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Monday, April 6, 2009

Praj Industries Ltd:-One of my past wealth creators

Scripscan:Praj Industries Ltd
cmp:60
Traded in:Nse-bse

Story:The current market meltdown has drastically reduced the valuations of several companies. However, in quite a few cases, the market has been too harsh on companies which have a promising future. This has created an excellent opportunity for long-term investors. One such company is Praj Industries, which has long been the market’s darling, due to its growth prospects in the ethanol industry.Pune-based Praj Industries is an engineering company and is the market leader in ethanol technology. It provides turnkey project implementation services to set up ethanol distillation units. The company has developed technologies to produce ethanol from a variety of feedstock such as sugarcane, sweet sorghum, corn etc and is trying to develop a commercially viable method to convert cellulose into ethanol.Besides ethanol — which accounts for over 80% of its revenues — the company also carries out distillation for breweries and plans to enter the bio-diesel space.Praj has executed projects in over 35 countries. Over the past couple of years, it has taken steps to strengthen its global presence. These include an acquisition in the US and tie-ups with foreign companies in Europe and Brazil. With this, the company has established its presence in key markets across the world. Over the past couple of years, the company’s shareholding pattern has witnessed a peculiar trend.The shareholding of the promoters and public has fallen, while institutional holding is on the rise. This indicates that the company is gradually becoming a professionally-dominated organisation, from a promoter-driven one.This augurs well for the long-term growth sustainability of its business model. Some of the most successful companies such as Larsen & Toubro, ITC, HDFC and Infosys are majority owned by institutions.Ethanol and bio-diesel are gaining acceptance worldwide as eco-friendly fuels. Ethanol blending has already become mandatory for petrol in a number of countries, including its largest consumer, the US. The proportion of blending is slated to go up, with governments in the US and India mandating 10% blending over the next 2-4 years. The European Union is also contemplating to replace 10% of petrol consumed with ethanol. This is likely to create strong demand for turnkey solutions providers such as Praj Industries.Despite staying debt-free, the company has expanded its equity capital on several occasions to raise funds. This has resulted in dilution of earnings. If this trend continues in future, it will be detrimental to the interest of retail investors.Given that the company is in an expansion mode and is sitting on a healthy order book, it is expected to post a good performance next year. Long-term investors can consider the stock at current levels.

Regards,
ARUN
I can be reached at:arunanalyst@rediffmail.com
http://www.arunthestocksguru.com/

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