Praj Ind up 10%, to form JV with IOC for biofuel production capacities

Analysts believe this is a positive development for Praj Industries as biodiesel could be the next growth driver for the company

Shares of Praj Production soared 10 per cent to Rs 405.90 on the BSE in Friday's intra-day trade amid heavy volumes, in an otherwise subdued market, after the firm signed a term sheet with Indian Oil Corporation (IOC) to advance plans to strengthen biofuels production capacities in India.

At 11:07 AM, the stock was trading 8 per cent higher at Rs 400.20, as compared to 0.35 per cent decline in the S&P BSE Sensex. Trading volumes on the counter jumped over four-fold today with a combined 7.7 million shares having changed hands on the NSE and BSE till the time of writing of this report.

Meanwhile, shares of Indian Oil Corporation hit a new 52-week high of Rs 101, rising over 1 per cent in the intra-day trade on the BSE.

Various biofuels covered under this MoU include Sustainable Aviation Fuel (SAF), Ethanol, Compressed Bio-Gas (CBG), Biodiesel and Bio-bitumen among others. Earlier in October 2021, both the companies had entered into an agreement to form a 50:50 Joint Venture (JV) to this end.

"Indian Oil and Praj have been collaborating to facilitate India's energy transition towards a greener future in the past as well. We believe this developement is positive for Praj as SAF, CBG, Biodiesel could be the next growth driver for the company in the medium to long run. We believe Praj Industries is well poised to benefit from upcoming opportunities given its strong leadership in domestic ethanol plants (~50% market share), global presence, and focus on future-ready technologies like 2G plants, Compressed Bio Gas (CBG), ECTA, SAF etc. The stock is currently trading at PE of 24.4x/22.6x FY24/25E. We have a 'Buy' rating on stock with a target of Rs 475," said Amit Anwani, research analyst at Prabhudas Lilladher.

Praj Industries is engaged in the business of process and project engineering. The company caters to both domestic and international markets. Further, the company also provides design and engineering services.

Having crossed 10 per cent blending target last year, India is taking strides towards achieving 20 per cent blending by 2025-26. On the other hand, auto OEMs are actively gearing up for adopting biofuels. Flex fuel vehicles can work with ethanol blend of up to 85 per cent.

With rising awareness about minimising carbon footprint, low carbon ethanol has emerged as a very promising international opportunity. Praj Industrie, in its FY23 annual report, had said that the company is in dialogue with several ethanol producers in USA to discuss solutions for reducing overall carbon intensity of their plants.

Demand for low carbon ethanol in the USA has opened significant opportunities for modernisation of old ethanol plants in the country. The successful demonstration of India’s first commercial flight powered by the blend of indigenous sustainable aviation fuel will accelerate the development of sustainable aviation fuel (SAF) opportunity, it had said.

As India becomes signatory to CORSIA, mandatory blending of SAF from 2027, in accordance with the agreement, will create significant opportunity. The Indian government has plans to come up with mandates on SAF in near future. If we target to blend 1 per cent SAF blending in Jet fuel, India will require around 14 crore litres of SAF/annum, it added.

The successful commissioning of a 2G ethanol plant at IOCL Panipat will certainly help in reinforcing confidence among potential developers across the globe. With the commissioning of HPCL’s rice straw based CBG plant, the company now has references for its CBG technology for a variety of feedstock namely press mud, industrial waste as well as agricultural waste.

Overall, the management remains very positive on continued development of potential across bioenergy and engineering businesses. Despite global economic challenges, the management expects a favorable business environment aided by stabilised commodity prices and an everincreasing awareness to decarbonise global economy.