Praj Industries - Buy and Hold

• Sector : Engineering/Capital Goods
• CMP : Rs. 215
• 52 Weeks High : Rs. 268
• 52 Weeks Low : Rs. 79
• My targets are -

1. Target 1- 222
2. Target 2- 236
3. Target 3- 253

• Risk : High

About the Company

The company is well placed to benefit from the robust demand outlook for ethanol equipment and technology, arising from the increasing popularity of ethanol blending programmes worldwide. Praj's technological expertise and execution skills, in combination with its increasing foothold in large markets such as the US, Brazil and Europe are positives for earnings. At the current market price, the stock trades at about 24 times its likely FY08 per share earnings. For the quarter ended June 2007, the company's revenues grew by about 72 per cent while net profits grew by about 90 per cent, based on sustainable earnings. Operating profit margins were flat at about 14 per cent, comparing poorly with FY07 margins of about 17 per cent. However, this appears attributable to the differing product-mix from quarter to quarter and holds scope for improvement.

Between the Line

Praj's earnings are sensitive to regulatory changes in the ethanol policy of countries such as the US, Brazil and EU. Any unprecedented increase in steel prices and global technological advances in biofuels could pose risks to my recommendation. Praj Ind. is on run after the issue of the bonus shares. As Praj Ind. is operating in different countries, the Rupee appreciation may also have an impact on the earning of the co..

Disclaimer : I am holding the above stock, so this may influence my recomandation.