Praj Industries Share Price Rises As Kotak Initiates Coverage With 'Add'

The share price of Praj Industries Ltd. surged on Thursday after Kotak Institutional Equities initiated coverage on the stock with an 'add' rating. The company's long-standing investments, integrated offerings and strong cash flow profile make it a preferred player in decarbonising mobility—a theme seeing a strong policy push, the brokerage said.

Its fair value, according to the brokerage, is Rs 880, implying 10.4% upside. "We expect compressed bio-gas, sustainable aviation fuel and global opportunities in 1G ethanol to drive healthy growth for Praj beyond the next decade," the brokerage said. "We note additional optionality in 2G ethanol, bioplastics, ethanol blending in diesel and marine biofuels."

According to Kotak, Praj is trading at a reasonable valuation compared to its peers as the brokerage believes that the company's superior revenue growth over the past five years and stronger prospects, better returns on invested capital and higher R&D spend as a share of sales have not been completely factored in.

Moreover, the brokerage said that Praj is working with OMCs on 2G ethanol—a development that can debottleneck feedstock constraints and provide a big impetus for developed countries (EU and the US) to grow ethanol applications in mobility. "Praj can leverage its strong cash flow profile to go for business models beyond EPC and grow the share of recurring revenues," it said.

Kotak expects compounded annual growth rate of 15%/18%/22% in revenue/Ebitda/PAT during FY2024-27 and Ebitda margin to improve 80 bps to 11.5% in the next three years, reflecting the foray into new product offerings in bioenergy (CBG, SAF), engineering business (ETCA modular offerings) and increasing mix of international contribution in the revenue mix (Brazil, Europe, and the US).

On the downside, risks to the brokerage's call include strong linkage of revenues to clients’ capex, limitations to feedstock availability and fixed-price contracts with customers.

The scrip rose as much as 1.6% to Rs 811.95 apiece. It erased gains to trade 0.3% lower at Rs 797.30 apiece, as of 11:25 a.m. This compares to a 0.5% decline in the NSE Nifty 50.

It has risen 60% in the last 12 months. Total traded volume so far in the day stood at 0.22 times its 30-day average. The relative strength index was at 47.2.

All eight analysts tracking the stock have a 'buy', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 8.2%.