Praj Industries


Below are some comments from management I picked up while listening to 3Q2016 concall, comparing it to current quarter presentation/results:

  • Management said aiming for high teen EBITDA margin (FY15/FY16 EBITDA margin at 9.19%/10.91%)
  • Drop in crude prices is not favorable however given the international thrust on Ethanol blending there should not be any deceleration in business. (Order inflow contracted to 182cr in 4QFY16 against 266cr in 4QFY15 due to subdued international market, this looks contrary to management expectations. However, the good part is that 53% of the order inflow was from Emerging Businesses, this is a growth of 51% YoY)

Attached is the investor presentation.
Praj.pdf (1.0 MB)

The emerging businesses growth looks like on track. Although, the Ethanol business continues to disappoint and may drag down earnings for some more time.

Disclaimer: Initiated a tracking position.

(Vishnu Ch) #22

CONFERENCE CALL - from Capital Markets

Order intake should improve going forward

The company held its conference call on 23rd May 2016 and was addressed by Gajanan Nabar Managing Director & CEO

Key Highlights

  • The company reported flat consolidated net sales of around Rs 1016 crore for Mar’16 and excluding EO, consolidated PAT for Mar’16 stood at Rs 70 crore which was also more or less flat. Around 42% of total sales is from export market and rest domestic sales. Ethanol accounted for around 63% of total sales, Brewery around 12% and Emerging business now accounted for around 25% of total sales.

  • The order back log as on Mar’16 stood at Rs 960 crore which was also more or less flat as compared to Mar’15. The order book is not growing for past couple of years. As per the management this has predominately to do with increase in share of emerging business which has cycle of anywhere between 6-9 months and delay in finalization of large ethanol projects in international markets.

  • 40% of order backlog is from international markets.

  • Ebidta margin improved in FY’16 due to operational efficiencies and better quality of orders and higher share of high margin emerging business orders.

  • Order intake during the Mar’16 quarter stood at Rs 182 crore. About 53% is from Emerging business, 21% from Ethanol and rest from Brewery segment. Exports contribute about 12% of order intake.

  • Order intake for FY’16 stood at Rs 1013 crore as compared to around Rs 1200 crore for FY’15. About 30% is from Emerging business, 58% from Ethanol and rest from Brewery segment. Exports contribute about 32% of order intake. Order intake was lower due to subdued international markets and delays in placement of some of the major orders. Emerging business is on track.

  • Ethanol blending in India has reached around 3.2% in FY’16. As per the management, OMCs have finalized contracts to procure 1.3 bn liters (equivalent to 5% blending) for the first time since the mandate is in place.

  • Also on the domestic regulatory front, Central government has clearly laid down that the fuel ethanol blending discretion will remain with the Centre while the States will control on the usage of beverages and industrial alcohols. Further OMCs were asked to maximize fuel ethanol procurement from Bihar to compensate for reduction of ethanol production from drought affected States.

  • Internationally, lots of ethanol projects are getting delayed due to local economic reasons. However many geographies have announced lot of positive plans towards Ethanol plants. Internationally, Queensland in Australia passed a bill for 3% mandatory blending, Argentina increased blending from 10% to 12% and plans to go gradually to 20%. This will need additional 1.75 bn liter of additional capacity; Thailand and Mexico are exploring and working on the blending program.

  • In emerging businesses, the company commissioned first ever water and evaporation ATFD based zero liquid discharge ETP plant in FY’16.

  • For Praj HiPurity systems business, Indian pharma industry provides a big opportunity for growth. Pharma industry’s innovation lead growth and biosimilars will auger well for the orders for HiPurity systems in FY’17.

  • Going forward, management aims to continue to leverage its core business across the geographies and to scale up further the emerging businesses.

  • Domestically, management continues to be optimistic about increasing the blending of ethanol. Mandate to increase the ethanol blending to 10% is discussed at the Ministry level and the approval from Government is awaited.

  • Environment for emerging business be it critical process equipment and systems (CPS), water and waste water treatment division, hipurity systems business (earlier refereed at Neela systems) continues to be strong. Praj will play a significant role in upstream industrial waste water treatment in Ganga water. The company continues to be in industrial side and not on municipal waste water treatment orders. The demand for integrated waste water system in Pharma segment is also picking up and company expects many orders from this segment in coming quarters.

  • As per the management, order intake should improve from here on.

  • Lok Sabha passed the Industries amendment Bill which facilitates inter-state transport of fuel ethanol

Disc: Not Invested. But on watch-list.

(mahesh112) #23


Please put some light on promoter holding as well as it is very low 34% only.


(Amit Mehta) #24

Hi I was just trying explore what are the numbers that Praj can possibly achieve and what is the potential upside.
Given the current orderbook on an optimistic basic the Company may do 1,200 Cr of sales in FY17 and may be Rs 1,500 Cr in FY18 if things fall in place.
Given the focus on operational efficiency and better revenue mix lets assume that EBIDTA margin improves to 15%. That would mean EBIDTA of Rs 225 Cr in FY18. Add Other Income of ~15 Cr Depreciation of ~45 Cr and you are at PBT of 195 Cr & PAT of ~Rs 125 Cr. AT PE of 15X Mkt Cap would be 1875 Cr and at 20X 2,500 Cr. That is upside of 25% to 66% in next 18-24 month.

Am I getting this right or am I missing something?

Disc: Not invested. And this is not a recommendation to buy or sell

(Nelson) #25

Praj Industries choosen as a company to focus on out of 500 mid cap companies by Fortune Magazine along with Tata Elixsi.

(Amit Aggarwal) #26

Is it possible to share the link ?

(casambhav) #27

Its in Fortune India June 2016 Magazine Issue

(Nelson) #28

I read it on Magzter so unfortunately unable to share a link. However I can legally share my account with 4 people. I got a Magzter subscription this June onwards for 1 year for rs 999. I get the following Business/Finance magazines under Magzter Gold which can be read under my subscription:

Outlook Money
Outlook Business
Business Today
Business World
Dalal Street Investment Journal
Dalal Times magazine
Investors India
the Finapolis
Smart Investment
India Business Journal
Business Digest
ICICI Direct Money Manager

  • Many niche and sector specific journals

Admin and Mods, This is not to promote Magzter. It is just that I love reading and am legally allowed by Magzter to share my subscription with 4 other people. Anybody from ValuePickr interested in sharing this subscription let me know. We can work out the price based on how many people are interested. It will be a win win for all. Better read Investors and fellow Value Pickrs are always more than welcome.

(ramanhp) #35

(Hitesh Patel) #42

I think this magazine issue can be continued through private message. Enough clutter has been done on this thread. Request everyone to refrain from these magazine related messages.

(Kapil Sharma) #43

The ethanol promise has been their for quite long, this has till date not resulted in dramatic results but yes the promise is their. The other variable is the company’s diversification in high purity water but more than that the area of water treatment holds promise am not able to quantify the same for praj but the open and tenders in pipe line both national & international speak volumes of the market size in this domain, any idea? how much of their order book is in this segment? How to get info on this? request guidance

(Praveen Balla) #44

India’s transport Minister visits Tesla, offers up land for factory in the country

Can anyone please throw some light on how this will impact Praj?

Nitin hopes to accomplish this by having Tesla settle in India to create an “Asian manufacturing and assembly hub”. Gadkari goes on to state:

“the Indian government is committed to encouraging alternate pollution-free transport in the country by providing incentives to bio-fuel, CNG, ethanol and electric vehicles.”

(Alphin) #45

As of now, there is 5-10% of ethanol blending in Petrol at Downstream marketing terminals in PSU Oil Marketing companies. Pushing forward for Electric and Hybrid vehicles will reduce sale of Petrol and hence Ethanol.

Additional info: As of Now there is a huge Gap in the Ethanol demand ( very High ) and its supply. Also Diesel is being blended with Biodiesel.

(agkid) #46

I believe Electric and solar vehicles are a distant dream in India so far.

(Prem Shankar) #47

Poor quarterly numbers from Praj. The investor presentation emphasizes on healthy order book. Also, the following from the presentation should be positive for the business:

Center plans to launch the Integrated Bioenergy Mission with an indicative outlay of Rs 10,000 crore spread over 5 years between 2017-18 and 2021-22. This will enhance the use of ethanol and biogas, along with other forms of renewable energy.

Though some heavy selling is imminent, I think, there is no change in the long term story.

Disc: Invested

(Roopesh Kohad) #48

Found an excellent presentation dated 11th May 2016 about the 2nd generation ethanol technology readiness named “enfinity” here -

(Abhishek Basumallick) #49

Concall details from Capital Market (highlights are mine):

Good sugar season will be good for ethanol biz

Order backlog as end of June 30, 2016 was at Rs 1030 crore and of which exports order share was 32% and balance is domestic orders. Of the order backlog share of ethanol orders was 51%, brewery 10% and balance 39% was emerging business.

There were several order wins this quarter. Brewery team won 2 orders for the supply of complete process plants for green-field projects in India. Water and waste water treatment team also won an order in the power sector.

Order intake in Q1FY17 was Rs 280 crore (up from Rs 162 crore in Q1FY16) with most of it come from domestic market with about 92% in domestic market. Of the order intake share of ethanol was 51%, brewery 18% and 21% is emerging business.

Typically a good sugar season will enable the sugar industry to clean up their books. With positive sentiment in the Indian sugar industry on the heels of firming up of sugar prices and good monsoon showers augurs well for capital goods players related to sugar sector. Current mandate is 5% and the target is 10% and the increased ethanol blending will be gain for sugar sector. Increased ethanol blending resulted in improved interest in the sector and the company is in negotiation for newer ethanol capacities.

Integrated Bio-energy Mission of Union Government with an outlay of Rs 10000 crore for next 5 years starting from FY17-18 will enhance the use of ethanol and biogas. Significant part of the funds available in this mission is expected to find way for viability gap funding for 2nd generation ethanol technology plants. With current ethanol prices the 2nd Generation tech ethanol plants seems viable.

As far as Praj Hipurity business, the focus is Pharma and biotech sector. Here the recent development of allowing 74% FDI under automatic route in Pharma sector will augur well for the company. This development will reduce timeline for cross border tie-ups and fund-flow accelerating investment in the sector.

The status quo is maintained as far as Petrobras order is concerned. This order is still forms part of the company’s order book. Discussions have opened to shift to the new Contractor and it is reliably understood that there is a strong likelihood of resuming the project this calendar year.

About 78% of the revenue for the quarter ended June 2016 was from domestic market. While the share of ethanol biz was 61%, brewery was 11% and balance 28% was from emerging business.

Lower margin is largely due to change in revenue mix. The share of export orders were lower in first quarter compared to corresponding previous period. The Variable margin moved from 36% to 22% this affected the profitability.

International markets: While Argentina and Peru are promising geography in South America there is specific modernization opportunity available in Central America. The South East Asia market presents newer capacity addition apart from modernization business.

In USA there are commercial size 2nd generation plants in the size of 250 kl/day.

OMCs are expected to invest in about 2-3 ethanol projects based on 2nd gene technology. EOI released by OMC got encouraging response.

The company currently has substantial basket of enquiries for modernization of plants across are business segments of the company. Orders for 2nd generation based ethanol plants are expected to flow in at the end of current fiscal.

Development on the company’s own 2nd Generation Integrated Bolt-On Smart Bio-refinery Demonstration Plant is on track. The engineering is complete and we are in discussion with various stakeholders.

Water and waste water business relies on power and F&B sector. The focus now is on improving the ticket size as well as reprocessing technology.

(Aditya) #50

Hi Hitesh, while I like the way Praj’s business model is shaping up, isn’t the low RoE a matter of concern?

(Abhishek Basumallick) #51

@arallan Praj is more of a turnaround story now. If it manages to turnaround and earnings pick up steam, the RoE will increase.

(Aditya) #52

Thanks Abhishek! What is the kind of RoE that Praj will generate once it manages to turnaround? The share is back to Rs 80 levels so I am thinking of making an investment