Praj Industries

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About the Company

Praj Industries Limited operates in the field of bio-based technologies and engineering worldwide. It offers solutions for the ethanol industry, including multi-feed multi-product plants, modernization of existing plants, and renewable fuels comprising BioCNG, bio-butanol etc.; produces bio ethanol, bio butanol, bio chemicals, power, bio CNG, CO2, etc.; and operates bio-mobility platform that promotes the use of renewable resources to produce carbon neutral transportation fuel.

The company also provides high purity system solutions to the bio-pharmaceutical, biotech, cosmetics, healthcare, and F&B sector for sterile process water generation, water for injection, storage and distribution system, CIP/SIP, systems for core processes, wastewater treatment, etc.

Q3FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company delivered a strong quarter with revenue rise by 55% YoY.
2. PAT grew by 68% YoY.
3. At end of the quarter, cash and bank balances stood at Rs 604 Cr.
4. Export revenue accounted for 17% in Q3 FY23.
5. Segment-wise revenue breakup:

• Bio Energy: 72.7%%
• Engineering: 19.6%
• Hi Purity: 7.7%

1. The order intake in this quarter stood at Rs. 3380 Cr, with 87.5 % coming from the domestic market.
2. Total order intake distribution in Q1 FY23:

• Bio Energy: 77.2%
• Engineering: 17.3%
• Hi Purity: 5.5%

1. The order backlog stood at Rs. 3241.7 Cr with 84.5% being domestic orders at end of this quarter.
2. EBITDA margin in Q1 FY23 was at 7.64%, down by 28 bps YOY.

Investor Conference Call Details: 

1. The company successfully commissioned Asia’s largest single train 510 KLPD syrup to an ethanol plant where  all performance parameters were achieved within 72 hrs of plant commissioning
2. The company is building a large-scale commercial CBG plant for one of the leading business conglomerates in India while its MoU with Axens of France, for Sustainable Aviation Fuel projects, to decarbonize the aviation sector in India is yet another milestone development as per the management.
3. The management states that Around 75% of the orders came for ethanol plants based on the starchy feedstock & it expects this to shift towards sugary feedstock going forward.
4. On the international biz front, the company recently completed an engineering audit for a few ethanol plants in the USA which are expected to help ethanol producers finalize their investment decisions for deploying the company’s low-carbon ethanol technology solutions. 
5. On the 2G front, pre-commissioning activities are underway at IOCL Panipat plant while On the international front, in Europe, discussions are advancing in a positive way with various prospects regarding its technology offering
6. As for CBG, its first rice straw-based commercial plant is in the final stages of commissioning & the mechanical completion is expected by end of March 2023. 
7. The company is witnessing increasing traction for offerings in the High-Capacity fermenters, which accounts for 20% of the total OB this year. It also booked its first order in the Semiconductor sector.
8. To address the growing opportunity basket from Energy Transition and Climate Actions agenda, the company is planning to set up a new subsidiary with an investment of Rs. 100 crores.
9. In the CBG plant development biz, the focus is on only the processing part of that plant, which is almost 50% to 55% of any Greenfield CBG project.
10. The company’s rationale for capex is “demand is increasing not only for the equipment, but the modularization is actually taking a very definitive state and it believes that the demand which it is witnessing, its existing facility at Kandla will not be sufficient to serve that kind of a demand”.
11. The management believes that since its old order book was hampered by inflation due to its nature being a fixed-cost base, it is expected to get over by Q1Fy24, therefore the margins should trend upwards in the coming financial year.
12. The Govt. commitment to investing 10,000 Crs in CBG penetration is a major positive, however, the company is closely monitoring the developments before taking any major action.
13. The company’s increased focus on margins lead to the company being very selective (especially in new segments) leading to a market share reduction from 60% to 50%.
14. The market share scenario in CBG will be different Vs ethanol since there are more players in the CBG segment.
15. The management based on its experience in SIAM’s auto expo believes that the percentage of flex fuel vehicle is going to be on the higher side, which will add to the demand which is required for ethanol.
16. The management explained its MOU with Axens by stating – “there are 2 parts, first leg and second leg. The second leg is related to SAF manufacturing. We have joined hands with Axens, where we will be using Axens technology for the conversion of whether isobutanol to SAF or conversion of ethanol to SAF. So, that’s the leg where Axens is going to play a role. We are going to play a role in isobutanol and ethanol. And that ethanol is going to be low-carbon ethanol. So, it’s a change where both of us are going to play a role first part by Praj; second part by Axens.”
17. The company’s growth framework stands as –  in the short term, ethanol is going to play a big role; short to medium term role in the Bioenergy segment, CBG will play a major role & from medium to long term, SAF is going to play a big role. 
18. The ethanol blending levels stand at 12% currently.
19. The additional 8% blending will require 450-500 million liters, translating to 100-150 plants which will have a revenue potential of 10,000 Crs out of which Praj targets 6,000 Crs.
20. The RCM biz opportunity is expected to take a long term to materialize.

Analyst’s View

Praj is one of the global market leaders in the bio-based technologies and engineering space. The company delivered another stellar quarter with revenue growth of over 55% YoY in this quarter. Ethanol-blended diesel is also now up to BSIV norms and should become commercially viable once it can meet BSVI norms. It remains to be seen how long the momentum for Praj will continue, management scale up its new capex and how long will it take for the 2G and ethanol-blended diesel to become commercially viable. Sustainable Aviation Fuel (SAF) space is also gaining traction on the back of rising environmental awareness and climate change action. Nonetheless, given the company’s strong track record, strong tailwinds of the industry, the ambitious govt target of reaching 20% blending by 2025, and the rising international acceptance of biofuels as a credible alternative for reducing emissions, Praj Industries remains a pivotal Pick & Shovel play on the ethanol and biofuel sector that every investor should watch out for.

Q2FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company witnessed healthy revenue growth of 68% YoY in consolidated terms in Q2.
2. Profit of the company increased by 44% YoY in consolidated terms.
3. Export revenues accounted for 17% of Q2FY23.
4. Revenue breakup
   Bio-energy – 74.7%
   Engineering – 19.5%
   PHS business – 5.7%
5. The order intake during the quarter was Rs. 981 crores, with 92.8% from the domestic market. Breakup of the total order intake:
   Bio-energy – 85.1%
   Engineering – 10.8%
   PHS business – 4.1%
6. The order backlog as of September 2022 is at Rs. 3346 crores comprising of 87.5% of domestic orders. Cash in hand as on Sept 30, 2022, is Rs. 514 Crores.

Investor Conference Call Highlights

1. Management states that India’s EBP 20 program is marching ahead of its target. Biofuels are having an increasingly important role to play as they address a multitude of issues across the economic, social, and environmental spectrum.
2. The introduction of flex-fuel vehicles, ethanol-driven power generators, diesel blending programs, etc. are likely to drive future demand beyond EBP 20.
3. In the 2021-22 sugar marketing year, India exported 11.2 million tons of sugar indicating that India has enough sugary feedstock for sustainable ethanol production
4. The availability of starchy and cellulosic feedstock will ensure India can address higher ethanol demand in near future.
5. The US Government passed the Inflation Reduction Act (IRA) which has significant provisions to support the advancement of biofuels across different modes of mobility. As a result of this low-carbon ethanol is likely to emerge as an interesting business opportunity.
6. With the announcement of blending mandates in Canada & Mexico, the company’s market development activities are finding good traction to lead generation.
7.  The company’s first project in Brazil is on schedule for commissioning at the end of this year.
8. During trials at a few select plants in Brazil, the company has successfully demonstrated the performance of its PE solutions.
9. On the 2G front, Praj’s plant at IOCL Panipat was unveiled by the Prime Minister in Aug 22. This plant will benefit more than 1,00,000 farmers and shall create1500 jobs for rural youth.
10. 2G ethanol has a higher potential to displace GHG emissions than 1G. This plant will eliminate around 3,20,000 metric tons of CO2 every year, equivalent to replacing 63,000 cars on road annually. 2G plant will address the serious concerns arising due to Stubble burning.
11. Management states on the international front, discussions are progressing favorably for establishing 2G plants in Europe. Russia Ukraine war and Energy Crisis in Europe will further propel the need for 2G ethanol which is the most sustainable fuel alternative.
12. The company’s R&D is working on a program to find an optimal solution for addressing the need of customers who are seeking solutions for different varieties of agricultural residues.
13. On the CPES front, the energy transition phenomena is driving development of blue & green hydrogen projects along the globe, creating interesting business opportunities for this business.
14. The company’s ability to Modularize engineering solutions across the technology platforms is helping it to create a significant competitive advantage.
15. Praj’s additional capacity at Kandla is now fully operational and they are exploring further capacity enhancement.
16. On the brewery front, management stated the beer consumption levels have crossed the pre-pandemic levels and the company is experiencing a healthy flow of inquiries from India as well as Africa. The new capacity formation is expected to catch speed in the latter part of FY23.
17. The company’s Zero Liquid Discharge business sees good business potential mainly from the private sector and management expects few important contracts likely to conclude in H2 of FY 23.
18. On PHS business front, management states their strategy of focusing on High-Capacity fermenters space is receiving a positive response from customers
19. On the RCM front, Praj has entered into an MoU with ICT to establish a Center Of Excellence & Innovation (COEI) for Biopolymers. This center will undertake research, promote the academic pursuit, and explore developing biodegradable plastic.
20. Management states that payable days have been reduced mostly due to early payments for cash discounts.
21. Management states that lower margins are mainly contributed by a lower share of exports. Previously exports used to have a share of 25%-30% which is not the case due to faster domestic market growth.
22. Domestic sales have given the EPC component it is not on the A and B components but the C component also plays a role there. And that component naturally carries little margin as compared to the supply component.
23. In the last call, the management mentioned that 1,000 crores liter ethanol capacity expansion will be needed; they are done with 500 crores currently.
24. The management states that currently,  20% ethanol blending is in place for all road vehicles that run on petrol. The first flex-fuel vehicle also has strong hybrid connections which they believe is the ideal solution for India. It was also launched recently by an auto company. Flex fuel vehicles will drive demand as they will  no longer be limited  to 20% and can go all the way up to 85%.
25. Management states that railways and vehicle automotives under mobile diesel engines can be another business opportunity by an application of ethanol in the engines.
26. So several avenues will open based on application and telecom towers, there are many, many of those which are currently running on diesel, but they can very sustainably shift to ethanol, and one is the EBP-20 program, but all of these will also start to drive, is an opportunity even bigger in size.
27. The management stated the bigger opportunity is going to be the lignocellulosic feedstocks, which is why they are so positively looking forward to commissioning and handing over the IOCL project.
28. On the CBG front, management stated they have started seeing some activities developing due to the recent supportive policy by the UP government. Supply chains have local issues, depending on location, financing wise everything is placed.
29. Management stated they are trying to get orders from the international market in H2 to get improved on the margin side.
30. Average execution period for an outstanding order book is 12 to 15 months stated by the management.
31. Company is having more than 66% market share.
32. The management stated the existing capacity, which has in-house and outsourced both are good enough to take care of the current order book. The expansion of the existing Kandla facility was for export business.

Analyst’s View

Praj is one of the global market leaders in the bio-based technologies and engineering space. The company is witnessing good revenue and profit growth, order book on hand, and margin pressure due to RM volatility and revenue mix. It is seeing a drastic rise in starchy feedstock orders which would reduce the dependence on sugar for making ethanol and also reduce the seasonality from Praj’s revenues. The management has stated that the 2G ethanol technology is now IRR-positive and it should become commercially viable soon. Ethanol-blended diesel is also now up to BSIV norms and should become commercially viable once it can meet BSVI norms. The management expects the CBG or biogas opportunity to be at Rs 5000 Cr but gasification at the plant level remains a challenge for the industry. It remains to be seen how long the momentum for Praj will continue and how long will it take for the 2G and ethanol-blended diesel to become commercially viable. Nonetheless, given the company’s strong track record, strong tailwinds of the industry, the ambitious govt target of reaching 20% blending by 2025, and the rising international acceptance of biofuels as a credible alternative for reducing emissions, Praj Industries remains a pivotal Pick & Shovel play on the ethanol and biofuel sector that every investor should watch out for.

Q1FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company delivered strong quarter with revenue rise by 89% YoY and stood at Rs 730 Cr in Q1 FY23 as compared to Rs 386 Cr in Q1 FY22
2. PBT and PAT for this quarter stood at Rs 54 Cr and Rs 41 Cr respectively
3. At end of the quarter, cash and bank balances stood at Rs 652 Cr.
4. Export revenue accounted for 16% in Q1 FY23.
5. Segment wise revenue breakup:

• Bio Energy: 77%%
• Engineering: 17.3%
• Hi Purity: 5.7%

6. The order intake in this quarter stood at Rs. 1094 Cr, with 81 % coming from domestic market.
7. Total order intake distribution in Q1 FY23:

• Bio Energy: 77.2%
• Engineering: 17.3%
• Hi Purity: 5.5%

8. The order backlog stood at Rs. 3241.7 Cr with 84.5% being domestic orders at end of this quarter.
9. EBITDA margin in Q1 FY23 was at 7.64%, down by 28 bps YOY.

Investor Conference Call Details:

1. Management expects another 400-500 crore-litre capacity to meet the EBP20 targets by 2025.
2. Management states that ethanol blending in India has crossed 10% mark in this quarter.
3. On 2G front, company is in the final stage of commissioning project with IOCL and it will begin its operation by the end of this year.
4. The company is commissioning its first project in Brazil based on low carbon and low energy intensity ethanol.
5. Praj was awarded with prestigious Golden Peacock Award in the Innovative Product and Service category for their ground-breaking product BIOSYRUP.
6. Praj was featured in THE NEXT 500 Fortune India in the Engineering sector.
7. According to the management, the beer consumption in brewery business has surpassed the pre pandemic levels
8. As global player are heavily investing in blue & green hydrogen project, company has added additional capacity at Kandla to cater this demand, which will helps CPES business of the company.
9. The management states that CBG products are in double digit IRR which makes them commercially attractive and enable banks to finance them.
10. The company has commissioned a CBG plant based on industrial effluent as a feedstock.
11. Management states that, in CBG segment company has not received any fresh order in this quarter
12. The company is going to see pressure on margin for at least one more quarter due to rising commodity prices.
13. In PHS segment, company made a few initial breakthrough in fermentation space.
14. Company is planning to address the demand of high purity water in pharmaceutical and semi-conductor industries.

Analyst’s View

Praj is one of the global market leaders in the bio-based technologies and engineering space. Despite rise in commodity prices and macro factor, the company continues to deliver strong growth of revenue over 89% YoY in this quarter. Ethanol-blended diesel is also now up to BSIV norms and should become commercially viable once it can meet BSVI norms. It remains to be seen how long the momentum for Praj will continue and how long will it take for the 2G and ethanol-blended diesel to become commercially viable. Sustainable Aviation Fuel (SAF) space is also gaining traction on back of rising environment awareness and climate changes action. Nonetheless, given the company’s strong track record, strong tailwinds of the industry, the ambitious govt target of reaching 20% blending by 2025, and the rising international acceptance of biofuels as a credible alternative for reducing emissions, Praj Industries remains a pivotal Pick & Shovel play on the ethanol and biofuel sector that every investor should watch out for.

Q2FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company witnessed phenomenal revenue growth of 103% YoY in consolidated terms in Q2.
2. The profits for the company were up for Q2 with a rise of 200% YoY in consolidated terms.
3. Order intake in Q2 was Rs 745 Cr vs Rs 405 Cr last year and Rs 661 Cr in Q1.
4. H1 was similarly up with order intake in H1 at Rs 1406 Cr vs Rs 715 Cr last year.
5. Current ethanol blending levels at “‘8.5% as of September 2021.
6. From October 2021 onwards, incentives to sugar industry have doubled for conversion to ethanol.
7. Ethanol production capacity of plants using Praj’s technology solutions across the globe has crossed 11 billion liters annually. This translates to around 10% of global ethanol production (excluding China).
8. The order backlog distribution in Q2 is:
   1. Bio Energy: 3%
   2. Engineering: 1%
   3. Hi Purity: 6%
9. Domestic orders form 82.7% of the total order book for Praj. The total order backlog as of the end of Q2 was at Rs 2235 Cr.
10. Q2 revenue split: Bioenergy: 74%; Engineering: 17%; HiPurity: 9%
11. EBITDA margin in Q2 was at 8.66% vs 6.7% last year.

Investor Conference Call Highlights:

1. The ethanol blending rate in India is expected to cross 10% in November 2021.
2. A total capacity of 118 Cr Litres was ordered to be built in India in Q2 from Praj with 94 Cr liters from starchy feedstock.
3. The average plant size is now up to 200 kiloliters per day.
4. France has also announced a program to improve the energy mix in favor of ethanol. Bioethanol consumption in France is expected to rise to close to 120 crore liters this year.
5. The company also commissioned its single largest pharma-grade alcohol plant having a capacity of 50 million gallons per year in the United States in Oct.
6. The company is expanding its offerings in the performance enhancer space in the ethanol and sugar sector. These consumable solutions help improve the yield and quality of the end product.
7. Praj is also currently executing projects for hydrogen plants for some of the leading players in the world.
8. The company’s execution of India’s largest apple juice concentrate plant is progressing as per the schedule and is expected to be commissioned by March ’22.
9. The company continues to see rising commodity prices, longer delivery cycles, and logistic challenges. The quarter witnessed a 15% increase in steel price and a further 10% in the last 15 days of the quarter.
10. The company is looking at solutions to blend ethanol into diesel but is not able to make the product according to the latest emission norms, but the management remains hopeful of achieving it in the future.
11. The major issue with ethanol blending of higher than 20% is that IC engines currently are not ready to handle this fuel mix and will need to be modified to be able to do so.
12. The starchy feedstock plant enables ethanol production even in non-sugar producing states and is expected to contribute to making ethanol production uniform across the country.
13. The seasonality seen in the company’s performance in the past should go down due to dependence on sugary feedstock going down.
14. The management states that it is taking measures to minimize the impact of raw material price inflation, and this should result in an EBITDA margin of 8% if raw material prices continue to remain high.
15. The management states that there isn’t any food vs fuel debate on starchy feedstock as most of the input grains for these plants are not fit for human consumption.
16. The management states that 2G ethanol technology is now in positive IRR territory from negative previously.
17. Despite the small share of exports in the total order backlog, the export order backlog is at its highest ever level for Praj.
18. The management states that the CBG or biogas space is still not becoming as big as the ethanol plant space because of challenges in gasification on the plant side.
19. The incentive for diversion of the sugar for higher production of ethanol has been doubled from last year’s incentive levels by the govt.
20. The company has signed a deal in Brazil for the transfer of technology.
21. The management states that the company has a 60% win ratio in its new project bids.
22. The company only has 16 customers globally in its engineering business who are focused on cleantech, green tech solutions, gas-based plants, industrial gases, & very high-specialty chemicals. All of these customers are in the top 2 of their segments globally.
23. The management states that the company’s earning share of a project is close to 1/3rd of the overall project value for setting up an ethanol plant.
24. The CBG opportunity is estimated to be at Rs 5000 Cr alone according to the management.
25. The company works on a fixed contract model where there isn’t any protection from raw material price inflation and thus margins remain vulnerable to RM inflation.
26. The company was planning to undergo capacity expansion in March 2023. It will now move up the schedule by 1 year to keep pace with the rising order book.

Analyst’s View:

Praj is one of the global market leaders in the bio-based technologies and engineering space. The company continues to see phenomenal growth of over 100% YoY in both revenues and profits and rising order book and margins despite pressure from rising raw material costs. It is seeing a drastic rise in starchy feedstock orders which would reduce the dependence on sugar for making ethanol and also reduce the seasonality from Praj’s revenues. The management has stated that the 2G ethanol technology is now IRR positive and it should become commercially viable soon. Ethanol-blended diesel is also now up to BSIV norms and should become commercially viable once it can meet BSVI norms. The management expects the CBG or biogas opportunity to be at Rs 5000 Cr but gasification at the plant level remains a challenge for the industry. It remains to be seen how long the momentum for Praj will continue and how long will it take for the 2G and ethanol-blended diesel to become commercially viable. Nonetheless, given the company’s strong track record, strong tailwinds of the industry, the ambitious govt target of reaching 20% blending by 2025, and the rising international acceptance of biofuels as a credible alternative for reducing emissions, Praj Industries remains a pivotal Pick & Shovel play on the ethanol and biofuel sector that every investor should watch out for.

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