Praj Ind shares rally on cut in GST rate on ethanol. PL sees stock at Rs 520

Shares of Praj Industries jumped 6 per cent in Monday's trade after the government cut the GST rate on ethanol meant for blending to 5 per cent.

The government has lowered GST rate to 5 per cent from 18 per cent on ethanol meant for blending under Ethanol Blended Petrol  (EBP) programme. Under the government’s EBP programme, oil marketing companies (OMCs) sell petrol blended with up to 10 per cent ethanol. They are required to increase it to 20 per cent by 2025.

The government had notified administered price of ethanol in 2014. In 2018, and for first time, differential price of ethanol based on raw material utilised for ethanol production was announced by the government, Prabhudas Lilladher noted.  With that, the ethanol procurement by public sector OMCs increased from 38 crore litre in Ethanol Supply Year (ESY) 2013-14, to over 350 crore litre in ESY 2020-21.

Praj Industries is engaged in the field of bio-based technologies and engineering. It is a supplier of ethanol plants, and offers sustainable solutions for bioenergy, high purity water, critical process equipment, breweries and industrial wastewater treatment.

"We believe this is a positive development, which is likely to boost government target of ethanol blending to 20 per cent by 2025. Thereby, likely to benefit ethanol manufacturers and ethanol plant manufacturers such as Praj Industries. We remain positive on Praj given its strong leadership in domestic ethanol plants (60-65 per cent market share), global presence (100-plus countries), focus on future-ready technologies like 2G plants, compressed bio gas (CBG) and diversification in Wastewater Treatment (ZLD), critical process equipment’s & system (CPES) & HiPurity business," it said.

Following the development, the scrip rose 5.60 per cent to hit a high of Rs 391.40 on BSE.

Prabhudas Lilladher said the stock is currently trading at PE of 31.6 times its FY23, 21.9 times its FY24 and 20.9 times its FY25 EPS. It has a Buy rating on stock with a target of Rs 520. It values the stock at PE of 30 times September 2024 EPS.