CRISIL has reaffirmed its ratings on the bank facilities of Praj Industries Ltd (Praj) at ‘CRISIL AA/Stable/CRISIL A1+’. The reaffirmation follows Praj’s acquisition of 50.2 per cent stake in Neela Systems Ltd (Neela Systems; rated ‘CRISIL BB/Stable/CRISIL A4+’) for Rs.640 million. The acquisition of Neela Systems gives Praj an entry into the high-purity water segment, catering mainly to the pharmaceuticals, life sciences, cosmetics and food and beverage (f&b) industries. This acquisition is in line with Praj’s strategy of increasing its revenue share from non-ethanol businesses. The rating reaffirmation is underpinned by Praj’s continued strong financial risk profile, marked by a healthy capital structure and ample liquidity.

The ratings continue to reflect Praj’s strong financial risk profile and established market position in the project and process engineering business catering to the ethanol and brewery industries. These rating strengths are partially offset by Praj’s exposure to cyclicality in the capital goods industry and to project-related risks.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Praj and Praj’s subsidiaries because of operational synergies among these entities. Furthermore, all the entities are under a common management. The subsidiaries are Pacecon Engineering Projects Ltd,India, Praj Far East Co Ltd (Praj Far East), Thailand, Praj Jaragua Bioenergia, Brazil, BioCnergy Europa BV, the Netherlands, Praj Industries (Africa) Pty Ltd, South Africa, Praj Americas, Inc, USA and Neela Systems.

Outlook: Stable
CRISIL believes that Praj will continue to benefit from its strong liquidity, in terms of surviving downturns in its end-user industry and growing its business without adversely affecting its financial risk profile. Praj is expected to maintain its business risk over the medium term, supported by its established market position, good operating capabilities, and efforts to diversify revenue profile. The outlook may be revised to ‘Positive’ if Praj significantly diversifies its revenue profile, reports significant growth in revenues, and improves its operating profitability over the medium term. Conversely, the outlook may be revised to ‘Negative’ if there is prolonged deterioration in Praj’s revenues and profitability, or if Praj’s capital structure deteriorates because of larger-than-expected debt-funded capital expenditure.

About the Company
Praj, promoted by a team of technocrats, Mr. Pramod Chaudhari and associates, was incorporated as Praj Counseltech Pvt Ltd in 1985; its name was changed to the current one in 1993. The company went public in 1994. Praj is in the business of process designing, engineering, fabrication, and commissioning bio-fuels plants, brewery plants, waste water treatment plants, bio-consumables and process equipment and systems. Its main businesses are sale of ethanol process technology, plants and equipment, and brewery plant and equipment.

For 2010-11 (refers to financial year, April 1 to March 31), Praj, on consolidated basis, reported a net profit of Rs.570 million on net sales of Rs.6.65 billion, against a net profit of Rs.1.2 billion on net sales of Rs.7.34 billion for 2009-10. For the six months ended September 30, 2011, Praj, on standalone basis, reported a net profit of Rs.341.6 million on net sales of Rs.3.93 billion, against a net profit of Rs.192.7 million on net sales of Rs.2.02 billion for the corresponding period of the previous year.

Neela Systems, incorporated in 2007 by Mr. Himanshu Shah, manufactures and sets up water treatment plants and modular process systems. The company caters mainly to the pharmaceuticals, life sciences, cosmetics and f&b industries. It caters to clients such as Johnson & Johnson India, ITC Ltd., Dr. Reddy’s Laboratories Ltd., Jain Irrigation Systems Ltd, L’Oreal India, Aurobindo Pharma Ltd., and Strides Arcolab Limited. In 2010-11, Neela Systems completely shifted its manufacturing facility to Wada from Vasai (Maharashtra).