Release Date: May 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Praj Industries Ltd (BOM:522205, Financial) achieved the global number one ranking in the hottest top-50 companies in Advanced Bioeconomy by the US-based Biofuel Digest.
- Successful commissioning of commercial scale CBG plants based on press-mud and dry straw, achieving benchmark results for yield.
- Strong growth in the services business, with a 2x increase in FY24 and significant growth expected in both domestic and international markets in FY25.
- The company has a healthy order backlog of INR38,550 million as of March 2024, with 71% of domestic orders.
- Praj Industries Ltd (BOM:522205) has commenced commercial production for its new GenX facility in Mangalore in February, with all customer approvals successfully completed.
Negative Points
- Order inflow has been subdued, especially in the last couple of quarters, due to the mandated realignment of sugarcane-based feedstock on product mix.
- The mandated realignment of sugarcane-based feedstock slowed down order execution and finalization for ethanol projects based on sugary feedstocks.
- The low-carbon ethanol opportunity in the United States is expected to gain momentum only after the notification of 45Z under the IRA Act.
- The execution cycle for some Engineering projects can be longer than Bio-Energy projects, potentially extending up to 18 months.
- The company is still awaiting final approval for the formation of the JV with IOCL, which is delaying the formal business plan for the JV.
Q & A Highlights
Q: My first question is on the order inflow. You've done very well on the revenue and margin front, but the order inflow has been subdued, especially in the last couple of quarters. How do you think about the order inflow for FY25?
A: The government's notification around alternate use of feedstocks required a realignment, which slowed down order bookings from the sugary sector. However, we have built different business lines, and starchy feedstock has picked up significantly. We also see strong traction in CBG and other emerging segments. We expect FY25 to be better as these vectors contribute positively.
Q: How do you see the execution in the current CBG order book? Also, we are hearing about several CBG tenders from larger industry players.
A: We see strong traction in CBG, ETCA, and international markets like Brazil and the United States. The enquiry pipeline is healthy, and we believe this will translate into a robust order book as we progress through the year.
Q: On the Engineering side, the order inflow for FY24 has doubled, but revenue booking has been subdued. Can you explain this?
A: There is a cycle that we need to go through for order execution. The order book will start translating into revenue as we go through the year. It is fair to expect a significant bump in revenue for the Engineering division in FY25.
Q: How do you see the gross margins shaping up in FY25 and FY26, given the strong performance in FY24?
A: The domestic and international ratio is changing, which will help build our margins. Commodity prices have also stabilized. Our first target was to achieve double-digit EBITDA margins, and we believe this momentum will continue.
Q: Can you provide more insights on the services business and its revenue potential?
A: The services business currently contributes around 4% to 5% of revenue. We expect this to grow as we increase our offerings, such as biogenic CO2 capture and performance enhancers. The services pie is expected to go up significantly.
Q: How is the pipeline for international order inflows, and do you see this momentum continuing?
A: We see strong traction in international markets across segments. The inquiry pipeline is healthy, and we expect this momentum to continue, contributing positively to our overall growth.
Q: What is the update on the US front regarding the Inflation Reduction Act and incentives under IRS?
A: The 45Z notification is still awaited, but we are already seeing some customers moving in that direction. We expect low-carbon ethanol to become a reality, and the first project is already under construction.
Q: How do you compare CBG plants versus ethanol in terms of payback period and unit economics?
A: CBG projects are viable with IRRs ranging from 14% to 18%, depending on the feedstock and size. The viability is improving, and we are focused on capturing this potential market.
Q: What is the tenure of the average order book for the Engineering and Bio-Energy segments?
A: The average order execution cycle is between 9 to 12 months for both segments. However, some Engineering projects may take longer, up to 18 months, depending on complexity.
Q: How do you see the prospects of the blue hydrogen industry, and what is Praj's strategy in this segment?
A: Hydrogen is expected to become a significant fuel of the future. We are seeing increased activity from energy majors to cut down CO2 emissions, and we are well-positioned to capture opportunities in this evolving market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
