This Multibagger Small Cap Stock Gets Buy Call For Rs 507 Target Price, Gave 515.12% In 5 Years

Prabhudas Lilladher, a leading brokerage firm, is bullish on Prag Industries Ltd. (Praj), a small-cap engineering sector company engaged in the field of bio-based technologies and engineering. The brokerage has estimated a target price of Rs 507 for the stock of the company. Stock stock is likely to surge 21% in 12 months considering the estimated target price of the stock.

Stock Outlook

The stock of the company today closed at Rs 421.05 apiece after gaining 3.64%. It was opened at Rs 406.90 apiece. The 52-week low level of the stock is Rs 289.05, recorded on 26 May 2022. The 52 week high of the stock is Rs 448 apiece, recorded on 3 February 2022. It has a market cap of Rs 7,733.56 crore.

Returns over the past 5 years

The stock has performed well in terms of returns on investment over the past 5 years. In the past 1 week, it has given 11.65%, whereas in the past 1 month the stock surged 6.65%. In the past 3 months, the stock has given a 24.11% of positive return. It has given multibagger returns of 310.58% in 3 years and 515.12% in the past 5 years, respectively. 

E20 blending mandate to expand addressable market by ~Rs70bn

PRAJ has ~60-65% share in development of Ethanol plants in India and will likely see order inflows of ~Rs40-50bn over next couple of years from Govt. mandate to prepone blending to 20% from 2030 to 2025. It has an expertise in wide variety of feedstock such as sugar and starch with focus on developing technologies that can offer ethanol plants with high alcohol yields, good profitability and low consumption of water & power. E20 will require an incremental capacity of ~10.2bn litre (~5bn already tendered out) which will expand addressable market by ~Rs70bn with combination of green field & brown field expansion and sustain growth in coming years.

Diversifying into emerging opportunities across business verticals

With an eye to de-risk itself from ethanol segments and utilizing its technical & knowledge expertise, PRAJ has successfully ventured into emerging business verticals such as HiPurity systems and Engineering business (which includes Brewery plant, Critical Process Equipment & Systems and Wastewater Treatment). As on FY22, HiPurity systems/Emerging business segment contributes 9%/20% of total sales.

Opportunities beyond 1G ethanol blending

PRAJ is developing technologies beyond E20 ethanol blending. It has successfully developed 1) 2G ethanol plant capable of processing multiple feedstock (orders for three 2G based ethanol plants) 2) RENGAS that produces cost effective Compressed Biogas (CBG) (Govt. of India plans to set up 5,000 CBG plants with a capex of ~Rs2trn, in future) 3) PRAJ is also developing technologies for Biodiesel, SAF and Marine fuel. We believe, any favorable development on financial assistance for CBG plants, improvement in project viability on 2G plants, will aid PRAJ gain further traction in Bioenergy space.

 

Export opportunities in Brazil and Europe

Europe offers growth opportunity as it will likely add ~50 2G ethanol plants (~2.8bn liter capacity by 2030) using forest and agriculture residue as a feedstock. PRAJ is amongst a few companies globally with this 2G technology. Brazil also decided to install 1G corn based ethanol plants, which provides an opportunity size of ~5bn liters over next 5 years. We believe PRAJ being a leading player in Bioenergy space is well poised to tap these opportunities.

Outlook

The brokerage said, "We initiate coverage on PRAJ with 'BUY' rating at target price of Rs.507 valuing it at PE of 30x FY24E. PRAJ is well poised for growth in the coming years given 1) its strong leadership in domestic ethanol plants (~60- 65% market share), 2) prominent global presence in more than 100 countries and 3) significant focus on future-ready technologies like 2G ethanol (orders for three 2G based ethanol plants), Compressed Bio Gas (CBG) (opportunity of 5,000 CBG plants) & Sustainable Aviation Fuel (SAF) and 4) diversification in Wastewater Treatment (ZLD), Critical Process Equipment's & System (CPES) & HiPurity business."

Recommendation

Commenting on the stock, the brokerage said, "We anticipate PRAJ's Revenue/PAT CAGR at 17.4%/29.3% over FY2022-25E led by robust order book, healthy tender pipeline, strong market leadership, pickup in execution, better operational efficiencies and well managed working capital cycle. The stock is currently trading at a P/E of 31.5x/23.1x on FY23/24E earnings. Initiate 'BUY'.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.