Smallcap stock rallies after GST cut in ethanol blending. Should you buy?

Smallcap stock rallies after GST cut in ethanol blending. Should you buy?

Market


Praj Industries witnessed a robust bull run on Monday with the stock gaining by nearly 6% on BSE. The performance in this small-cap stock comes after the government lowered the GST rate on ethanol meant for blending under Ethanol Blended Petrol Programme to 5% from earlier 18%. Ethanol manufacturers and ethanol plant manufacturers such as Praj Industries are likely to benefit from this development. Praj holds dominance in domestic ethanol plants. Brokerage house Prabhudas Lilladher has recommended buying in Praj for a target price of 520 per share.

At around 1.31 pm, Praj Industries stock was trading at 377.80 apiece up by 1.93% on BSE. The day’s high of the stock is 391.40 apiece — resulting in an intraday gain of 5.6% on the exchange. Currently, its market cap is around 6,948 crore.

Year-to-date, Praj Industries shares have climbed by nearly 16%. While in a year the stock has advanced by a whopping nearly 26% on Dalal Street.

The Centre has trimmed GST rate to 5% on ethanol meant for blending under Ethanol Blended Petrol Programme. Earlier, the rate was 18%. Under the programme, oil marketing companies (OMC) will sell petrol blended with ethanol up to 10% — and further increase it to 20% by 2025.

In a note, Amit Anwani – Research Analyst, Prabhudas Lilladher pointed out that the government had notified administered price of ethanol in 2014 and for the first time during 2018, differential price of ethanol based on raw material utilised for ethanol production was announced by the government. With this, the ethanol procurement by public sector OMCs has increased from 38 crore litre in Ethanol Supply Year (ESY) 2013-14, to contracted over 350 crore litre in ESY 2020-21.

The Prabhudas Lilladher analyst believes Praj Industries will benefit from the GST rate cut on ethanol blending.

On Praj Industries, his note said, “We believe this is a positive development, which is likely to boost government target of ethanol blending to 20% by 2025. Thereby, likely to benefit ethanol manufacturers and ethanol plant manufacturers such as Praj Industries.”

“We remain positive on Praj given 1) its strong leadership in domestic ethanol plants (~60-65% market share), 2) global presence (+100 countries) 3) focus on future-ready technologies like 2G plants, Compressed Bio Gas (CBG) and 4) diversification in Wastewater Treatment (ZLD), Critical Process Equipment’s & System (CPES) & HiPurity business,” Anwani’s note added.

On the valuation, the note said, “The stock is currently trading at PE of 31.6x/21.9x/20.9x FY23/24/25E. We have Buy rating on stock with TP of Rs520, valuing it at PE of 30x Sep24E.”

Praj began as a supplier of ethanol plants but has strengthened its foothold with a bouquet of sustainable solutions for bioenergy, high-purity water, critical process equipment, breweries, and industrial wastewater treatment. Based in Pune, Praj has spread its presence across the globe with 1000++ References in 100+ countries across all 5 continents.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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