shareholding although they have slightly reduced the stakes in the last few quarter.
- DII’s holds 15.21 shareholding they have also slightly reduced the stakes from Praj.
Valuation of Praj Industry
If you look at the valuation of Praj share price was stagnant between 2016 till 20. However, after the lows of rupees, 52 on March 20 the share has zoomed to the level of rupees 400 but recently the share has corrected around 10 percent and is trading at the level of rupees 350 at current levels Praj is trading at a PE ratio of 81.
Now that is a problem the valuations are looking expensive. Yes, I agree that there’s a bright future growth but everyone knows that future growth is already captured in the current share price which has made the valuations expensive.
As an investor, if you are planning to invest in Praj Industries then the better strategy would be to make a small entry and if there is a future correction then you can consider buying it.
Conclusion
Overall if you conclude Praj is a fundamentally strong company and it is involved in the exciting business of bioenergy with bright growth potential in the next few years due to the increase in the use of ethanol.
Praj would benefit from it, It is a very innovative company and has got a leadership position in the business of bioenergy engineering and water treatment.
The management of the company also looks solid overall there is a bright growth for Praj Industries however there are few negatives its historical financial data suggests that the profitability of the company is very average it is mainly due to its capital intensive business on top of that the valuations of the company are looking expensive at PE of 81.
As an investor, you can certainly consider investing in Praj but try to invest in the form of a SIP or buy on dips.
One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
So in this article, we discussed the fundamentals of Praj industries. I hope you find the analysis useful. If you like this post kindly leave a comment in the comment section so that we can know what your thought about these trading price action trends. For more trading ideas do follow us on
