Praj Industries Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Praj Industries Ltd (PRAJIND) Q3 FY22 Earnings Concall

Management Update:

• PRAJIND said it has signed an MoU with IOCL to explore opportunities in cleaner and greener sources of energy and is exploring avenues such as production of alcohol to jet fuels, 1G and 2G ethanol, compressed biogas and related products.

• Will jointly work towards forming a 50-50 joint venture with IOCL and identify partners to form special purpose vehicles under the proposed alliance.

Q&A Highlights:

• Bhagyesh Kagalkar from HDFC Mutual Fund asked about the margin trajectory in the next 2-3 years. Sachin Raole, CFO commented that the company is maintaining from the beginning of FY22 that there will be a pressure because of the input commodity prices, that’s having an impact on the overall margin. Secondly, looking at the composition of sales, the export and domestic, the proportion has completely changed.  Exports have declined to 10% from 29%, which will have an impact on overall margins. Going forward PRAJIND is taking several measures to improve margins.

• Deepesh Agarwal from UTI AMC asked that how much of the company’s bio energy would be coming from bioCNG or 2G ethanol on the order book front. Shishir Joshipura, CEO said the company’s entire order booking is on 1G in 3Q22.

• Deepesh Agarwal from UTI AMC enquired about the extent of hit of commodity prices on margin. Shishir Joshipura, CEO answered that the overall impact on the margin because of the commodity prices is around 2%.

• Saket Kapoor of Kapoor Company asked about the raw material basket of the company and measures taken to maintain margins. Shishir Joshipura, CEO answered that the company needs to be innovative in terms of technology and doing real-time costing and engineering to ensure PRAJIND manage its cost points. The company is also doing standardizing, mass customization for quick throughput and therefore reduce the cycle time of execution.

• Saket Kapoor of Kapoor Company also asked about the ideal raw material consumption to the revenue ratio. Shishir Joshipura, CEO replied that being a project engineering company, the model doesn’t change every 2-3 months. However, it might change due to ups and downs in international sales. Overall, in FY22 the company saw a 2 percentage point difference arising on account of the impact of raw material increases on bottom line.

• Kunal Sheth from B&K Securities enquired about the CBG opportunity and why the subsidy has been withdrawn. Shishir Joshipura, CEO said the decision is counterintuitive and the industry associations are speaking with the government to understand the next steps that they would like to take to ensure that the policy goals are fulfilled.

• Sagar Kapadia from Anvil asked about other expenses increasing from INR73 crore to INR121 crore. Shishir Joshipura CEO replied that the other expenses has a component of site related activities. Therefore, in 3Q22 there was a higher activity that happened on the sites. And comparing with YTD number, due to pandemic restrictions, other expenses were not taking place.

• Vishal Barria from Max Life asked if the company is getting any enquiries for 2G ethanol as well.  Shishir Joshipura CEO said that right now the company is in different stages of installation and commissioning of the three projects in India. PRAJIND expects attraction to start building in Europe and is already in discussions with few customers, including an investment company. In India also few enquiries are coming from Eastern part of the country.

• Vishal Barria from Max Life also asked about the difference in intensity of capex from 2G ethanol versus 1G. Shishir Joshipura CEO replied that 2G ethanol highly capital intensive. The company added that a 2G plants will have more considerations to do unlike a 1G project, therefore capital intensity will be higher for 2G compared to 1G.

•  Vishal Barria from Max Life asked about the biodiesel opportunity in India. Shishir Joshipura CEO said that the biodiesel opportunity in India is very limited as there is no feedstock.

• Naushad Chaudhary with Birla AMC asked that assuming the key raw material prices remain at current level, what percentage of existing order book will remain impacted in terms of margin. Shishir Joshipura CEO replied that some portion of the carry-forward order book, is still not executed, which is up to at least June quarter. Therefore, PRAJIND is still carrying some kind of a legacy of that order book, which will have an impact of around 2% on that.

• Lokesh Maru from Nippon India AMC asked about bio-lignin and the market opportunity and competition in India. Shishir Joshipura CEO said the company has developed a technology for bio-bitumen and sent test samples to a testing body in Netherlands. Lignin is a base for creating bio-bitumen. Therefore, there would be updates on how the company is moving forward on commercializing this technology. On competition, in India there is none.

• Levin Shah from ValueQuest asked about the CBG front, if the company has any other order in the order book apart from the two under commissioning. Shishir Joshipura CEO replied that the two orders are already executed, they are commissioned and under scale-up and stabilization right now. There is one more order the company is executing based on biomass for HPCL.