FINANCIAL ANALYSIS

OF

Founder of Praj Industries: Mr Pramod Chaudhary

INTRODUCTION
Offers

innovative solutions to significantly add value in bio- ethanol, alcohol, brewery plants, process equipment and water and wastewater treatment systems for customers, worldwide.

Expertise in Bioprocesses and engineering.

It has one of the largest resource bases in the industry with over 450 references across all five continents.

PRAJ accounts for 10% per cent of world ethanol production.

CORE COMPETENCE OF PRAJ

1. Alcohol/Fue l Ethanol.

2. Brewery. 6. Agriservices.

3. Water and Waste Water. 5. Process Equipments. 4. Bionutrients .

The formation of CSR charter is facilitated by PRAJ Foundation, a

trust formed in 2004.

It

is based upon the plank of SMART Sustainable, Mobility(transport), Awareness, Reduce-Reuse-Recycle, Tree Plantation.
Environment is the prime

change.

agenda, especially mitigation of climate

The key programs conducted are: 1. Employee Engagement in Social Responsibility 2. Environmental Initiatives 3. Stream of Life 4. Biodiversity Park 5. Health Care 6. Adoption of Technical Education Institute. 7. Ruturang Musical Concert.

MERGERS AND ACQUISITIONS

September 2006 : Praj acquired 100% common stock of C. J. Schneider Engineering Co. Inc (CJS experience) Purpose- Having expertise and in providing detailed engineering services to the biofuel industry including ethanol plants. The value of the acquisition is Rs. 22 crores

June 2007: Praj Industries, and Aker Kvaerner, global provider of engineering and construction services, finalized an agreement to form a Joint Venture Company in Europe that will be called BioCnergy Europa.
Purpose-("Aker Kvaerner"), is a leading global provider of engineering and construction services, technology products and integrated solutions. The business within Aker Kvaerner comprises several industries, including Oil & Gas, Refining & Chemicals, Mining & Metals and Power Generation. Praj owns 60% interest and Aker Solutions hold the remaining 40%.

MERGERS AND ACQUISITIONS

March 2010-The company completed the process of divesting from its US-based subsidiary, Praj Schneider due to economic scenario in US. Purpose- Due to overall US economic situation, the company has retained rights for process technology for bio-diesel in North America. Meanwhile, the Company has launched a new company in US, Praj Americas Inc. Nov 2010: Praj Industries made plans to buy water Treatment Company as growing shortages lead to greater demand for the life-sustaining fluid. Purpose-The water treatment industry is worth $2 billion and growing between 25 and 30 percent. They have the necessary technology for water treatment and Praj has been consciously trying to diversify away from its main business .

DIVIDEND PAYOUT RATIO

120% 100% 80% 60%

99%
90% 90% 72% 63%

40%
20% 0%

March '07

Jan '08

Jan '09

Jan '10
Face Value

May '11

Dividend Paid

DIVIDEND PAID
Reserves and surplus are

increasing but at a diminishing

rate.
Dividend paid

is decreasing YOY.
material cost resulting in

Low Sales turnover and higher

decline in profits.
Crude price

is affecting profitability of Praj.

Dividend Per Share (Rs.)

2.5

1.98

1.8
1.5

1.8

1.44 1.26
Dividend Per Share (Rs.)

0.5

0 March '07 Jan '08 Jan '09 Jan '10 May '11

RESERVES
600 500 400 314.2 300 200 131.47 100 0 March '07 March '08 March '09 March '10 March '11 406.77 495.39 512.99

Reserves

DEBT- EQUITY RATIO

Praj is a debt free company. Most of the project work for ethanol plant are on contract basis. No debt which is good for the company. Zero debt even means less risk and less returns. Waste water treatment business will make company take few risk and possibly earn healthy returns.

EARNINGS PER SHARE

EPS CONTD..

The EPS has been declining since 2008 . 50 % of our business comes from outside India

Global meltdown has affected the ethanol production industry.

A P/E of 15-17 is favorable for industries today considering Sensex at 17k Praj is trading at P/E of close to 23 which is little high.

CASH FLOW FROM OPERATING ACTIVITIES

Cash
180 160

165.19

140

120

101.43

109.44
Cash

100

80

95.42

60

40

20

11.92
0 2006-07 2007-08 2008-09 2009-10 2010-11

CONTD..

Taking 2006-07 as a base year, we can say that cash flow from operating activities is falling close to 92%. Increase in Debtors with decrease in sales. Companys business has been impacted in the financial year 2010-11 majorly due to adverse global market economic conditions.

GROSS PROFIT MARGIN

9,000.00

8,000.00

7,718.81 7,016.27

7,000.00

6,074.74
6,000.00

6,022.84 5,529.31

5,000.00 sales 4,000.00 Gross Profit

3,000.00

2,000.00

1,813.74

1,805.32
1,398.67 710.84

1,137.70
1,000.00

2006-07 2007-08 2008-09 2009-10 2010-11

CONTD..
Ratio
30.00

25.00

25.85 23.39 23.22

20.00

18.73
15.00 Ratio

12.86
10.00

5.00

2006-07 2007-08 2008-09 2009-10 2010-11

CONTD..

Lower sales during the first quarter where company were not being able to sell its core product ethanol. Hence, to increase sales company reduced margins. The gross profit margin has reduced due to the mix of sales being bad i.e. more lower profit-bearing products being sold.

Company could not account the increasing effects of rising inflation in India and hence could not pass on to the customer.

NET PROFIT MARGIN

9000 8000

7718.813
7016.267

7000

6074.744
6000

6022.84 5529.31 Sales

5000

4000

NPAT

3000

2000

1535.4 865.3

1297.5

1138.9 534.7

1000

0 2006-07 2007-08 2008-09 2009-10 2010-11

CONTD..
Ratio
25.00

21.88
20.00

18.91 16.81
15.00

14.24
Ratio

10.00

9.67

5.00

2006-07 2007-08 2008-09 2009-10 2010-11

CONTD..

As we can see in spite of gross profit margin being moderate, net profit margin for the company is highly volatile. The biggest volatile has been observed in the year 2010-11 because of lower sales.

However factors that influences the lower net profit margin is increase in debtors, inventory level because lower sales than anticipated, increase in interest cost and high rate of inflation leads to higher expenditure for the period.
Merger with Qteros inc, USA.

CREDIT RATINGS OF THE FIRM

year Ratings Significance Rating Agency ICRA

200607 200708 200809 200910 201011

A1+

Highest credit quality to short term debt Highest credit quality to short term debt Safety regarding timely repayment of banking payments Safety regarding timely repayment of banking payments High safety for repaying long term debt

A1+

ICRA

P1+

CRISIL

P1+

CRISIL

AA/Stable

CRISIL

TECHNICAL ANALYSIS

TECHNICAL ADVICE

On BSE,Praj Industries is currently trading at RS.72/share and as per the judgment we can say that stock is sustaining itself at a point of 1 year low of 68.8.Hence, we can say that there is a support at this level and keeping this level as a stop loss we can invest in this stock for the target of 85-87 for short term.

EXPERTS ON PRAJ

Rajesh Agarwal Fund Manager at Eastern Financers. Choksey Securities.

REVIEW ON COMPANY PERFORMANCE FOR Q1-Q2, 2011

25-30 % of growth is expected by this year. Started getting orders from International customers for Ethanol. PE is still above 13-14 is not bad.

RISKS AND CONCERNS

Praj has well documented Risk management policy.

30-50% of the Companys business comes from overseas markets, the Company has put in place a forex risk management system. Biofuels and Brewery business is governed by the legislation of different geographies served by the Company.

The Company has instituted adequate internal control procedure(s) commensurate with the nature of its business and the size of its operations for the smooth conduct of its business.

Competitors
Major Competitors: 1. Toyo Engineering. 2. Uhde India. 3. Technimont ICB.

Indirect Competitors: 1.Davy Power Gas. 2. M.N.Dastur & Co. 3. Tata Projects. 4. Suzlon.

www.moneycontrol.com http://www.praj.net www.bseindia.com www.money.rediff.com Financial Ratios in business Book by Raghu Palat.