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Why Praj Industries Share Price is Rising

Nov 25, 2023

Why Praj Industries Share Price is Rising

In India, where the thirst for crude oil seems insatiable, the government is promoting a transformative wind of change. This change is in regards to the biofuel revolution.

This revolutionary shift opens up significant opportunities for companies well-versed in industrial biotechnology, particularly engaged in the manufacturing of sustainable solutions.

One standout player in this space is Praj Industries. The company holds a unique position and has a first mover advantage. This sets the company apart in the race for sustainable solutions providers.

Over the past five trading sessions, the share price of Praj Industries has captured significant attention as it hit a new 52-week high.

Let's find out why...

#1 Robust Q2 Results

The primary reason why the share price of the company is rallying is because of robust September quarter results.

In the second quarter of FY24, the company reported a 65% jump in the operating income on the back of a strong order book of Rs 33.5 billion (bn) as compared to the same quarter last year.

Moreover, the company achieved a remarkable 44.4% growth in net profit, amounting to Rs 481 million (m) in the quarter under review as compared to the same period last year, primarily due to higher revenue.

The company's earnings before interest, tax, depreciation and amortisation (EBITDA) stood at Rs 676 m, a 46.3% increase year on year (YoY). The EBITDA margins also improved by 97 basis points.

Looking at the segment wise revenue breakup, the company generated 75% of its income from the bioenergy segment, 19% from engineering and 6% from HiPurity.

HiPurity is a subsidiary of Praj Industries which offers ready to use solutions for biopharma, nutraceutical and personal care industries.

#2 Strong Sectorial Tailwinds

India's green energy revolution is giving a boost to several industries and there's a growing demand for sustainable fuels.

As these fuels are derived from environmentally friendly sources, they play a crucial role in reducing carbon emissions.

Hence, more and more companies are jumping on the sustainable energy bandwagon which benefits Praj Industries as the company is a leader in providing sustainable solutions.

Moreover, as India is the third largest ethanol producing country in the world, a capex expansion by ethanol producers could possibly drive higher revenue and profitability for Praj Industries.

The recent passage of the Inflation Reduction Act (IRA) by the US Government brings significant provisions to support the advancement of biofuels. With government backing, the biofuels sector is poised for growth.

Moreover, Praj Industries generates a decent amount of revenue from exports.

The company has a presence in over 100 countries. Its latest reported order book stands at Rs 38 bn, of which 22% is from export markets versus Rs 34 bn at the end of FY23.

What Next?

The company has a long term focus on growth and is already contributing to the ethanol blending programme.

They are further looking to join hands with other companies to achieve net zero operational emissions by 2046 while maintaining their leadership in the green energy domain.

Keeping that in mind, the company signed a term sheet with Indian Oil Corporation with the aim to strengthen biofuel production capacity in India.

Under this agreement, several biofuels will be covered which includes sustainable aviation fuel (SAF), Compressed Biogas and biodiesel.

The company has also done a few more collaborations with a France based company, Axens, for sustainable fuels, Sweden based company, Sekab E-Technology for producing biofuels from forest residue feedstock.

Teaming up with big players will help the company do more and reach bigger goals.

The order book we mentioned above does not include 5 CBG projects with a potential value of Rs 5 bn. Remember by 2030, the plan is to install 5,000 such plants.

Even a fraction of this investment could unleash huge opportunity for the company.

The company is also setting up a demo plant for Polylactic Acid (PLA) to accelerate the commercialisation of bioplastics.

Praj is a cash rich, zero debt company, with a return on equity of 24% and return on capital employed of 32%.

For more information, watch the below video where lead smallcap analyst at Equitymaster Richa Agrawal shares future prospects for Praj.

How Praj Industries Share Price has Performed Recently

Praj Industries has gained 3.2% in the last five days and more than 70% in 2023 so far.

The company touched its 52-week high of Rs 627.50 on 24 November 2023 and its 52-week low of Rs 299 on 28 March 2023.

chart

Domestic Institutional Investors (DIIs) have increased their stake in Praj Industries by 1.8% on a quarter on quarter (QoQ) basis.

As of the September 2023, DII now accounts for 10.2% of the company's stake, a notable increase from the 8.4% stake they held during the June quarter.

Check out the detailed shareholding pattern here.

About Praj Industries

Praj Industries stands out as a top player in installing ethanol plants and brewing setups within the country.

They offer complete solutions from the technology and equipment needed in distilleries and breweries to wastewater treatment technology and essential process equipment.

Praj Industries has also set up a second-generation ethanol plant called 2G Ethanol Biorefinery.

The company generates 83% of its revenue from domestic sources and 17% from exports.

For more details about the company, you can have a look at the Praj Industries fact sheet and quarterly results on our website.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

Safe Stocks to Ride India's Lithium Megatrend

Lithium is the new oil. It is the key component of electric batteries.

There is a huge demand for electric batteries coming from the EV industry, large data centres, telecom companies, railways, power grid companies, and many other places.

So, in the coming years and decades, we could possibly see a sharp rally in the stocks of electric battery making companies.

If you're an investor, then you simply cannot ignore this opportunity.

Click Here for Full Details

Details of our SEBI Research Analyst registration are mentioned on our website - www.equitymaster.com

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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