Praj Industries - Compressed Bio Gas, SAF To Drive Bio-Fuel Theme Post EBP-20: Prabhudas Lilladher

Prabhudas Lilladher Report

We revise our FY24/25E estimate by 1%/6.3% post factoring in improved visibility from compressed bio gas plants and its engineering business (modular process equipment), however, downgrade the rating to ‘Accumulate’ from 'Buy' given recent steep run up in share price.

We met with the management of Praj Industries Ltd. where management highlighted that Global Biofuels Alliance announced at G20 event is positive development for Bio-energy.

Traction is witnessed from CBG plants and management expects tenders of 100 CBG plants to be out in next one year totaling to opportunity worth Rs 100 billion (~Rs 1 billion/plant).

Post ethanol blending with petrol and CBG, upcoming opportunity arises from Sustainable Aviation Fuel from FY27 onwards. Praj has been continuously focusing on research and development and has setup Praj Matrix with investment of $30 million, which will focus on development of new technology and renewable chemicals and materials.

We remain positive on Praj in long run, given-

1. its strong leadership in domestic ethanol plant (~50-55% market share),

2. increasing traction from CBG plants,

3. focus on future-ready technologies like 2G plants, CBG, ECTA, SAF etc.

4. healthy outlook for engineering segment from exports market and

5. upcoming opportunity from SAF post FY27.

The stock is trading at price-to-earning of 35.4 times/31.1 times on FY24/25E. We revise our target price to Rs 618 (Rs 475 earlier), valuing it at PE of 33 times FY25E (27 times FY25 earlier), factoring in improved revenue visibility, amidst opportunities arising from CBG and sustainable aviation fuel in long run. Downgrade to ‘Accumulate’.

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