Instead of looking at a particular RoE figure, try to see where the profitability can be if the triggers play out. And if the equity base remains the same, what could be the potential ROE. Also, just for reference, you can note that the last 10 yr average RoE has been around 20%.
"Today Bio-diesel & Ethanol industry is of Rs.6000 Cr. We want to make it an industry of Rs.1 Lac Cr. tweets MoS Petroleum " - Tweets MOS Pertoleum
As Hitesh has already mentioned that Praj is a small fish in a big pond and with other opportunities too. Its only the execution that needs to be closely monitored.
Not much has been written in the thread about ethanol industry. So here is my write up.
The United States is the world’s largest producer of ethanol, having produced nearly 15 billion gallons in 2015 alone. Together, the U.S. and Brazil produce 85% of the world’s ethanol.
The vast majority of U.S. ethanol is produced from corn, while Brazil primarily uses sugarcane.
In USA a few years back there used to be debate on Food vs. Fuel but as time progressed production of corn increased and since 2013 corn prices are decreasing.
Next is ethanol from sugarcane. Brazil is world’s largest sugar producer so it was natural for them to produce Sugarcane-based ethanol. Also Sugarcane-based ethanol has an energy balance that is 7 times greater than that of corn-based ethanol.
Energy balance is the difference between the energy expended to convert the crop into ethanol and the amount of energy released from its consumption. There are several reasons why this occurs.
Till now Majority of India’s ethanol requirement was fulfilled by sugar and in some near future we can expect this to continue but we know that India doesn’t have as much cultivatable land as US or Brazil. Also prices of sugar in India is twice of Brazil.
And therefore if we press on using sugar for ethanol, Fuel vs. Food Debate is bound to ensue and that’s where Second generation Ethanol comes into play. It uses multiple feedstock including Corn Cobs, Corn Stover and Bagasse to produce ethanol.
While energy efficiency will be lower as compared to ethanol from sugarcane but most of the feedstock used in second is waste, so overall it would be profitable for companies to produce ethanol.
[ 1) Molasses feedstock cost ₹4500-6500/MT 2) Corn cobs cost ₹2000-4500/MT (based on Praj estimates) 3) Rice straw cost ₹1500-2500/MT 4) Bagasse cost ₹4000-4500/MT]
Now comes the blend.Blends of 90% unleaded petrol and 10% fuel ethanol are commonly referred to as E10. This is how it looks in Brazil.
In US it is currently at E10 but they are trying to increase it constantly. New York considers raising ethanol blend limit.
I included data of only these two countries because it is widely available for both of them. But it’s easy to predict that many more countries are looking to increase their economic blend for sustainable future.
India is no different. After 3 years, India is still trying to achieve 5% ethanol blending. But it’s not easy. OMCs (oil marketing cos.) are struggling to achieve 5% ethanol blending target across the country. During 2014-15, OMCs reached 2.3%, with the government confident of achieving 4% blending target during the current year (Source).
The delivered price of ethanol was fixed in the range of Rs.48.50 per litre to Rs.49.50 per litre for last year. In future, govt. will move towards market dynamic pricing system for ethanol. It remains to be seen the effect of this deregulation on domestic ethanol Industry. But one thing is for sure… Ethanol is here to stay.
Disc.: Not invested. Planning to add in future.
Today Praj signing MOU with Indian Oil Corporation , which has selected Praj ind as its technology partner for setting up 2nd generation bio-ethanol plants based on indigenously developed technology. IOC will be setting up 3 no of such 2G bio-ethanol plants.
Got this ppt from a young chap who comes to my office. Not sure if this has been uploaded previously.
Praj Ethanol DOcs.pdf (2.9 MB)
Praj qrt 2 profit down to 3 crs vs 5 crs …sales also down by 4℅ …
Nice document but it looks like an internal document marked as confidential. Wondering if we should be uploading it on a public forum. Maybe better to summarise (whenever possible) such internal documents.
Discl: Not invested
Abhishek Bhai wats ur view on turnaround of praj after qrt 2 results. Kindly guide
This Delhi pollution issue could raise interest in 2nd generation ethanol plants and hasten any plans, approvals for players like Praj. Here’s a tweet by MoS (P&NG) about it https://twitter.com/dpradhanbjp/status/795579271984971777. Hope Praj has some plans for this.
Something encouraging for Praj.
Some positive news for Praj from Petrotech 2016.
“Praj Industries forged two MoUs with Indian Oil for a cost sharing agreement for development of Ligno-Cellulosic ethanol plants. A 100 KL/day second generation biomass-to-ethanol plant at Dahej, Gujarat, and another at Panipat, Haryana, will be realised from these MoUs. The Dahej plant is expected to yield around 3.3 crore litres of ethanol per year, while the Panipat plant will yield 3.20 crore litres of ethanol per year.”
“BPCL and Praj Industries have signed an MoU for technology transfer for setting up a second generation Biomass Ethanol Bio-refinery at Bargarh, Odisha.”
Good news for praj entering in to agreement for settings up 2 plant.
Rakesh Jhunjhunwala sits on the board of directors of various Indian companies such as Prime Focus Limited, Geojit BNP Paribas Financial Services Limited, Bilcare Limited, Praj Industries Limited, Provogue India Limited…
as of oct 2016
We have been hearing of ethanol boom for more than a decade but price of praj didn’t move an inch. RJ decreased holding in praj in 2014 after a decade of patience.
- Crude prices surging even when the inventories are at the all time high level.How would you interpret that? Is the supply demand rule being bent? Or supply is truly at all time low level?
-Unconventional reserves will take another few decades to be commercially viable. Even so, the prices are likely to be sky high as the oil extraction process is going to be extremely expensive. They wont find many customers.
-Spare capacity, both in OPECS and NON-OPECS are at all time low.
At last, the time has really come to say goodbye to crude oil. What next? Ethanol? maybe…
-Just need to know how long these inventories will last… Although the remaining few drops wont sell as cheap as their ancestors
An interesting article on International Ethanol Scenario. Subdued but many positive signs.
Results out -
Net sales - 238.97 Crores
Consumption of Raw Materials - 139.37 Crores (highest when compared to last several quarters)
Electric vehicles are future of mobility. Focus on Ethanol will get diluted.
Praj is a classic case of being at the right place at the wrong time. I researched the complete story of ethanol and praj being the only player maybe even world wide to offer 2nd gen ethanol generation.
But In case of government projects there is much “Slip between the cup and the lip” so decided to wait until project was awarded and revenues flowed into Praj. Now suddenly government starts chasing after electric vehicles,
It’s a reminder that we should bet on things remaining the same rather than drastic changes.