Monday, November 3, 2008
PRAJ INDUSTRIES....A GOOD LONG TERM BUY
World Economic Forum (WEF) have bought out a list of 200 growth companies out of which 22 companies are from India. These companies generally considered as having potential to change the global economic landscape. Praj Industry stands at 6th in the Indian List.
Pune-based Praj Industries is an engineering company and is the market leader in ethanol technology. It provides turnkey project implementation services to set up ethanol distillation units. The company has developed technologies to produce ethanol from a variety of feedstock such as sugarcane, sweet sorghum, corn etc and is trying to develop a commercially viable method to convert cellulose into ethanol.Besides ethanol - which accounts for over 80% of its revenues - the company also carries out distillation for breweries and plans to enter the bio-diesel space.Praj has executed projects in over 35 countries. Over the past couple of years, it has taken steps to strengthen its global presence. These include an acquisition in the US and tie-ups with foreign companies in Europe and Brazil. With this, the company has established its presence in key markets across the world.
Key Financials: -Praj's net profit has witnessed a cumulative annual growth rate (CAGR) of 43.2% over the past 10 years, while its net sales have grown by 27.3%. At the current market price of Rs 70.85, the scrip is trading at a price-to-earnings multiple (P/E) of 19.8 based on its earnings in the past 12 months, which is nearly half its P/E just a couple of months ago. Considering Praj's current order book, ability to win new orders and investment in research & development, we expect the company to maintain its EBIDTA margins above 20%. For FY09, we expect Praj to report earnings per share (EPS) of Rs 10.1 .
Key Negative: - The shareholding of the promoters and public has fallen, while institutional holding is on the rise.Technicals are not in favour.
Key Positive: - Ethanol and bio-diesel are gaining acceptance worldwide as eco-friendly fuels. Ethanol blending has already become mandatory for petrol in a number of countries, including its largest consumer, the US. The proportion of blending is slated to go up, with governments in the US and India mandating 10% blending over the next 2-4 years.The company already has an order book of Rs 900 crore, which will be executed over the next 12 months. Praj is gearing up to cater to the fastpaced growth in future by expanding its capabilities. It has increased its manpower and set up its second manufacturing unit at Kandla SEZ. It has also established a full-fledged research centre for bio-fuels to develop new technologies in this field.
* Article for information purpose only.