The Hindu Business Line : `There is potential for export of ethanol'

Riding the ethanol wave, Praj Industries, a Pune-based process equipment manufacturer, has almost doubled its revenues over the past couple of years to Rs 109 crore. With seven patents to its credit, its R&D division is focussing on clean technologies and alternative feedstock technologies and is now commercially testing the technology.

In an interview to Business Line, Mr Pramod Chaudhari, Chairman and Managing Director, Praj Industries, discusses the opportunities in the ethanol space and the company's scope for growth in the segment.

Excerpts from the interview:

Praj's domestic demand is primarily from sugar companies. Considering that most sugar companies have already announced expansion plans and also commissioned a number of them, do you think there will be further investments in the near term?

With fuel ethanol blending rising from 5 per cent to 10 per cent level we still see an increase in business. An additional 450 million litres per annum will be needed which translates into 30-40 more plants. However, this is as far as fuel ethanol potential for domestic consumption is concerned. With fuel ethanol being introduced in many markets, there could be a potential for export of ethanol or alcohol. Also, sugar mills are expanding to improve their economics to leverage the new market for ethanol.

Further, there is the constant business of modernisation of plants to meet better operational parameters based on our new technologies.

You have projected that 30-40 plants will come up in the next couple of years. In India, ethanol consumption does not seem to have taken off as expected even after a year. Why? How do you foresee the circumstances changing?

The 30-40 plants are with reference to the level of blending that an additional 5 per cent will require. Consumption is picking up and once the initial five per cent blend catches on, it should automatically lead to the next phase of 10 per cent. Also, the ruling international oil price makes eminent sense for ethanol be blending.

Praj does not seem to have penetrated China, though it is a much bigger brewery market than India's. Can you explain why? What steps are you taking to expand reach in there?

We are not considering China at the moment. However, we are keeping tabs on developments in the area of ethanol in China. Though beer consumption is much higher than in India, most breweries are already set up. Also, logistically it may not make good business sense.

How different are the terms of executing orders abroad? Does Praj take up projects on EPC basis or does it supply just equipment? Why are margins higher in export orders? What is your strike rate when you bid for projects abroad? What is Praj's main advantage when bidding for contracts abroad?

We have various business models depending upon the geographical location of the plant as also the client's comfort levels. Praj has executed projects on EPC basis in India and abroad. In India and neighbouring countries, we usually take up projects on EPC basis. Exports are usually for critical equipment.

In export orders there is better price realisation due to unique offerings in the area of technology and engineering. Our strike rate in the international market is improving since we are able to cover more and more regions or customers by offering customised solutions.

Praj's main advantage while bidding for projects abroad is its experience and domain knowledge. Also, our solutions are backed by large amounts of data generated in our R&D centre. Customers really value the tailor-made solutions as the overall risk is mitigated with focussed application.

You had bagged an Australian contract for engineering and design of fuel ethanol plants. Has the order been completed and does the current year's revenues include the revenue from the project?

The first phase of the order has since been completed. Our client is awaiting some clearances on policies, etc, and tie-ups at its end and, hence, the second phase is yet to begin. The revenues from this order have not been factored into this year's revenue stream.

Is Praj the only company that has technology for operating the same plant on various feedstocks to produce different grades of alcohol in India and abroad?

We are the only company with operating references of multiple feedstock. The whole concept of this technology is based on the issue of "round-the-year operation" of a distillery in regions where there is seasonal availability. Also, it helps distilleries not attached to sugar mills, to attain independence in terms of raw materials.

What is the revenue mix between the various segments that you operate in — fuel ethanol, breweries, waste water systems and alcohol plants?

We broadly have two business groups, distillery plants (which includes fuel ethanol plants) and brewery plants. Wastewater, being part of the distillery and brewery business, is clubbed with the respective business lines.

Generally, the break up of revenues is in the ratio of 75:20 for distillery, brewery and 5 per cent being other businesses including specialised engineering and engineering for ASME stamped vessels and the process industry.

What is your current market share in each of these segments in the domestic market? Do you have specific competitive advantages?

Our market share in the distillery business is around 70 per cent as of this year in the domestic market. Our competitive advantage stems from the fact that our solutions are "end-to-end" and "highly customised" with back up from R&D and technology optimisation steps which no other Indian or international company can offer, or is at present offering. Our area of operation being of a nature that combines knowledge of living organisms, agri-biotech and chemical engineering, the area of expertise is niche and specialised.

Are your overseas projects mainly for fuel ethanol or does Praj have an overseas presence in other segments too?

We see Praj doing more and more business in the international markets. However, domestic business is also significant. Overseas projects vary from fuel ethanol distilleries to potable grade alcohol production unit depending on the region. However, the recent trend shows sizeable business from fuel ethanol distilleries. We are also receiving a good response abroad for our specialised engineering and fabrication.

What is the value of the orders on hand? What is the break up between exports and domestic orders on hand?

Currently, we have around "three quarter sales" equivalent as orders on hand, considering increased business volume. Of this, around 60 per cent is from the international markets.

You have a technology tie-up with Delta-T for molecular sieve technology. When does this expire? Will it be absorbed completely by the time it expires?

The molecular sieve dehydration technology has not only been absorbed, but also has been suitably adapted to various local conditions through our in-house efforts and already many plants have been successfully commissioned in India and abroad with this technology.

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