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Recommendations India

Praj Industries Q3FY14 results update

February 13, 2014, Thursday, 05:16 GMT | 00:16 EST | 09:46 IST | 12:16 SGT
Contributed by Nirmal Bang

Praj Industries Ltd (PIL)’s has shown rebound in the Q3 performance post dismal performance in Q1 and Q2FY14 which is in line with management earlier guidance of improvement in H2FY14 performance but new order booking continues to be in the range of Rs 200 Cr per quarter.
- Consolidated Revenue grew 15% YoY to Rs 269.1 cr during the quarter. PIL reported EBITDA of Rs 35 cr against Rs 23 cr in Q3FY13, on account of execution of quality orders and lower raw material cost. PAT stood at Rs 24.3 cr, marginally up by 0.2% YoY. International sales contributed 52% to total revenues in Q3FY14. Ethanol, Brewery and Emerging Business contributed 67%, 6% and 27% respectively. Neela Systems reported profit of Rs 4.2 cr on revenue of Rs 35 cr in Q3FY14.
- The company has completed 90% of engineering work on its 2nd generation demo plant in Maharashtra. It has also signed a letter of intent with a European company for setting up the 2nd generation plant in European region and would be funded by European partner. The Company is also engaged in discussion with a client in central India to set up a unique bolton, 2nd generation ethanol plant which will be first of its kind in Asia. Praj will set up any one of this which will be most feasible.
- Consolidated order backlog at the end of Q3FY14 stood at Rs 875 cr (excluding Rs 50 cr slow moving orders), down by 2.2% yoy while order inflow declined by 15.4% to Rs 203 cr. Exports constituted 52% of the order book while Ethanol, Brewery and Emerging Business constituted 67%, 12% and 21% respectively.
- The management is optimistic on its domestic ethanol business based on the higher bid prices (Rs 44/litre) in the ethanol procurement tenders from OMCs and sees international brewery business to pick up.
- The company has declared interim dividend of Rs 0.6/share.
- During the quarter Praj formed wholly owned subsidiary named Praj Industries Namibia proprietary Ltd. In Windhoek, Namibia to serve the company’s business interest in the region.
Valuation & Recommendation
Although the current business environment remains challenging, going forward, with capex revival, aggressive efforts for its new emerging businesses, higher focus on international market and revival in its ethanol business, order inflow momentum should pick up, aiding revenue growth in FY15. We expect margins and return ratios to improve with higher contribution from new businesses and internationalization. Successful commercialization of the 2nd generation ethanol plant would be a big trigger for the stock. At the CMP, the stock trades at 9.3x and 1.3x its FY15E PE and P/BV respectively. We value the stock at 12x FY15E earnings. We advise investors to accumulate the stock for a target price of Rs 58 with a 15-18 months view.