Praj Industries (PRAIN)

Result Update October 18, 211 Rating matrix Rating : Buy Target : 96 Target Period : 12-15 months Potential Upside : 25% WHAT S CHANGED Praj Industries (PRAIN) 77 Key Financials Crore FY1 FY11 FY12E FY13E Net Sales 62.3 552.9 791.3 939.4 EBITDA 97.4 42.1 7.7 14.9 Net Profit 119.8 53.5 65.3 94.6 EPS (Rs) 6.5 2.9 3.5 5.1 Valuation summary FY1 FY11 FY12E FY13E P/E 11.8 26.6 21.8 15. Target P/E 14.8 33.2 27.2 18.8 EV / EBITDA 13.3 3.6 18.5 12.5 Price to BV 2.7 2.5 2.3 2. RoNW(%) 24.6 9.8 11. 14.1 RoCE (%) 24.3 1.7 13.6 16.2 Stock data Market Capitalization 1423 crore Total Debt (FY11-Standalone) crore Cash (FY11-Standalone) 137 crore EV 1286 crore 52 week H/L 95.5 / 61.5 Equity capital 37 crore Face value 2 MF Holding (%) 7.6 FII Holding (%) 14.5 Price movement 7, 6, 5, 4, 3, 2, Aug-1 Analyst s name Nov-1 Feb-11 Price (R.H.S) Sanjay Manyal sanjay.manyal@icicisecurities.com Parineeta Poddar parineeta.poddar@icicisecurities.com May-11 Nifty (L.H.S) Jul-11 9 8 7 6 5 PRICE TARGET... Changed from to 96 EPS (FY12E)... Changed from 3.6 to 3.5 EPS (FY13E)... Changed from 5.6 to 5.1 RATING...Unchanged Stellar performance Praj Industries put up a stellar performance in Q2FY12 with net sales increasing by 111.6% YoY from 18.2 crore in Q2FY11 to 228.9 crore in Q2FY12. Though raw material costs were higher during the quarter, 64% of net sales compared to 58.8% in Q2FY11, a considerable rationalisation in employee cost, from 17.3% in Q2FY11 to 1.7% in Q2FY12, helped the company to improve its margins. Margins for the quarter stood at 8.4% against 7.9% in Q2FY11. Consequent to the higher sales and margins, Praj s earnings jumped by 13.7% during the quarter to 2.5 crore from 8.9 crore in the corresponding quarter last year. Highlights of the quarter Praj received orders worth 27 crore (~52% international orders, ~48% domestic orders) during Q2FY12 with the total order book at the end of the quarter at 9 crore ((~55% international, ~45% domestic). The company inaugurated its two new facilities at Kandla and Jejuri (near Pune) during the quarter. The Kandla plant manufactures high thickness pressure vessels and static equipment while the Jejuri plant produces a range of bio-tech products used in the production of ethanol, beer and sugar. The company has also formed a wholly owned subsidiary, Praj South Africa PTY Ltd. and Praj Tanzania in Africa to execute its operations in Africa. Valuation At the CMP, the stock is trading at 21.8x and 15x its FY12E and FY13E EPS of 3.5 and 5.1, respectively. With the increasing order inflows especially from international operations and improvement in orders from the non-ethanol business, we expect the revenues of the company to grow at a higher rate. Further, margins are also expected to sustain at current levels led by the higher international orders composition. We have valued the stock at 14x its FY13E EPS of 5.1 and added the cash value of 25/share to arrive at the target price of 96. Exhibit 1: Financial Performance ( Crore) Q2FY12 Q2FY12E Q2FY11 Q1FY11 YoY(%) QoQ(%) Net Sales 228.9 179.7 18.2 164.3 111.6 39.3 EBITDA margin (%) 8.4 11.5 7.9 9.3 49bps -88bps Depreciation 2.9 3.3 2.7 2.9 7.4 2.5 Other Income 9. 4.6 4.4 4.4 12.5 12.9 Reported PAT 2.5 17.1 8.9 13.7 13.9 5.2 EPS ( ) 1.1.9.5.7 13.9 5.2 ICICI Securities Ltd Retail Equity Research

Exhibit 2: Sales ( crore) and outstanding order book at end of the quarter ( crore) A constant improvement in order execution and order book position is driving revenue growth for the company 95 8 65 2.7 147.4 127.8 93.7 18.2 148.2 22.9 228.9 164.3 25 2 15 5 5 8 8 7 7 6 7 75 85 9 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Closing Order Book (LHS) Sales (RHS) Exhibit 3: Quarterly order inflow ( crore) The company has had the highest order inflow during the quarter over the last eight quarters 3 25 2 15 2 15 2 15 25 25 265 27 9 5 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Order Inflow Exhibit 4: Quarterly EBITDA margin trend Better cost management in spite of higher raw material cost has helped the company to improve its margins by ~5 bps from 7.9% in Q2FY11 to 8.4% in Q2FY12 12 1 8 9.3 7.9 7.6 9.9 9.3 8.4 6 4 2 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 ICICI Securities Ltd Retail Equity Research Page 2

Exhibit 5: Composition of outstanding order book (% comparison domestic vs. international) The company s order book has witnessed an improvement in the composition of international orders in the total outstanding order book position of 9 crore 75 5 4 45 4 5 45 25 6 55 6 5 55 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Int'l orders Domestic Revising estimates With the improvement in inflow of new orders, 27 crore in Q2FY12 (highest in the last eight quarters) and traction in the non-ethanol business, we believe the company s revenues would grow at a higher rate in FY12E and FY13E. However, we are cautious on the margins front on the back of higher raw material costs. Therefore, we have revised our estimates for FY12E and FY13E. Exhibit 6: Revising Estimates FY12E FY13E Old New % Change Old New % change Revenue 73.5 791.3 12.5 817.5 939.4 14.9 EBITDA 8.8 7.7 (12.5) 124.3 14.9 (15.7) EBITDA Margin % 11.5 8.9-255 bps 15.2 11.2-45 bps PAT 67.4 65.3 (3.1) 13.7 94.6 (8.9) EPS 3.6 3.5 (3.1) 5.6 5.1 (8.9) ICICI Securities Ltd Retail Equity Research Page 3

Exhibit 7: ICICIdirect.com Coverage Universe Praj Industries Sales ( crore) EPS ( ) PE (x) EV/E (x) RoNW (%) RoCE (%) Idirect Code PRAIN CMP 77 FY11 552.9 2.9 26.6 3.6 9.8 1.7 Target 96 FY12E 791.3 3.5 21.8 18.5 11. 13.6 MCap 1423. Upside 24.8% FY13E 939.4 5.1 15. 12.5 14.1 16.2 Everest Kanto Cyliders Idirect Code EVEKAN CMP 71 FY11 776.3 6.6 1.8 7.7 9.2 12.4 Target 14 FY12E 842.8 9.3 7.6 5.4 11.6 14.2 MCap 76.8 Upside 46.8% FY13E 98.5 1.4 6.8 4.3 11.5 13.8 Nitin Fire Protection Idirect Code NITFIR CMP 37 FY11 437.8 8.5 4.4 5.7 23.2 15.7 Target 23 FY12E 585. 2.5 14.7 14.2 3.2 25.9 MCap 138.8 Upside -37.8% FY13E 651.6 2.6 14.5 1.9 24.1 24.9 Exhibit 8: Recommendation History 12 8 6 4 2 Aug-1 Sep-1 Nov-1 Dec-1 Feb-11 Mar-11 May-11 Jun-11 Jul-11 Price Target Price Exhibit 9: Recent Releases Date Event CMP Target Price Rating 12-Oct-1 Q2FY11 Result Update 77 63 HOLD 1-Jan-11 Q3FY11 Preview 83 8 HOLD 25-Jan-11 Q3FY11 Result Update 83 84 HOLD 8-Apr-11 Q4FY11 Preview 77 84 HOLD 3-May-11 Q4FY11 Result Update 73 82 BUY 5-Jul-11 Q1FY12 Result Preview 77 82 HOLD 25-Jul-11 Q1FY12 Result Update 91 HOLD ICICI Securities Ltd Retail Equity Research Page 4

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Strong Buy: >15%/2% for large caps / midcaps, respectively; Buy: Between 1% and 15%/2% for large caps / midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ANALYST CERTIFICATION We /I, Sanjay Manyal, Parineeta Poddar, research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. 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