Praj Industries - Sedate Quarter; On Road to Recovery; Result Update Q3FY15 :: Edelweiss

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Praj Industries’ (Praj) Q3FY15 revenue fell 18% primarily due to customer-related execution delays. However, EBITDA margin on reported basis (including INR50mn one-time consultancy charge) at 9.2% matched our estimate. The key positive was 20% YoY order book surge (INR10.5bn) propelled by 166% YoY jump in order intake. With regards to the impact of falling crude prices on Praj’s business, management indicated that its international ethanol business is insulated as it is dependent on food and beverage-based rather than fuel-based ethanol. However, the crude fall could cloud outlook on its upstream dependent critical process equipment (CPE) segment. We believe management’s unrelenting focus on scaling up emerging businesses portends robust opportunities, from domestic as well as overseas markets, and can trigger sustained margin improvement.

Customer issues trip revenue, but outlook benign

Praj’s revenue dipped 18% due to customer-related execution delays. However with an improved order book, revenue going ahead is expected to get back on the growth track. With improving mix of emerging business (35% of current order book versus 20% in Q2FY15), we anticipate margins to improve by more than 150bps in FY16E.

Order intake zooms; order book to maintain momentum

Order intake catapulted 166% led by an INR2.3bn CPE order and healthy intake in the ethanol segment. As a result, order book jumped 20% YoY to INR10.5bn. Management expects to maintain order intake momentum (ex CPE business) riding better project finalisations in ethanol, rising penetration of Praj’s high purity systems abroad and pick up in water business (industrial segment) owing to stringent regulatory framework.

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https://www.edelweiss.in/research/Praj-Industries--Sedate-Quarter;-On-Road-to-Recovery;-Result-Update-Q3FY15/28096.html