Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Stable/Crisil A1+’ ratings on the bank facilities of Praj Industries Ltd (Praj).

 

The ratings continue to reflect the sustenance in the performance of Praj, given healthy orderbook and revenue with increasing diversification to other non-ethanol business. The ethanol business has seen slowdown, post India’s achievement of the Ethanol blending program for blending of 20% (EBP 20), due to delayed financial closures of the projects and stringent approval processes. Praj has been focusing on services based projects, brownfield projects in the domestic market, and also catering to international market like Latin America, where demand for ethanol plants are increasing as they are looking to increase their ethanol blending.

 

Praj has also established a plant in Mangalore under Praj GenX, 100% subsidiary of Praj Industries and has commenced operations in Mar 2024. The plant is designed to focus on hydrogen, ammonia, carbon capture & waste-to-energy segments, by providing large size critical process equipment and modularization packages in international markets. The operations are in nascent stage and expected to ramp up from the second half of current fiscal 2026.

 

Revenue slightly declined in fiscal 2025 to Rs 3,228 crores (Rs 3,466 crores in fiscal 2024) due to moderation in execution of ethanol projects. Order backlog increased to Rs 4,293 crore as on March 31, 2025, as against Rs 3,855 crore a year earlier, reflecting sufficient revenue visibility. Operating margins have also moderated to 10.1% in fiscal 2025 compared to 11.2% in fiscal 2024 due to commencement of the new Mangalore plant, where the fixed cost absorption has remained low.

 

The financial risk profile remains supported by nil debt and strong networth of over Rs 1,250 crore as on March 31, 2025. Liquidity is aided by cash and equivalents of Rs 540 crore on the same date. A sizeable stretch in the working capital cycle or delay in execution of orderbook will be key monitorables. These strengths are partially offset by exposure to cyclicality in the capital goods industry and to project risks.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Praj and its subsidiaries because of the operational and financial linkages between them; all the entities are also under a common management. The subsidiaries are Praj HiPurity Systems ('Crisil AA-/Stable/Crisil A1+'), Praj Engineering & Infra Ltd (‘Crisil AA-/Stable/Crisil A1+’), Praj Genx Ltd (‘Crisil A+/Stable/Crisil A1’) and three overseas execution subsidiaries - Praj Far East Co Ltd (Thailand), Praj Far East Philippines Ltd Inc (Philippines), Praj Americas Inc (USA) and Praj Projects (Tanzania) Ltd.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position and strong focus on R&D: Praj has been an undisputed market leader in the domestic ethanol plant installation and equipment business and the domestic breweries installation segment. The market position is also supported by its global presence with over 1,000 references in more than 100 countries and across five continents. The company provides end-to-end solutions, which include process technology and equipment (distillery and brewery segments), wastewater treatment technology and critical process equipment.

 

Additionally, collaborations such as Axens, France (for Sustainable Aviation Fuel), Sekab E-Technology AB, Sweden (producing biofuels using forest residue feedstock) are expected to be the growth drivers for the medium term. Praj, a pioneer in the industry, has a strong emphasis on research and development (R&D), driving innovation and growth. The company has recently established India's first demonstration facility for biopolymers, highlighting its indigenous integrated Polylactic Acid (PLA) technology. This cutting-edge facility showcases Praj's dedication to developing sustainable solutions and promoting eco-friendly practices.

 

• Healthy diversity in revenue profile and satisfactory order pipeline: Praj has presence in diversified segments such as Hi purity water and engineering (critical process equipment such as pressure vessels, reactors, shell & tube heat exchangers, columns) and that has reduced dependence on core ethanol business. These areas contributed ~30% in fiscal 2025, increased from 20-25% in the last few fiscals.
   

The company has outstanding order book of Rs 4,293 crore as on March 31, 2025, across the three business segments assure sufficient revenue visibility. Increase in diversification to non-ethanol business segment to support business risk profile of the company.

 

• Strong financial risk profile and liquidity: Financial risk profile remains healthy, supported by adequate cash accrual and nil debt other than lease liabilities. Networth stood robust at Rs 1,250 crore as on March 31, 2025. Debt protection metrics were comfortable, with adjusted interest coverage ratio of 19.9 times in fiscal 2025. Total outside liabilities to adjusted networth ratio stood at 1.4 times as on March 31, 2025. Liquidity is strong, reflected in cash and equivalents of ~Rs 540 crore as on March 31, 2025, absence of any repayment obligation, and nil utilisation of the fund-based limit.

 

Weaknesses:

• Exposure to cyclicality in the capital goods industry: Praj operates in the inherently cyclical capital goods sector, where demand is dependent on the capital expenditure (capex) cycle of its end-user industries. Any slowdown in the growth prospects of end-user industries affects the topline and profitability of Praj. For instance, revenue fell in fiscals 2010, 2011 and 2013 owing to overall global economic slowdown, which led to fewer orders from developed countries. Further, in fiscals 2017 and 2020, weak capex momentum resulted in lower revenue from operations. This also impacts the working capital cycle, which gets stretched significantly due to slow project execution during economic slowdown.

 

• Susceptibility to project-related risks: Business is exposed to project-related risks such as fluctuations in input prices. As the average duration of a project is 12 months, volatility in input prices during this period impacts cost, and therefore, profitability. Further, turnkey projects in India normally do not contain escalation clauses. However, Praj collects advance payment in most of the fixed price contracts and has prudent purchase policies in place, thereby mitigating the impact of any adverse movement in the cost of raw materials.

Liquidity: Strong

Liquidity is strong, marked by cash and cash equivalents of ~Rs 540 crore as on March 31, 2025. In the absence of any repayment obligation over the medium term, the cash accrual (post dividend) of Rs 180-250 crore per annum will be sufficient to meet the capex and working capital requirements. Bank limit remained unutilised for the 12 months through March 2025.

Outlook: Stable

Praj should continue to benefit from its established position in the domestic distillery and brewery installation business, improving order pipeline for second-generation ethanol units and growing revenue diversity. The financial risk profile should remain strong, supported by steady cash accrual, prudent funding for capex programmes and strong liquidity.

Rating sensitivity factors

Upward factors:

• Substantial and sustainable increase in revenue with improvement in operating margins to over 12%
• Financial risk profile remains healthy.

 

Downward factors:

• Sustained de-growth in revenues with operating margins falling below 8-9% on a sustained basis
• Weakening of financial risk profile owing to large debt funded capex or acquisition impacting debt protection metrics

About the Company

Praj was incorporated in November 1985 as Praj Counseltech Pvt Ltd. It was promoted by a technocrat team comprising Dr. Pramod Chaudhari and associates. In 2007, Praj commissioned its manufacturing facility in the special economic zone in Kandla (Gujarat). In 2008, Praj started its pilot plant for research and development (R&D) on second generation cellulosic ethanol technology at Praj Matrix—R&D Centre. In 2012, Praj acquired 50.2% stake in PHSL and subsequently raised its stake to 100% in 2015.

Praj has three key business segments: (a) Bioenergy business (involves process design, engineering, fabrication, and commissioning of ethanol plants), accounted for 59% of consolidated revenue in the first quarter of fiscal 2021); b) Hi Purity Systems, accounted for 25% of consolidated revenue; c) Engineering business accounted for 16% – this segment has three sub-divisions water and waste water treatment (operates in the industrial waste water systems), critical process engineering (provides high-end equipment and systems finding applications in the oil & gas, petrochemical, fertiliser and chemicals industries), and brewery plants and equipment.

Any other information: Not applicable