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Praj Industries: Forex losses dent bottomline - Views on News from Equitymaster
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Praj Industries: Forex losses dent bottomline
Jul 30, 2008

Standalone results performance summary
  • Sales grow by 12% YoY during 1QFY09.
  • Operating margins sharply improve by 9.5% YoY, aided by lower raw material costs and stock related adjustments (both as percentage of sales).
  • Net profits drop by 13% YoY. This is mainly due to forex losses during the quarter and on a like to like basis, gains in 1QFY08. Excluding these items, net profits have doubled on a YoY basis.

Standalone financial snapshot
(Rs m) 1QFY08 1QFY09 Change
Net Sales 1,385 1,548 11.7%
Expenditure 1,181 1,174 -0.7%
Operating profit (EBITDA) 204 374 83.8%
Operating profit margin (%) 14.7% 24.2%  
Other income 27 20 -25.9%
Depreciation 10 17 76.5%
Interest 0 - -100.0%
Profit before tax 221 377 70.8%
Extraordinary income/(expense) 161 (76)  
Tax 98 54 -45.3%
Profit after tax/(loss) 284 248 -12.7%
Net profit margin (%) 20.5% 16.0%  
No. of shares (m)   183.2  
Diluted earnings per share (Rs)*#   8.3  
P/E ratio (x)*   22.2  
# Adjusted for extraordinary items
* On a trailing 12-months basis

What has driven performance in 1QFY09?
  • Praj Industriesí sales grew by 12% YoY during 1QFY09. This growth is attributed to stable performance in both the segments of products and engineering services. Exports contributed to nearly 42% of the total sales. The company currently has an order backlog of Rs 9.5 bn (1.4 times its FY08 sales), which it plans to execute over the next 12 to 14 months.

  • Prajís operating margins increased by an impressive 9.5% YoY during the quarter. This expansion was achieved mainly due to lower raw material costs and stock related adjustments (both as percentage of sales). However, the employee expenses increased from 6.9% of sales in 1QFY08 to 9.2% in 1QFY09. As per the management, the company was also able to improve margins to this extent because of its engineering business (higher margin segment), which witnessed a strong growth during the quarter.

    Rs m 1QFY08 1QFY09
    Expenditure Amount % of sales Amount % of sales
    (Increase)/decrease in stock 147 10.6% 0 0.0%
    Consumption of raw materials 724 52.3% 781 50.5%
    Employee costs 96 6.9% 142 9.2%
    Other expenditure 214 15.5% 251 16.2%
    Total 1,181 85.3% 1,174 75.8%

  • Prajís net profits dropped by 13% YoY during the quarter, mainly due to Rs 76 m of forex losses. In 1QFY08, the company had earned forex gains of Rs 124 m. Excluding these items, the net profits have grown by 102% YoY during 1QFY09. A sharp decline was seen in tax expenses Ė effective tax rate declined from 44% in 1QFY08 to 14% in 1QFY09.

What to expect?
At the current price of Rs 185, the stock is trading at a multiple of 15.1 times our estimated FY10 earnings. The companyís management, in its conference call held yesterday, mentioned that they have not been witnessing a slowdown as sharp reduction in feedstock prices have made the scenario even more attractive for investments in the ethanol space. For instance, corn prices in the US have reduced by nearly 20%, which has helped in increasing the crush margins for ethanol producers.

On the domestic front, the proposal for ethanol blending rate to be increased to 10% from the current 5% will only benefit the company in the long run. As per the management, out of the current alcohol produced in India, only about 10% is used for ethanol, while the balance is utilised as beverages and chemicals. To put things in perspective, India currently has a production capacity of 2.2 bn liters of alcohol. Of this, only 200 m liters are produced as bio-fuels. If the 10% mandate does go through, the total required capacity would be in excess of 1.1 bn liters.

Praj is currently in the process of developing a second generation biofuels (cellulose based) programme with a pilot plant facility, which is likely to be commissioned by September this year. The company has planned a capex for Rs 750 m of which nearly 40% will be invested towards developing its R&D facility, while the balance will be towards machinery and manufacturing facilities. We maintain our positive view on the company from a 2 to 3 years perspective.

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Feb 23, 2018 (Close)


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