ICICI Securities Limited Praj Industries (PRAIN)

ICICI Securities Limited
Result Update
Rating matrix
Rating : Buy
Target : | 82
Target Period : 12-15 months
Potential Upside : 15%
Key Financials
| Crore FY10 FY11 FY12E FY13E
Net Sales 602.3 552.9 649.5 697.6
EBITDA 107.8 48.8 121.6 137.1
Net Profit 113.9 53.5 97.1 101.7
EPS (|) 6.2
2.9
5.3
5.5
Valuation summary
FY10 FY11 FY12E FY13E
P/E 11.4 24.3 13.4 12.8
Target P/E 13.2 28.2 15.5 14.8
EV / EBITDA 11.0 24.2 10.0 8.9
Price to BV 2.5 2.2 2.1 1.9
RoNW(%) 23.3 9.6 16.0 15.6
RoCE (%) 24.3 10.5 20.4 20.0
Stock data
Market Capitalization | 1312 crore
Total Debt (FY11-Standalone) | 0 crore
Cash (FY11-Standalone) | 137 crore
EV | 1175 crore
52 week H/L 88.9 / 61.5
Equity capital | 37 crore
Face value | 2
MF Holding (%) 9.1
FII Holding (%) 11.8
Price movement
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Jun-10
Analyst’s name
Sep-10 Dec-10 Mar-11
Price (R.H.S) Nifty (L.H.S)
Sanjay Manyal
sanjay.manyal@icicisecurities.com
Parineeta Poddar
parineeta.poddar@icicisecurities.com
Jaymin Trivedi
jaymin.trivedi@icicisecurities.com
ICICIdirect.com | Equity Research
100
80
60
40
20
0
May-11
WHAT’S CHANGED…
May 30, 2011
Praj Industries (PRAIN)
| 71
PRICE TARGET....................................................................................................Unchanged
EPS (FY12E)............................................................................. Changed from | 4.2 to | 5.3
EPS (FY13E)................................................................................................................. | 5.5
RATING....................................................................................... Changed from Hold to Buy
Growing sales, improving margins…
Praj Industries’ results were above our expectations with sales for the
quarter witnessing growth of ~58% YoY to | 202.9 crore against | 127.8
crore in the corresponding quarter last year. Of the total sales, ~36%
accounted for domestic sales while the balance was from international
markets. With raw material expenses remaining lower during the quarter,
margins improved considerably by 525 bps to 9.9% against 4.7% in
Q4FY10. In spite of higher margins, PAT for the quarter rose by a mere
3.7% YoY as the company had received a tax benefit of ~| 11.2 crore in
Q4FY10, which was not applicable during the quarter.
� Order book position
The company’s current order book stands at | 750 crore (life cycle of 15
months) accounting for ~40% from India and balance from overseas. On
the segmental break-up, ~87% is for alcohol while the balance 13% is for
other businesses including water with waste water and beer.
� Growth plans
The company has already expended | 25 crore out of the total | 35 crore
capex planned for FY11. It further plans to invest | 25 crore in FY12 to
expand and upgrade its facilities. Also, Praj has plans to invest ~| 12
crore towards R&D in FY12, thereby helping reduce its costs and
improving margins, going ahead.
Valuation
At the CMP, the stock is trading at 13.4x and 12.8x its FY12E and FY13E
EPS of | 5.3 and | 5.5, respectively. With orders flowing in from
international markets (higher margins business) and an increase in
demand for ethanol (due to rising crude prices), we believe the order
book growth would remain sustainable. Margins could, however, witness
some moderation due to increasing employee and R&D expenses in the
coming quarters. Hence, we have valued the stock at 11x its FY13E EPS
of | 5.5 and included the current cash value per share of | 21, assigning it
a target of | 82 with a BUY rating.
Exhibit 1: Financial Performance
(| Crore) Q4FY11 Q4FY11E Q4FY10 Q3FY11 YoY(%) QoQ(%)
Net Sales 202.9 138.5 127.8 148.2 58.8 36.9
EBITDA margin (%) 9.9 14.0 4.7 7.6 525bps 232bps
Depreciation 3.0 2.2 3.1 2.7 -1.0 11.0
Interest 0.0 0.0 0.0 0.0 - -
Other Income 5.2 3.5 5.7 6.7 -8.2 -21.2
Reported PAT 20.6 16.5 19.8 13.7 3.7 50.4
EPS (|) 1.1 0.9 1.1 0.7 2.8 50.4
Source: Company, ICICIdirect.com Research

ICICI Securities Limited
Improving sales on the back of increasing order book
position over the quarters is expected to maintain the sales
growth for the company. With fresh orders of | 250 crore
flowing in during the quarter, the company’s current order
book stands at | 750 crore
Exhibit 3: Order book break-up by geography
40%
ICICIdirect.com | Equity Research
| 750 cr Order Book
International Domestic
Source: Company, ICICIdirect.com, Research
60%
Exhibit 2: Sales & order book position (| crore)
850
800
750
700
650
600
550
500
126.4
200.7
147.4
127.8
93. 7
108.2
148.2
202.9
800 800 800 700 700 600 700 750
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11
Source: Company, ICICIdirect.com Research
Closing Order Book (LHS) Sales (RHS)
Exhibit 4: Order book break-up by segment
13%
| 750 cr Order Book
87%
Alcohol Water & Waste water
Source: Company, ICICIdirect.com, Research
The company’s order book has increased by ~| 50 crore during the
quarter over Q3FY11, with orders worth | 250 crore flowing in and ~| 200
crore backlog orders being executed. The composition of the order book
has been shifted towards international orders contributing 60% in Q4FY11
against ~55% in Q3FY11. Also, looking at the segment wise contribution,
the percentage of orders from water, waste water and beer has increased
to 13% in Q4FY11 from 10% in Q3FY11.
Hence, we believe that with the increase in international orders, Praj’s
margins would improve as margins from overseas orders are higher than
domestic orders.
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250
200
150
100
50
0

ICICI Securities Limited
Increasing ethanol demand, driven by increasing crude
prices and countries shifting their dependence in renewable
sources of energy, provides a positive outlook for Praj, both
in the domestic as well as international markets
ICICIdirect.com | Equity Research
Revising estimates
With the mandatory 5% blending of ethanol with fuel announced by the
Government of India, the demand for ethanol in the country was
estimated to be ~1000 billion litres in FY11. On the international front,
Peru and Argentina have announced 10% blending from 2011 onwards.
Also, regions like Latin America, South East Asia and Africa are
increasingly looking at expanding facilities for ethanol production.
Therefore, with the increasing awareness among countries to shift to
renewable sources of energy, we believe the outlook for ethanol demand
is positive.
We expect the company’s sales growth in FY12E to be higher led by the
increasing demand for ethanol. However, margins would see some
moderation on the back of higher R&D and employee expenses planned
by the company. Hence, we have revised our estimates and introduced
the estimates for FY13E.
Exhibit 5: Revising estimates
FY12E
Page 3
FY13
Old New % Change New
Revenue 621.3 649.5 4.5
EBITDA 131.3 121.6 (7.4)
EBITDA Margin % 21.1 18.7 -242 bps 19.7
PAT 100.4 97.1 (3.3)
101.7
EPS
Source: Company, ICICIdirect.com Research
5.5 5.3 (4.1)
5.5
Exhibit 6: World ethanol demand (in million litre)
120000
100000
80000
60000
40000
20000
0
36855
40376
48082
61411
77596
87866
99787
105066
2004 2005 2006 2007 2008 2009 2010 2011
Source: Company, ICICIdirect.com Research
Exhibit 7: Crude Price Index (in US$/bbl)
150
130
110
90
70
50
30
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Source: Company, ICICIdirect.com Research
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
697.6
137.1
May-11

ICICI Securities Limited
Exhibit 8: ICICIdirect.com Coverage Universe
Praj Industries
ICICIdirect.com | Equity Research
Sales (Rs crore) EPS (Rs) PE (x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code PRAIN CMP 71 FY11 552.9 2.9 24.5 24.2 9.6 10.5
Target 82 FY12E 649.5 5.3 13.5 10.0 16.0 20.4
MCap 1312.1 Upside 14.8% FY13E 697.6 5.5 12.9 8.9 15.6 20.0
Everest Kanto Cyliders
Idirect Code EVEKAN CMP 85 FY10 649.7 1.2 71.0 35.9 2.1 5.6
Target 94 FY11E 721.3 6.9 12.3 15.7 10.7 12.3
MCap 1821.6 Upside 11.0% FY12E 767.1 8.2 10.4 10.4 11.2 17.8
Nitin Fire Protection
Idirect Code NITFIR CMP 94 FY10 321.1 33.3 2.8 12.4 23.0 16.9
Target 89 FY11E 478.9 35.9 2.6 9.7 20.0 19.0
MCap 592.3 Upside -5.6% FY12E 529.4 44.4 2.1 7.4 20.0 19.3
Source: Company, ICICIdirect.com Research
Exhibit 9: Recommendation History
90
85
80
75
70
65
60
55
Jul-10
Aug-10
Rating: Reduce;
TP-72
Sep-10
Oct-10
Source: Company, ICICIdirect.com Research
Rating: Reduce;
TP-63
Nov-10
Dec-10
Jan-11
Rating: Add;
TP-84
Feb-11
Mar-11
Apr-11
Rating: Buy;
TP-82
May-11
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ICICI Securities Limited
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps / midcaps, respectively;
Buy: Between 10% and 15%/20% for large caps / midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
ANALYST CERTIFICATION
ICICIdirect.com | Equity Research
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
7 th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
We /I, Sanjay Manyal M.B.A.(FINANCE) Parineeta Poddar M.B.A.(FINANCE) Jaymin Trivedi M.B.A.(FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the
views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be
directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities
Inc.
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