Praj Industries' Shishir Joshipura On Orders, Margins And Opportunity Beyond Ethanol

Q1 Highlights

• Revenue fell 31.9% sequentially Rs 386 crore. Still, it beat estimate of Rs 190 crore, and was higher than a year earlier.

• Adjusted net profit was at Rs 21.4 crore against Rs 52 crore in the preceding three months, and a loss a year earlier.

• Margin shrank to 7.7% from 13% in the preceding quarter.

• The company received record fresh orders worth Rs 660 crore, taking its order backlog to an all-time high.

Shishir Joshipura, managing director and chief executive officer at Praj Industries, spoke to BloombergQuint’s Niraj Shah on the order book, on execution of orders, on margin pressures and opportunities beyond ethanol.

Order Book

Order intake surged 113% to Rs 660 crore — Rs 495 crore domestic and Rs 160 crore exports. Order book grew 60.2% to the record Rs 2,020 crore--with domestic orders contributing 83%.

Ethanol (bioenergy) segment order book at Rs 1,360 crore, accounted for 67.5% share, followed by engineering and hi-purity at 25.6% and 6.9%, respectively.

“We had created momentum on order book and that was maintained,” Joshipura said. “The ethanol story is unfolding— in the whole of FY21, the country contracted 145 crore litres of capacity. But in the last quarter alone, India did 133 crore. It is the best quarter for orders for PHS (Praj HiPurity Systems).”

If there are no major external events like a bad third Covid wave, Praj Industries is on track for another quarter of Rs 600 crore worth of orders, he said.

Ebitda Margin

Operating income stood at Rs 30 crore against Rs 74.93 crore in the prior quarter and an operating loss of Rs 15 crore a year earlier. Ebitda was, however, higher than the Rs 13.3-crore estimate.

Ebitda margin shrank to 7.7% from 13% on rising raw material costs, particularly steel prices.

Joshipura said the company was trying to mitigate increase in input costs. The time cycle from enquiry to signing a contract has shrunk, he said. And if a client dose not finalise an order in 15 days, the contract will be signed based on new prices, according to Joshipura.

But the order backlog has to be serviced, and will impact margins in the near term, he said, adding that the company expects stability by the quarter ending March 2022.

Compressed Biogas

The company has commissioned the first compressed biogas project from press mud (residue after extraction of sugarcane juice) and has received an order from Hindustan Petroleum Corp. to set up a unit with rice straw as feed stock using a proprietary microbe.

The company has technology for agri feed stock, press mud and spent wash (residue in alcohol production), which will help it capitalise opportunities under the Sustainable Alternative Towards Affordable Transportation or SATAT programme for 5,000 biogas plants in India, Joshipura said.

"Uttar Pradesh launched the first CBG gas pump near Muzaffarnagar. As we move through the year, we will see some build-up,” he said. “The full blown CBG opportunity of Rs 1,75,000 crore outlay for plants is still 18-24 months away, but this start is a good omen for us.”

Shares of Praj Industries have rallied nearly 190% so far in 2021. The stock rose 12.6% in 2020, erasing the losses accumulated over 2018 and 2019.

Phillip Capital On Praj

• Raised earnings estimate by 13%/18% for FY22/23; with estimated valuation at 30 times its FY23 earnings against 25 times earlier.

• Raised the price target from Rs 320 to Rs 452, implying a potential upside of nearly 34%.

• With its leadership in biofuel technology, Praj Industries will benefit from upcoming opportunities in biomobility, bioCNG and renewable chemicals and materials with global push for sustainable environment.

• Management is expecting significant traction in development of bioCNG projects supported under SATAT.

• Praj has a strong balance sheet with net cash of Rs 520 crore and a scalable business model.