Ethanol is an organic chemical compound which is produced from feedstock, maize, sugar, sugar cane and molasses. Low carbon emission, employment for farmers and huge saving to our exchequer by cutting on import are few major advantages of adopting this better quality fuel. By being a biofuel and blending it with petrol, the government has adopted a go green approach and unleashed an ambitious ethanol blending programme to bolster the country’s energy security. Ethanol has been gaining more prominence as an alternative over the last few years as a value proposition. Currently, the government has a 10% blending goal for the year 2022 which it wants to increase to 20% from 2023 onwards. As per Niti Aayog statistics, the demand requirement for ethanol is projected to increase three fold over the next 5 years from 332 crore litres to 1016 crore litres. Praj Industries Ltd is a bio-based engineering and farm to fuel technology solutions company headquartered in Pune . It is engaged in the design, manufacture, supply and commissioning of fermentation and distillation equipments for the manufacture of ethanol. The company has a 60% market share and is a market leader in the manufacture of ethanol plant and machinery. Praj Industries posted excellent financial results with net sales at Rs 462 crores and net profit of Rs 26 crores for Q2FY22. EBIDA went up to Rs 43 crores for the September 2021 quarter, up by 207% from 14% of the same quarter of the previous year. When industry sector analysts look at the company’s price to earnings ratio and the industry average, then Praj Industries stock appears to be expensive compared to its peers. The stock’s ratio at 56 times is well above the 25 times industry average. Therefore, has the stock market truly priced the company’s positive outlook wherein the share is trading above the industry price multiples? And the stock merits a buy at these levels? Data suggests that the Indian ethanol market presents an excellent opportunity of around Rs 15,000 crore over the next 4-5 years and therefore Praj can be a promising investment bet. Portfolio investors can accumulate the Praj Industries stock currently quoting at Rs 417 for solid long term investment gains.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.