Praj Industries is into manufacturing plant and equipment for Ethanol and Brewery Industry. They are very well recognised for their expertise in both the fields worldwide.
Lets have a look at their financial performance-
FY '05-'06 Half year Full Year
'06-'07 '06-'07(Exp.) '08-'09(Exp.)
Sales(Rs.) 267.49 Cr. 228 Cr. 450 Cr. 1000 Cr.
Net Profit (Rs.) 24.40 Cr. 25.89 Cr. 45 Cr. 100 Cr.
EPS (Rs.) 3.01 3.10 5.38 11.95
PE Ratio
(at Rs.195) 64.78 36.25 16.31
The sales assumptions made above are based on an interview given by Mr. Pramod Chowdhry (chairman of Praj Ind.). If possible please go through the interview to get an insight into their plans.
I have reached Net Profit figure assuming that their net profit margin would stay at 10%.
Already they have an order book of Rs. 600 Cr. and they are still getting orders as they have acquired a company in the USA- the biggest market for ethanol plants. They plan to be No.1 in the world in Ethanol plant setup market by 2001. So there is huge potential in the international market for Praj. Domestically as well Govt is thinking of mixing 10% Ethanol to Petrol. That would result in huge demand for Ethanol plants in India. So everything seems perfectly placed for Praj to grow at CAGR of 40% for the next two year i.e. till 2009.
My only concern is high PE ration of 64.78 (Trailing) but if they manage EPS of 5.38 in 2006-07 PE would come down to 36.25. Praj is fully priced at these levels but growth prospects are phenomenal. If we assume it would trade at a PE of 40 in 2009 then at that time price would be Rs.478 that is 145% higher from current price of Rs. 195.
Basant Ji, what is your take on my analysis and the future of the stock?