BUSINESS

• Under the inspirational guidance of technocrat Dr. Pramod Chaudhuri, Praj Industries was founded in 1983.
• One of the most reputable and technologically cutting-edge engineering and biotechnology firms in the world is Praj Industries Ltd, providing a wide range of environmentally friendly solutions for bioenergy, ultra-pure water, vital process machinery, breweries, and industrial wastewater treatment.
• The manufacturing plant was put into operation at Kandla, Gujarat's special economic zone, in 2007. At the Praj Matrix R&D Centre, Praj launched a pilot plant in 2008 to conduct research and development (R&D) on second-generation cellulosic ethanol technology.
•  Praj purchased a 50.2% share in Praj HiPurity Systems Ltd. in 2012, then in 2015 it increased that holding to 100%. This firm primarily serves the pharmaceutical, biotechnology, cosmetics, food and beverage, and water treatment sectors by producing and erecting modular process systems and water treatment facilities.
• Praj Industries, with more than a thousand client references in more than 100 countries on five continents, focuses on energy, environmental, and farm-to-fuel technology solutions. Praj Industries has 300+ patent submissions, 24 Indian and 60 foreign patent grants, and a team of 90+ technologists.
• Four top-notch production facilities in Gujarat and Maharashtra, which are close to ports and backed by a multidisciplinary technical staff, serve as evidence of the company's manufacturing skills. Global offices are in Houston, Texas, the Philippines and Thailand in South East Asia.
• In the area of Low Carbon Fuels and Renewable Chemicals, Praj Industries came in second on a list of the world's 50 Hottest Companies in the Global Bio-Economy for 2021.
• There are three business segments: (a) bioenergy business (which involves process design, engineering, fabrication, and commissioning of ethanol plants), (b) HiPurity Systems, which accounted for 9% of consolidated revenue in fiscal 2022; and (c) engineering business, which accounts for 20% of consolidated revenue and has three sub-divisions: water & waste water treatment (which operates in industrial waste water systems), critical process engineering (which provides high-reliability systems), and high purity systems.

       SWOT ANALYSIS

SWOT ANALYSIS

STRENGTH

• Net-debt free company.
• Company with strong financials.
• Diversified revenue segments.
• Established market position.

WEAKNESS

• Cyclicality and Seasonality of the Industry.
• Rise in price of raw-material.

OPPORTUNITIES

• Slowly and steadily increase in demand for ethanol as substantial fuel.
• Strong order book.

THREAT

• Exposure to project relatedrisk.
• Forex risk.

   ETHANOL INDUSTRY ANALYSIS

5. Ethanol Outlook:

• In order to meet the anticipated increase in demand in 2025 when it expects to introduce 20% ethanol-blended petrol across the nation, India is actively encouraging the construction of both traditional and second-generation (2G) ethanol plants.
•  The Indian government began selling 20% ethanol-blended petrol in February, two months before the scheduled launch date of 1 April. They plan to make it available nationwide by the financial year 2025–26.
• By the end of the year 2023, the government projects a 25% increase in the nation's overall ethanol production capacity.
• Sugarcane is used to produce nearly 70% of the current capacity, while grains like rice and maize contribute the remaining 30%.
•  India now has the potential to manufacture 9.5 billion liters of ethanol annually, of which 6.2 billion liters are made from sugarcane and 3.3 billion liters from grain, according to official government figures.
•  The government is also aggressively supporting the construction of 2G ethanol facilities to significantly enhance output.

5. What is First generation and Second-generation ethanol:

• A sustainable fuel derived from diverse plant resources referred to as biomass, ethanol is an organic chemical molecule. First-generation (1G) ethanol is made from raw materials such as cereals, sugarcane juice, and molasses, but second-generation (2G) ethanol factories use extra biomass and agricultural waste.
• 2G ethanol plants produce ethanol from surplus biomass and agricultural waste, which is then blended with gasoline. This helps India reduce its crude oil imports, reduce CO2 emissions, dispose of agricultural waste, and increase farmer income, among other things.
• Blending ethanol, especially 2G ethanol, has advantages beyond lowering emissions. It will give farmers a lucrative alternative to burning the stubble, which has been escalating pollution levels every year, in order to dispose of it. It provides an end-use for the Agri-crop waste and can become a source of additional income for farmers. The ethanol manufacturing units will also create jobs across the value chain.

FINANCIAL OVERVIEW

QUARTERLY SUMMARY

PROFIT AND LOSS STATEMENT (₹ in millions)

Balance Sheet (₹ in millions)

Cash Flow Statement (₹ in millions)

Ratio Analysis

Technical Analysis

• Stock is in upward trend on monthly and weekly chart, ₹297 and ₹450 are support and resistance levels
• One can accumulate this stock at current levels.

CONCALL (Q3FY2023)

• Praj intends to boost capacity by investing INR 10,000-15,000 crores in 100-150 plants. The corporation is investing roughly INR 10,000 crores in researching various bioenergy feedstocks. The INR 100 crore investment would be used to build a manufacturing facility to meet the growing demand for vital equipment in the petrochemical and gas industries.
• Orders do not have to be closed in a certain order. On the 2G side, the business is not seeing any fresh orders. The benefit to margins is still to come.  Praj provides operations and maintenance services in the Bioenergy sector. Praj is focusing on product development for the Bio-Prism RCM in the medium to long term.
•  The government wants to introduce compressed biogas (CBG), and there may be a mandate to blend CBG as well. The CBG market is changing, and it is too early to determine market share, but the business intends to take the lead.
•  A growing number of companies are launching flex-fuel cars that can operate on ethanol, increasing ethanol demand.  Praj's short-term growth engine is ethanol, with CBG (compressed biogas) playing a role in the short to medium term.
• Partnerships for new goods are centered on medium to long-term development in order to maintain a growth trajectory.  Praj and Axens have agreed to collaborate on the conversion of isobutanol and ethanol to SAF (sustainable aviation fuel).
• Praj is planning to manufacture hydrogen and is investing in modularized equipment solutions.  Following the Inflation Reduction Act, the firm began providing services for decreasing carbon intensity in ethanol facilities in the United States.
•  Praj does not provide quarterly revenue forecasts.
•  Revenue and margins in these business divisions will be in accordance with order booking.
• Current ethanol blending is nearly 12%, and capacity for the remaining 8% is being built, with income expected in the next two to three years.

Recommendation Rationale

5. Strong order book in pipeline:
   • Orders of Rs 3,380 crore across the three business categories as of December 31, 2022, ensure medium-term revenue visibility.
   •  Because of the government's advantageous policies announced during the first nine months of fiscal 2023, new order inflows for the ethanol company increased during the first nine months of fiscal 2023.
   • Rising demand and government policy assistance should boost Praj's bioenergy business. Order inflows are projected to steadily improve, and any changes in this area will be constantly observed.
5. Diversified revenue stream:
   • Praj has expanded into water and wastewater management, essential process equipment, bio-nutrients, and Hi-Purity Systems to reduce its reliance on its main industry of ethanol-based goods.
   • These sectors, which are organised into two business divisions – Hi-Purity and engineering businesses – produced 25-30% of total revenue for the first nine months of fiscal 2023.
   • The firm also has a diverse geographical footprint, with exports accounting for 15-20% of sales for the five fiscal years ending in December 2022.
5. A well-established market position:
   • Praj has long been the unchallenged market leader in domestic ethanol plant installation and equipment, as well as domestic breweries installation. The company's market position is additionally bolstered by its global presence, which includes over 1,000 references in over 100 countries and across five continents.
   • End-to-end solutions are provided by the firm, which comprises process technology and equipment (distillery and brewery divisions), wastewater treatment technology, and essential process equipment. Furthermore, the successful commercialization of a demonstration second-generation ethanol plant and the fulfillment of orders for forthcoming projects in India would improve the business risk profile.  
   • In addition, fresh partnerships like those between Axens, France (for Sustainable Aviation Fuel), Sekab E-Technology AB, Sweden (producing biofuels using forest residue feedstock), and Indian Oil Corporation Ltd. (for the biofuels segment), as well as increased government focus on reaching a target of 20% in the ethanol blending by fiscal 2025, are anticipated to be the growth drivers in the medium term.

Valuation

• PSP Projects Limited has shown revenue growth of 26% CAGR for FY2018-2022.
• Net Profit has shown a growth rate of 40% CAGR for FY2018-2022.
• The company’s ROE and ROCE are 17% & 23% for FY2022.
• We estimate the company could generate higher revenue and net profit for the following FY 2023, comparable to the prior year, based on the company's present performance in FY 2022.
• To project income for the fiscal years 2023–2027, we used data from the previous five years (2018–2022).

Estimated Income Statement (₹ in millions)

Nayan Nahar                                                                                                      Shubham Titvilasi

Equity Research Analyst                                                                               Equity Research Analyst

Ph: 8149629086                                                                                               Ph: 7415440968

Email: nayannahar23@gmail.com                                                               Email: shubham.titvilasi@gmail.com

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