Markets
This engineering firm is surfing the global green energy wave. But faces choppy waters in India.
Summary
- Engineering company Praj Industries is making significant strides in the global energy transition market, executing diverse international projects from low-carbon ethanol to carbon capture. But in India, policy tweaks can have a disproportionate impact.
Praj Industries Ltd has scored multiple wins in the global energy transition market. The engineering company is executing several international orders, including a low-carbon ethanol project, a sustainable aviation fuel project, a pilot plant for producing gas using the waste stream from an ethanol plant, and a carbon capture project.
In the June quarter, Praj commissioned its first maize-based ethanol plant in Brazil and subsequently signed a contract with another Brazilian ethanol company to design and engineer a similar plant.
Such plants are also gaining traction in the European Union.
Considering “Praj’s presence in a rapidly growing industry, with a dominant market share which converts into large order wins, we have factored in revenue/Ebitda/profit after tax to grow at a strong 17%/27%/27% Cagr over FY24-FY27", Mirae Asset Capital Markets said in a report dated 19 September.
With its rising international focus, the share of exports in Praj’s total orders has risen from 22% to 33% over the past year.
Praj’s management also expects domestic orders for sustainable aviation fuel and compressed biogas starting in the second half of 2024-25, led by the Indian government’s mandate for compulsory ethanol-blended fuel, for which companies would need to start setting up plants now.
Praj expects to commission its first second-generation ethanol project by December, opening up another business area. Unlike first-generation projects based on food grains, second-generation projects are based on residual waste, reducing the need to divert food grain for ethanol production.
Praj’s recent financial performance is strong, with over 20% Ebitda growth in 2023-24 and in the first quarter, both aided by lower raw material costs and higher exports.
However, sales declined as domestic project execution had to be deferred—leading to lower revenue booking—owing to restrictions imposed on select feedstock for ethanol production in July 2023.
The lifting of the restrictions in August should help normalise the market.
As such, Praj’s shares have gained about 45% in the past six months. The stock trades at 33 times its FY26 estimated earnings, suggesting that the optimism is factored in adequately.
Yet, investors need to track government policy tweaks on the domestic front, which can have a disproportionate short-term impact on Praj’s business. Timely commissioning of new-age projects is also crucial for the company’s growth.
