May 23, 2009

Long term investors can invest in Praj Industries stock. Praj is a zero-debt engineering company focusing on the distillery industry. Praj markets its products and services to more than 35 countries and is world's single largest supplier of molasses based distillery technology, plant and equipment.

The scrip of the company was beaten down during the trailing 12 months, following the almost vertical plunge in crude oil price, led by concerns that low oil price may trim the spends by Praj's user companies. However, company's established position in the field of bio-ethanol technology makes the stock a good long term investment.

Shareholders can continue to remain invested in the stock of Praj Industries. While the company’s last quarter and full year performance have not been impressive,Praj Industries Ltd has posted a 15% drop year-on-year in its net profit which stands at Rs 129.76 crore for the 2008-09 fiscal. Income from operations during the period being compared rose by 10% to touch Rs 772 crore.

The audited results, approved by the board of directors in its meeting on April 21, provides for a forex loss of Rs 23.13 crore during the fiscal.

During the last quarter under review, income from operations stood at Rs 209.28 crores (Rs. 213.24 crores). Profit before tax stood at Rs. 28 crore against Rs 59 crore. The company has declared interim dividend of Rs 1.80 per share (90%) on paid-up capital of Rs. 36.69 crore.

Going forward easing credit conditions worldwide and Praj’s established position in the field of bio-ethanol technology make the stock a good long term investment.

Praj expects a significant increase in revenue contribution from the EU. EU’s directive that requires motor fuels to be 10 per cent ethanol-blended by 2020, starting 2011, offers an immense growth potential for Praj, which has a market share of about 30 per cent in the region.

This directive, when implemented in totality, will require an additional biofuel production of over 12-14 billion litres whereas Europe currently has a total production capacity of 3.5-4 billion litres only. In this regard, that the company has a presence in the EU through a joint venture BioCnergy Europa B. V., with Aker Solutions (60:40) lends comfort.

The joint venture company is operational and had previously even bagged an order (valued at Rs 120 crore) for the design of an ethanol plant for Vivergo Fuels.

Company’s diversified revenue base provides it strength against competitors. Praj’s strong presence in South-East Asia (50-55 per cent market share) and the domestic (75 per cent) market belie fears of any significant slowdown in revenues to a great extent. The company has order books of over Rs 800 crore for thepresent year.

At the current market price of Rs 100, the stock appears reasonably priced at about 11 times its likely FY10 per share earnings.

The stock of Praj is capable to achieve a price target of Rs 290, which is three times the current market price.

The stock had made 52-week-low of Rs 80.45 in 20-October-2005 and after two year of run along with broader market, it had achieved a level of Rs 536.90 on
31-December-2007, which is 52-week-high of that year.

We suggest investors to invest some surplus cash in this scrip and leave it for a period of 2-4 years. We are hopeful that counter will be become a multi-bagger scrip and bring good profits for you.