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Sowmya Sundar

INVESTORS with a long-term view can consider fresh exposure in the stock of Praj Industries. The company makes machinery for ethanol plants. The possibility of crude prices settling at higher levels in the medium term has increased the interest in alternate fuels such as ethanol-blended petrol and bio-fuels, the world over.

The upward spiral in the prices of molasses, the key raw material for ethanol production, has also triggered interest in the cultivation of alternate crops such as sweet shorghum, used for ethanol production.

Praj has processing technologies for extraction of ethanol from multiple feedstocks such as cane, molasses, sweet shorghum and grains and is well-placed to take advantage of the rising global demand for fuel ethanol.

The stock trades at 12.5 times its expected 2004-05 per share earnings. Considering the immense growth opportunities in the fuel ethanol sector, there is substantial scope for earnings scalability.

High crude prices: The escalating crude oil prices have triggered interest in alternate fuels. With analysts expecting crude prices to remain firm at over $35 over the medium term, the demand for fuel ethanol could receive a big push. The global demand for fuel ethanol is expected to rise by two billion litres to around 42 billion litres in 2005. Japan, China, Thailand and South American countries are stressing on blending ethanol in petrol to reduce consumption of fossil fuels.

Praj has been penetrating the global markets and has opened offices in Columbia and East Asian markets to cater to the demand.

In 2004, it bagged all the orders for fuel ethanol plants in Columbia, including large value orders. Forty per cent of orders booked for 2003-04 were export orders. Praj has established itself as a leading player in ethanol technology.

Alternate feedstock technology: Another big positive for Praj is its latest technology for extracting ethanol from alternate feedstock such as sweet sorghum and grain based technologies.

With the price of molasses ruling at Rs 4,000-5,000 levels and the expected shortage of molasses for ethanol production, there is a shift towards alternate feedstock for ethanol production.

Praj has developed a new technology for production of ethanol from sweet shorghum. The new process ensures 3-4 per cent increase in extraction efficiency, yielding an additional 4-5 litres per tonne of ethanol production.

Since molasses prices are expected to remain firm over the next couple of years, the production of ethanol from alternate feedstock such as sweet shorghum and bio fuels such as jatropha could be a cost-effective option.

Praj plans to commercially launch its process from March 2005 onwards. This could attract non-sugar linked distilleries to invest in capacities.

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