Praj Industries finally after a year of degrowth posted an interesting set of numbers for Q1 FY12. Praj Industries posted a 50% upside in consolidated income and almost 70% growth in its net profits. Its consolidated income stood around 190 crores and net profits around 14.37 crores. The company had degrown almost 50% in FY11 and had posted an EPS of about 3. Praj Industries was expected to grow a lot in FY12, about 70% or so and thus with the results of Q1 FY12 where Praj delivered a good result with net profits growing almost 70%, it helped investors gain back the confidence in the company and thus you see that 16% run up on Friday.

If you look at the current EPS, it stands around 3.5 and thus the stock is clearly not supportable at 93 levels as per current EPS. If at all the stock is enjoying levels of 93, then it is on back of expectations and the confidence that Praj should deliver as per expectations. Praj Industries is expected to post an EPS of close to 5.5 for full year FY12 and according to that value, a target of 100 is very likely which is 18x FY12 earnings. Praj saw a huge interest built up taking the stock up 16% was basically because it was a company that had de grown and now is clawing back up by a huge margin, so such kind of companies do normally get paid a premium due to high growth delivery. Moreover in FY13 as well Praj should deliver a 20%+ kind of growth. On top of it, a very large investor named Rakesh JhunJhunwala has invested into this scrip, taking his stake upto 8.8%. All this counted for Praj’s over expected rally on Friday.

Expecting an EPS of 5.5, Praj Industries can move upto 100 or even 110 in short to medium term.

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