Praj Industries’ (Praj) senior management, during our recent interaction, was reasonably confident about Praj’s medium to long term growth prospects. In the near term, while the ethanol business is likely to have limited impacted by weak crude prices, management maintained strong outlook on its brewery and high purity (PH) businesses.
The company has sharpened focus on internationalisation of its PH business and expects strong momentum to emanate from pharma industry. PHS is expected to be a significant contributor to revenues over next 2–3 years. On the Petrobras order (~25% (Rs 9.8 bn) of current order book), management mentioned the order stands firm and there are no chances of cancellation. We believe the company is capable of scaling up its emerging and brewery businesses globally over next 2–3 years, thereby reducing reliance on ethanol business, which could in turn lead to substantial ramp up in RoE profile (FY15 RoE at 18% ex cash) beyond FY17E.
Maintain ‘BUY’ with a target price of Rs 100.
There has been increasing concerns around pressure on the ethanol blending program following the sharp drop in crude prices. However, Praj’s ethanol business is largely led by blending mandates and other factors than just the one variable of crude oil prices. Moreover, the company’s ethanol business is not dependent only on fuel ethanol plants.
| Subscribe To Our Free Newsletter |
