Praj Industries Limited (PRAJIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Praj Industries Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of Praj Industries Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the first quarter of the financial year 2027. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's belief as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. Ashish Gaikwad, Managing Director; and Mr. Sachin Raole, Joint Managing Director and Chief Financial Officer. Without any further delay, I request Mr. Ashish Gaikwad to begin his opening remarks. Thank you, and over to you, sir.

Good day, everyone. Welcome to Praj Industries earnings call for Q1 FY '27. Trust all of you had the opportunity to go through our results for the quarter ended 30th June 2026. I would like to start with my remarks on an exciting development. Earlier this week, on the occasion of World Biofuel Day on August 10, Dr. Pramod Chaudhari Centre of Excellence for Advanced Bioeconomy was inaugurated at Savitribai Phule Pune University or SPPU. This COE is a pioneering initiative that will serve as a hub for interdisciplinary research, innovation, education and industry collaboration. The COE will create solutions for tomorrow's challenges while nurturing the talent needed to drive the bioeconomy. Now coming to the business performance. While the external business environment remained uncertain, we have made a definitive progress on a few long-term growth vectors. Our first-generation ethanol domestic business continued to experience a slowdown in greenfield projects. Currently, inquiries for greenfield projects are only from customers in ethanol deficit areas, states like Tamil Nadu and Assam. We believe that this situation will continue till the time we see policies around higher blending mandates. While greenfield projects are moving slowly, we see increasing demand for our brownfield solutions, where customers are prioritizing operational efficiency improvements and value-added coproducts such as the Distillers Corn Oil or DCO. There is a strong demand for greenfield ENA plants where Praj has a clear technology edge. On the project backlog execution front, funding-related issues persist and they are resulting in extended project execution cycles. The supply-demand imbalance has also impacted the projects backlog conversions to revenues. I'm pleased to share that we have received the order to set up our country's first commercial scale demo plant for Bio-IBA or isobutanol alcohol. Bio-IBA blending in diesel is anticipated to be a significant step in the nation's biofuel journey. Just a 2% blending mandate for Bio-IBA in diesel has a potential to create over INR 3,000 crore project opportunity. In the international market, we have received an order for setting up a greenfield Grain to Ethanol plant in Brazil. This is a corn to Ethanol plant. This project will be a marquee reference for Praj in the region. We are closely following the development in the USA market. USA has announced usage of E15 that is 15% blending in gasoline or petrol. We are also engaging with potential customers in Indonesia, Vietnam, Kenya, Panama, Argentina, Guatemala, Costa Rica and Bolivia, where the government are increasing the share of biofuels in their energy mix. This is driven by the need for energy security as well as energy costs. On the CBG front, to establish compressed biogas or CBG as a major pillar of India's future energy mix, the union cabinet has approved GOBARdhan, the National Circular Bioenergy Scheme with a total outlay of over INR 23,000 crores, set for implementation between FY '26, '27 to FY 20 -- '35, '36. This transformative scheme aims to scale domestic CBG production nearly tenfold, mobilize large-scale private investments and build a vibrant circular bioeconomy nationwide for energy security and affordability. GOBARdhan addresses key execution challenges by establishing the strong predictable foundation needed for -- needed to bring India's CBG sector to national scale. Through assured demand, remunerating and stable pricing, capital assistance, pipeline infrastructure, credit support and continuous technology development, the scheme transforms CBG into a bankable infrastructure asset. Ultimately, this comprehensive policy framework is expected to serve as an inflection point that will expedite investments. State governments such as Maharashtra, Odisha, Chhattisgarh, Assam have also announced policies to support the capacity creation for CBG projects. With Praj's proven technology performance on multiple feedstocks, we are ready to leverage this opportunity. Our Life Cycle Services business is growing steadily quarter-over-quarter. Via our Life Cycle Services business, we continue to serve our large customer installed base. We provide physical and digital services that ensure optimal plant performance and efficiency. We also offer performance enhancer solutions as well as the biogenic CO2 capture solutions. During the quarter, we conducted several trials for performance enhancers in Latin American region, which will help us expand our offerings in the region. On the SAF front, we have received an order to deliver detailed engineering for ethanol to SAF plant from an international customer. We had completed the basic engineering order for this customer in the last quarter. This engagement is progressing well and positions Praj as a technology partner for Alcohol-to-Jet SAF projects. In an important development, the International Civil Aviation Organization, or ICAO, has officially approved the entire supply chain, production and handling of sugarcane and sugarcane derivatives as well as the production of Sustainable Aviation Fuel using sugarcane to jet pathways. This certification helps Alcohol-to-Jet technology as an accepted pathway for SAF. Moving to our engineering businesses. On the Praj GenX front, our team has secured a significant global supply agreement as engineering and manufacturing partner for a critical modular infrastructure for hyperscale data centers. This strategic framework guarantees a minimum business volume of about USD 50 million over the next 2.5 years with a potential upside depending on the customer project schedules. Importantly, this agreement marks a strategic diversification into a high-growth global engineering market outside of Praj's core bioenergy business, leveraging its established mega manufacturing capacity at Mangalore. The partnership enhances Praj GenX's global credential and will enable us to pursue similar international opportunities and develop hyperscale data center infrastructure into a meaningful sustainable business vertical over the coming years. For our ZLD and PHS businesses, batteries, semiconductors and solar panel or BSS segment in India is opening new opportunities. We have received our first combined contract for supply of ultra-pure water and ZLD solutions for a semiconductor company in India. This helps in expanding our solutions offerings to new emerging industry segments. Overall, we believe efforts put in by company over the period of last 2 years have started creating new opportunities as we move further into this financial year. We shall build on this momentum and deliver improved performance. With this, I now hand over to Sachin for his comments on the financial performance. Thank you.

Okay, Ashish. Good day, everyone. Let me take you through the financial highlights for quarter ended 30 June 2026. A consolidated income from operations stood at INR 7.16 billion as compared to INR 6.4 billion quarter 1 of last financial year. PBT before exceptional items stood at INR 210.5 million as compared to INR 96.09 million in the corresponding period of the last year. Profit after tax stood at INR 116.1 million as compared to INR 63.4 million in Q1 of FY '26. Of the total revenue 66% is from bioenergy, 22% is from engineering and 12% is from Praj HiPurity business. Export revenues is accounted for 25% of quarter FY '27. The order intake during the quarter was INR 10 billion with 57% from domestic market. Of the total order intake 62% came from bioenergy, 28% from engineering, and the balance 10% from PHS business. The order backlog as of 30th June 2026 is at INR 45.9 billion, comprising 63% of domestic orders. Cash in hand as on June 30, 2026 is INR 6.16 billion. In yesterday's AGM, shareholders have approved the payment of final dividend of 180% per share. Just to reiterate, the strategic initiatives like blending technology for diesel, building meaningful partnerships in GenX for modularization solutions in multiple application like data center and the internationalization have started showing some results. Wishing you all very happy Independence Day in advance. With this, I will conclude my remarks. Thank you all for joining. We would now be happy to discuss any questions, comments, or suggestions you may have.

[Operator Instructions] First question is from the line of Sajal Kapoor from Antifragile Thinking.

Gaikwad saab, I see Praj in 2 buckets actually. So there is Sarkar Nirbhar, which is largely bioenergy where growth is materially gated by policy and mandates from the government, various governments, not just Indian. And then there is this Atmanirbhar bucket, as I call it, because that includes GenX, HiPurity, PHS and ZLD where growth should depend much more on Praj converting capability into customer CapEx. I want to focus on the second bucket because this is where execution, not policy timing should determine the outcome. And I have two questions. First on GenX, you now have a USD 50 million global supply agreement over the next 2.5 years for hyperscale data centers. What does this change in the trajectory of GenX? And how large do you think this business can become over the medium term? That's my first question.

Thank you, Kapoor saab, for this question. So yes, in Praj GenX, we have the global expertise for providing modular solutions to construct plants and also precision fabrication that we do in this mega facility at Mangalore that we have. And data centers is seen as an emerging opportunity for us. And therefore, we have this agreement announced with EPC, who helps their end customers to construct the hyperscale data centers. We certainly are pivoting to this new area. We will be delivering our first project in the coming days over the quarter 2, quarter 3, quarter 4 of this year. As we deliver this and we get more and more knowledge from this segment, we expect that this becomes a vertical within our Praj GenX that will sustain the orders and revenue over a period of time.

And second, I mean, looking across the entire this Atmanirbhar bucket, what specific growth milestones should shareholders hold you to over the next 2 to 3 years across GenX, HiPurity, PHS and ZLD? Because if you see the historic data, FY '23 to '26, I know you were not with Praj for majority of that period. HiPurity, ZLD segment or the engineering segment, as we call it, hasn't grown more than 11% off the top of my head. So the question really is what should this portfolio look like in, let's say, FY '28 if the strategy is working as intended?

Yes. No, I think it's a good question, Kapoor saab. We have started to make sure that we grow all the businesses that are in our portfolio in a balanced way. As you know that the government is also making sure that all the industry is sort of not spreading the pollution, they are therefore making sure that the laws are implemented strictly for any emissions coming out of chemical industry. So that helps us in the growth of our ZLD solutions. Also, the government is coming up with new areas, as we mentioned, where we can manufacture our own batteries, our own solar panels and our own semiconductors. And that needs a very special high purity water, which is also a part of Praj's portfolio. So we do see that there are these new segments that will help us in growing our engineering, what you call as the Atmanirbhar segment, and we will continue to leverage the growth in these sectors to pursue other solutions in these markets.

Next question is from the line of Amit Anwani from PL Capital.

So first question on -- as I can see the...

Amit, can you be little louder?

Is it better, sir? Hello?

It is better now, better.

Yes. So first question is on the execution this quarter. I can see bioenergy at INR 474 crores seems a bit on a lower side compared to the opening order book we had. So any challenges with respect to execution with any existing projects? And second, in the earlier quarters, we have been highlighting some challenges with respect to collections and the issues at the clients end. And third, commodity issues. So if you could explain how all of these things affected the performance?

Thank you, Amit. So on the question of execution, we have a mix of different types of projects in our backlog that we are converting into revenue. The ones where there is a slowness and an extended period of execution is the domestic first-generation ethanol plants where sometimes there is an issue on the funding for the end customers or also there is an impact, as I mentioned in my opening remarks, where the supply-demand imbalance in ethanol market has also slowed down some of the execution cycles, right? So there is that impact. But then there are other projects in our backlog where we are able to accelerate. So overall, what you saw in quarter 1 was the mix of these 2 situations. On collections, the second question that you are asking, because of the slow conversion of some of this backlog, it also has a rubbing effect on the collection of our dues, et cetera. So, we are working on these in the coming days and quarters, and we will try to improve on both these aspects.

Amit, your question related to material cost. Yes, naturally, there is some kind of an upward trend in the material cost. We are figuring it out, the ways and means of countering that based on either contractual arrangement or having some kind of advanced procurement, which we had done in the earlier years also. So we are figuring it out, the ways and means of tackling those issues. Yes, because of the current geopolitical scenario, there will be some kind of pressure on the material cost, but we are cautious and aware about it and dealing with it.

All right. So second question on all the new initiatives which have started kind of you also explained very elaborately. So one was I wanted to understand the GenX order, probably out of the more than 10 customers, this is first conversion. Can we expect more customers and the breakeven target now for GenX since you have started getting the order there? And second was the technological partnership, which you explained in the SAF. I think if we can understand the addressable market over 12, 18 months. And same for the semiconductor high purity water, what could be the kind of CapEx or any understanding of the pipeline of these kind of orders? Can it have accelerated growth in high purity? So that is my last question.

Yes. Amit, we just entered these segments of data centers, semiconductors, et cetera, right? So we are -- first, our focus will be on a good execution, quality execution, making sure that our customers are satisfied. We want to establish ourselves as we pivot into these new segments. And while we do that, we will know what is the future potential that we can lay our hands on, right? So we'll have to wait for some time, but we do believe that especially in data centers, we can have a fairly good opportunity space developing.

And what's the sort of margins similar to what...

Sorry to interrupt, Mr. Anwani, may we please request you to rejoin the queue, sir, for the follow-up. Thank you. [Operator Instructions] Next question is from the line of Aditya Mongia from Kotak Institutional Equities. Please go ahead.

I wanted to get a sense of the margins that you intend to make on the Bio-CNG front. A ballpark sense would be useful over here as we think through this business scaling up over time.

Aditya, okay, since you touched upon margins, if you look at our quarter 1 results, I just want to -- for the benefit of all investors, want to say that our margins were a little subdued mainly because of the volumes and the mix that we have. But going forward, certainly, we'll be working on both these aspects. International mix can improve our margins. And with the GenX orders that we talked about, our volumes can also get better. You're talking about the CBG or CNG margins. Is that what your question is Aditya?

Yes, the compressed biogas projects.

Yes. So these are in line with the industry because as you know, the typical market players and there is a fair amount of players who have come into the CBG market. And in the past, before GOBARdhan was announced, I think the market was to some extent limited. But what we hope is that when the market opens up with the GOBARdhan opportunity and the scheme that is announced recently by the government plus the state governments coming and providing benefits to the private players, we believe that both the opportunity size as well as the overall margin will be better. That is what we are hoping for right now.

Okay, understood. Also wanted to get a sense of...

Aditya, can you speak louder? Aditya, please.

Okay. I hope this is better.

Yes.

Yes. I will still be louder from my side. The second question was again on margins. I wanted to get a sense on the reasons why gross margin has expanded on the stand-alone side. If your assessment is that the RM mix is still impacting you and will impact you even more, I could not understand how the gross margin situation on standalone is happening. Allied question, if you could give us a sense that of the two problems, RM as well as site expenses, can your margins from here on start looking better, or will these two problems still be an overhang or an incremental overhang versus margins growth in the quarter in the near term?

Okay. Aditya, I will just answer this question in two parts. One is margin of this quarter versus margin of the last quarter, that is March quarter, and margin of this quarter and margin of the last corresponding period quarter. Both have different complexities and different colors. I would like to explain it to you in little bit detail so that everyone will get benefited. This quarter, we have seen 3% margin improvement only on the material cost. But at the same time, if you look at my other expenses have gone up by 4%. As Ashish earlier was talking about, the mix of sales and mix of execution within the project defines these two elements of our expenses, and that is how they define what happens to my projects or the revenue or the margin. So that is the simple answer for March to June quarter. But if you look at June quarter of last year and June quarter of this year, you will see a very different change in the material cost. Material cost looks to be up more by almost 10%, and other expenses, you will see that coming down by 7%. The material cost implication is mainly because of higher export sales, which we had in June '25 as compared to June '26. Even in June 2026, whatever export orders which we executed, the component was on the -- majorly from the African market, where the margins are not as high as compared to either Europe market or the Americas market. That's the reason you see this kind of a change in the cost of material. Mainly the cost of material and other expenses, if you look at, they generally compensate each other. This is mainly because of what part of the project we are executing.

The same part of the question was on site expenses. If you could give a sense of how much are they impacting margins today in the scope of execution, and how to think about it in the future?

I will not say that they are impacting because this is a part and parcel of the execution, which is going on. So it is not that cost have gone up. But at the same time, the revenue component -- again, in the revenue component, you will have majorly two components. One, the equipment related revenue, and another one will be site related activities revenue. And depending on which revenue component is getting executed during the period, these two elements, cost of material or other expenses, will act accordingly. So it will not be right to say that, no, the site expenses have gone up, and there is an impact of that. That's not -- as I said, because material cost and site expenses generally compensate for each other. Over and above that, we have seen that going forward, if there is an impact on the material cost movement which is happening, especially on the steel side, we are cognizant of that, we are aware about that, and we are trying to take the advance measures so that the material cost impact will not be there going forward.

Just a last question, if I may, then I will fall into the queue. Your standalone margins are lower than your implied subsidiary margins. Is this the right way of looking at it at an EBITDA level, or should we think about it differently at a lower level? Why I am asking this question, is there some subsidy that is driving [indiscernible]?

Okay. Maybe we will have to live with this for one more quarter at least, because the GenX numbers will keep on changing depending on how their execution is going to happen, and that is the component which will show something impacting on the consolidated number. Earlier it was very simple. My consolidated numbers were simply standalone number plus HiPurity number, and that is how the numbers used to get reflected. But today because of the HiPurity component, these numbers will show something different. For example, why I am saying so, because in one quarter, if the engineering services component comes up on a higher side in GenX, that quarter will show GenX number in a different way as compared to other quarters of the GenX. And that is how the consolidated and standalone numbers will look different for you.

Next question is from the line of Shailesh Kanani from Asian Market Securities.

First of all, congratulations for good order during the quarter. Sir, I have three queries. Sir, first on, clarify regarding our current capabilities regarding municipal solid waste for CBG, because in previous calls, we have highlighted that municipal solid waste was excluded from our operation, but this year's annual report is talking about that. So how should we read that? And additionally, can you also provide some update on the progress of CBG joint venture with BPCL, considering the recent positive developments for CBG?

Okay. Thank you, Shailesh. So on MSW, I think there are different challenges without getting too much into the technicality, the segregation of the feedstock depending on what you can really put into a digester to generate gas is what is the crux of some of the challenges that everybody deals with. So we are definitely looking at that segment. We are looking at what can be the ways to solve some of the current challenges. We are still in that phase where we are looking for tackling these challenges. And once we have good solutions, we can accelerate that part of the CBG market. Currently, because we are dealing with these challenges, we have said that we're not looking at this aggressively, but we are not ignoring it completely, if that makes sense. Then the second you talked about is the JV that probably was talked about in the past for CBG. We continue to pursue those JVs. We continue to talk about the JV. And we -- with the GOBARdhan coming into play, probably we will be able to speed up some of these discussions. Right now, because they are in the play, I would not be speaking too much about it, as far as JVs are concerned.

Okay, just to add to this, but that would kind of substantially improve the return profile and kind of improve the possibility of expansion, right, over this joint venture?

Yes. Certainly, I mean joint ventures is one of the ways we can grab the market as it is developing. It's not the only way, right? So we have done many projects which are stand-alone where we have also partnered with the customer to bring in the investments. And JVs, especially with the JVs that can happen with the oil marketing companies, et cetera, where it can give some added advantage of the final product getting consumed, et cetera, et cetera. But it's not the only way is what I would like to emphasize.

My second question was with respect to recent GenX order win in the data center space. Can you give us some more color in terms of scope of work, product profile, and any ongoing deal pipeline, in terms of numbers? And also I wanted to know how much of this INR 500 crores order value we have kind of booked during the current quarter?

Okay. So as you know, GenX, as the part of Praj Industries business, is into multiple types of offerings. To the segment which is called as the ETCA, which is the energy transition and climate action type of segment, where we have the green ammonia, green hydrogen, et cetera. So we continue to have those capabilities. But that segment in the last couple of years has gone very subdued. Therefore, we had pivoted to the conventional areas of oil and gas refining, petrochemicals, fertilizers type of a segment. And now, with the announcement of this data centers agreement with a global EPC, that gives us the third sort of segment where Praj GenX can operate. So we are actually expanding the basket and therefore increasing the scope of what we can offer to the different markets and we will continue to do that. And that's what will give us ability to manage some of the headwinds that may come up in one of the segments, so that we are not just focused on one segment and therefore get stuck, but we can hedge our opportunities and therefore, continue to operate and get orders and revenues. That is how the GenX strategy is working.

Sir, any color on product...

Sorry to interrupt, Mr. Kanani, may we please request you to rejoin the queue, sir. Thank you. Next question is from the line of Udit Sehgal from PinPoint X Capital. Please go ahead.

Sir, I wanted to understand, say, in a CBG plant of, say, about 10 tonnes or 12 tonnes or even 20 tonnes, what would be the value of equipment that we can supply, typically? And what is the kind of market share we are looking at as the CBG rollout happens in India?

Yes. Well, thank you for the question. But I think some of these details we may not have. What we can say is we do an end-to-end project for the customers, right? We have the technology. We can do the complete engineering. We can do the entire construction of the plant. We also have the solutions to clean up the gas and therefore, inject it into infrastructure of pipeline or taking it onto the cascades that can supply gas to the end user. So the entire gamut. And also not just the project execution, but we also have the capability to provide the operations and maintenance services and further enhancement services. So it is a fairly comprehensive set of offerings for CBG that we have. And you talked about market share, et cetera. I think it is difficult to say that for now, because there are many segments of CBG market. You have different feedstocks, you have different business models that we get into. So it can be not a single number.

And market is still maturing. It is in a very nascent stage. I suppose it is too early to say what is the market share per se. And the question which you are asking from the offering point of view, technically, we can offer end-to-end solution in CBG. It is our choice then, depending on the customer's preference and the understanding with customer, we can pick up and deliver what is required for the CBG. But starting from digestion to the cleaning of biogas to delivery, we actually can handle end-to-end entire CBG portfolio.

Okay, sir. And sir, with respect to the data center offering, could you kind of explain what exactly is the product or like the let the broad contour, like, we want to understand what exactly is the tech?

Yes. So again, without taking too much of everybody's time, what we offer is creating the infrastructure for server halls. These are large server halls where the server racks are kept for compute power. And we do both the infrastructure for server racks as well as the cooling systems that are required to keep the temperatures down. That is where we are starting our engagement. And as we proceed, there will be more and more solutions in our portfolio that will help in the infrastructure for the hyperscale data centers.

Next question is from the line of Sagar, an individual investor.

Sir, I would like to know, for 100 KLPD isobutanol plant, what will be the CapEx excluding the cost of the land? And what will be the scope of Praj in that?

So, typically a very ballpark number, not necessarily the right number, depending on the feedstock, 100 KLPD Ethanol plant can cost you somewhere between INR 100 crores and INR 120 crores kind of a number, but very ballpark number. Completely depends on what kind of a feedstock you are using, what kind of ultimate product you are going to go for. It depends, but that's the ballpark number.

Okay. And the scope of Praj in that?