Praj Industries Ltd- A sceptical viewpoint

          Our team member met one of our olden days informant and member of big investor group in Mumbai who happen to have a age old experience and contacts among elite investors group in Mumbai. Among many other things he said Praj Industries could become a penny stock. This was interesting if not shocking for our analyst. He tried and dug dip. The informant said some big institutional holders are considering to sell this stock which has been underperforming since  2007 from 250 levels to around 50 levels now. The guy also said that interest into green energy has peaked for the medium term atleast. Also the present global recession will cause traditional energy resources prices to correct significantly and make the green energy costlier than the traditional ones.  After this stint our guy came down and the research team tried to dig deeper into this counter.

YEAR	2004	2005	2006	2007	2008	2009	2010	2011
% HOLDING OR RAKESH JHUNJHUNWALA	12.33	12.33	10.77	8.23	7.30	8.57	7.73	8.8
% SHARE HOLDING OF VINOD KHOSLA	-	-	1.94	8.88	6.15	5.26	4.01	3.11
SHARE PRICE IN JUNE MONTHS OF RESPECTIVE YEAR	5	35	80	240	175	110	80	70

                                    

                                                              

(% HOLDING IS AS ON JUNE FILLINF AS PER BSE INDIA WEBSITE DATA.

RAKESH JHUNJHUNWALA HOLDING IS CALCULATED AS TOTAL OF RAKESH JHUNJHUNWALA AND REKHA JHUNJHUNWALA HOLDING.

Share prices in june is round about prices between high and low of that month.)

KEY TAKEAWAYS FROM THE ABOVE TABLE:

Vinod Khosla decreased his holding constantly from 2007 to its low at now 3.11 and sources says he is likely to exit completely by 2013. Also you can see that the holding of Rakesh Jhunjhunwala has declined from 12.33% in earlier years to below 8% to 2010 since 2007. In another words he booked profit in 5.03% from 2005 to 2008. However his holding for year 2011 is 8.8%.

Sources also says Rakesh Jhunjhunwala may be a smart investor. But in case of Praj Ind Vinod Khosla is smarter as he is a technocrat and not only financial investor like Rakesh Jhunjhunwala. He understands the industry and its present and future better than Rakesh Jhunjhunwala. So he was right in exiting the company from his holding of 8.88% to now 3.11%.

If we see from another different angle than the stock price is speaking for itself as the stock price has been witnessing sustained downtrend even though the firm’s topline has remain around 600 however declined to 555 after rising significantly to 775 in 08-09. One assumption is also that some high risk players did not like this type of shanty performance, who invested in expectation of high returns.

In the closing note the informant added that the stock price and investors like Rakesh Jhunjhunwala are holding up due to reserve that is close to 500 cr and it close to debt-free status.

Observing the stock price, we can say that it has been trading below 100 since last three years. The point is that what possible catalyst can lift this sector or this particular. There does not seem to be any big driving force coming out and pushing the prospects of this stock to a new level. If this has to be true than the performance of the company peaked in 2008-09 and now you may see in fact a decline in top line. Any way the operating margins have halved in last financial year to previous one. As said above, the close to debt free status and reserve as well as the 30% plus premium-institutional investors holding is keeping the company alive amongst others. Which is also helping the stock from becoming a penny stock by now.

Anyway, weather Praj Ind stock goes down from 70 to 7 and become a penny stock or not (remember praj is a 25 yr old company and has established facilities in diversified green energy solutions segments, also wel positioned to take any opportunity arising in this sector. The firm is mainly active in alchohol /fuel ethanol plants, brewery plant,water and waste water treatment,bio nutrients,process equipments and agri services); as per our philosophy this sector is highly specialized sector and fit for plays of PEs, VCs and wealthy private investors as well as global specialized funds. We have always advocated for small investors to keep away from complex and incomprehensible businesses. The one of Praj’s may not be incomprehensible but surely a complex one and clearly a difficult one to gauge, anticipate and estimate the impact of economic ups and downs in general conditions of country and world. This is how Warren Buffett also acts, in our opinion. Also, one has to see the pitfalls to follow in the foots of highly acclaimed successful investors (whose success and strategy is overstated many times). One has to understand since when the investor one is following is invested, when does he exits, when does he increase, decrease stake, his risk appetite. The point is following blindly to investors can be, in fact it is dangerous. Particularly true with Rakesh Jhunjhunwala, as he is not only an investor, but trader and speculator as well.(some people don't know and some will not want to believe this)

You can Read our previous article on renewable energy companies here http://www.meghainvestments.com/2010/06/renewable-energy-hydro-wind-solar-power.html However, Praj Ind is not a power generating company but solutions provider.

(Disclaimer: Some of the information is source based while some of the content is as per our research on deemed to be reliable available public data while some are the opinions of our analyst. We do not hold/recommend to buy or sell Praj ind. We do not take responsibility of reliability or accuracy of sourece based information.)

ALSO NOTE THAT THE STOCK INVESTING ARE SUBJECT TO UPDATES AND CHANGES FROM TIME TO TIME IN LIGHT OF NEW DEVELOPMENTS IN ECONOMY AND COMPANY AND SUCH OTHER THINGS.

(If you want to communicate with regard to this article then address your email to Mr.Varun on info@meghainvestments.com)