Praj Industries

@hitesh2710 . What do you have to say after seeing the results ?Are you still holding Praj ?

Exited some time back as results were nit coming through. Poor run of results continues even in q1 fy 18

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However, the order book backlog is standing at 915 crores Praj-Q1FY2018-Results-Release.pdf (273.6 KB)

Hi I am interested if it permits you now. Regards . MY email WHIRLINGWOODS@YAHOO.IN

The Union minister said ethanol should also be used more widely and said that he has suggested his cabinet colleague in-charge of the petroleum ministry to look at this rather than building petrol refineries that cost over Rs 70,000 crore.

Gadkari said the total investment opportunity on ethanol alone if Rs 1.50 lakh crore.

Refer -http://m.thehindubusinessline.com/economy/policy/govt-to-unveil-policy-on-methanol-blending-in-petrol-soon-gadkari/article9987954.ece

@hitesh2710 Hiteshbhai, are you still tracking Praj? It has almost doubled in last 3 months or so. Is something new happening that catches your eye? Would love to hear your views pls.

Rgds.

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On technical front Cup and handle pattern breakout can be seen.

It would be really great if you can elaborate on the technical chart a bit more.

As mentioned already its a cup n handle pattern on Monthly candle with breakout point at 115, so this gives target of 200 at least. For more details you can search this pattern on Investopedia.

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An old ones but worth sharing and reading -

https://m.economictimes.com/industry/energy/oil-gas/nitin-gadkari-wants-cars-to-run-on-biofuels-to-reduce-oil-bill-load/amp_articleshow/62576944.cms

I know how frustrating it is hold on to a stock which disappoints quarter on quarter.

Praj industries is a wonderful company which is passing through a period of temporary depressed profits.

the Smartest investors are the ones who have a very high degree of patience.

Please hold this gem and reap the rewards.

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This one stock has deceived the expectations of many smart and popular investors for a long time.
Stock has not gone anywhere in the last 12 years. Quality R&D is one thing, converting the outcome of R&D into Commercial viable business is entirely different thing.

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Praj Industries

Highlights Of Q2 FY19 and H1 FY19 Results

Key Highlights

  • National Biofuel policy by FY20 is a huge step toward development of Bio-fuel in India and enhance their usage in the energy and transportation sector in the coming years. Policy expand the use of 100 % sugarcane juice as well as damage food grains , frozen potatoes, Corn and Sugar Beat for Ethanol Production. This will help to bring in abundance stock into the system setting the stage to significantly escalate the blending level across the country which was constraint due to availability of stock.
  • CCA fix the price at 52 Rs of sugarcane that will use for Ethanol production against the prevailing price of 47.13 Rs. This will expand the production of C-Molasses , E- Molasses and Sugarcane
  • Government also announce the Bailout packagein access of 5000 Cr rupees for the sugar industry which includes subvention for Mills undertaken for expansion of distillery capacity as well as setting solution for improvement. The combination of enhancing free stock option has help drive for ethanol and incentive for capacity creation . Very fertile situation for producers of Bio-Fuel. In response to the Bailout package department of food and quality has already pre-approved 114 proposals 26 of which are for existing system and 88 are for the Green field and Brown Field expansion. Of the Distillery.
  • During the Noble day on 10th Aug the Honorable Prime minister announce that India will produce over 150 Cr liters of Ethanol innext fouryear from existing 140 Cr liters and that will enable the saving of almost 12,000 Cr of import.
  • Biofuel will benefit many things like increasing farmer income , employment generation and environmental benefit. The policy also include 2G refinery for Biofuels as compare to 1G refinery Biofuels. At the same time government has announce the new sustainable alternative for affordable transportation which include setting up of 5000 compressor plants over next 5 years. Plants will include new renewable technology and Gas which is an advance technology for generating renewable Bio-fuel from agro waste such as farmer reminder , agro industrial waste or distillery waste.
  • Fertilizer has received natural organic certification as per the NPO standards and that opens the path for generation of sustainable renewable gas along with very high grade fertilizer production.
  • On the Global front the trend toward for increase in Bio-fuel for environment protection is growing again.They are ready for higher Bio-fuel Integration. On the Ethanol front company is seeing a skew of high potential quarterly from international market deepening the mandate in Latin America , South Asia and parts of Europe is driving overall market sentiment with its strong expertise and market leadership the company is looking forward for participating across the various opportunity in the domestic and international market.
  • Company 2G project delivers for BPCL plant at Palgari in Orissa and Panipat plant for IOC are progressing.Company has already completed the packaging plant for both the plant and further EPC contract is going on for IOC are progressing as plants. Basic engineering development related to HPCL plant has started and expected to complete in current quarter.
  • On the whole the Biology business is progressing well and in fact it is helping company in building a good orderbook across domestic and international market.
  • The Pharma space is seeing increased consolidation across market. Growth in Pharma will return as company grows during the year as the wind started flowing in capacity expansion of API from China and India thus to get momentum.
  • On Engineering business company business continue to mark very good performanceand seen improvementin the overall order book .The renewal of Highway Liquor Ban is also building renewed investment by Brewers which is good for company Flori segment.
  • On CPEA business company have successfully delivered very complex contract in the Ethanol and Oil and Gas sector and company continue to see healthy orderbook from customers. Company continue to focus on becoming the partner for global EPC players and certificate of this will help company to beat the project on wider range of scale. New enquiries are showing significant improvement in water and Gas water business. Company is highly focused on high complexity toward discharge systems for various industry approval and expecting to reach various industries like chemical , textile. Power and Pharma.
  • Company equipment manufacturing system secured order in Pune in the heavy equipment category. This is asia largest supply chain project.

Financials

  • Quarterly Result
    • Consolidate income stood at Rs 251 Cr compare to 284.77 Cr in last year same quarter
    • EBITDA without other income13.83 Cr aginst Rs 9.78 Cr in last year same quarter.
    • PAT stands at Rs 8.94 Cr compare to 4.74 Cr in last year same quarter an improvement of 89 %.
    • Export revenue contributed for 29 % in the quarter. Total income biffergate in 41 % from Bio-energy, 43 % from engineering business and 15 % from PHS business.
    • Order intake during the quarter was Rs 338 Cr with 76 % from domestic market and out of this 55 % came from Bio-energy , 36 % came from engineering and balance 9 % from Praj High Purity business.
  • H1 Result
    • Consolidated income from operation stood at 442.63 Cr against 400.65 Cr in H1 of last year.
    • PAT stood at Rs 17.34 Cr against 5.15 Cr in H1 of last year.
    • Order backlog as on September 2018 stands at 900 Cr and the cash and cash equivalent is Rs 314 Cr.

Q&A

  • In case of sugar company setting up a green field distillery plant in 120 KLPD so what is the CAPEX it will require and how much company share is there out of total CAPEX ?
    • For every KLPD company need 1 Cr for expansion at a Broad level so for 120 KLPD plant roughly 120 Cr . Out total 120 distillery 1/3rd of it will be company share of equipment and business. So in 120 Cr company share will be 40 Cr ?
  • Out of total Molasses produce by Sugarcane in the country what proportion will be used for producing Ethanol and what proportion of molasses will be sold in open shares ? Did Mills that has announce greenfield expansion will buy molasses from open market or own procurement area because they won’t be able to getting more cane.
    • There are multiple dimension in terms of what crushing technology one can use , how improve the yield , what happening to the catchment area and small companies do not have distillery attach to it so they will aggregate for molasses from other sugar distillery. There are different factor for different companies which will determine the movement of molasses.
  • On all India level how much Mills will be fully integrated in full distillery compare to how much are selling molasses in open market ?
    • Roughly 50-55 % have a distillery and balance may not have.
  • Those Mills who don’t have distillery are now because of incentive will set distillery ?
    • Incentive is common for all and there will be lot of positive like inter subvention scheme, price for ethanolto blend more.
  • Interms of enquiries how is that in last 1-2 month ?
    • Company have seen increase of 35-40 % in enquiries.
  • In the order inflow of 338 Cr that company book in second quarter in that what was the order inflow booked from 2nd generation technologies from OMC ?
    • 15 Cr toward HPCL and there is no big order sitting on the book
  • When company is expecting some major order to come 2nd Generation ?
    • From this quarter onwards.
  • Does company beat the other 3 players which are approved for supplying Biofuel ?
    • There must be more competition to more interact in technology and company see one competitor bid for MRPL is a new entrant from India perspective . So competition will always there just company has to ensure that it provides better services to company and be at top.
  • In the plant of 2nd Generation will company is going to do any feed stock procurement because that is main for the chain of operations ?
    • No but company is working very closely with OMC to provide better operation.
  • If company work on 1 G technology then how much blending rate can company achieve because new plant is to set up on technology for widening of new stock?
    • 1G and 2G are two tracks. 2G is not substituting 1G. 2G is an independent track of 1G both are on different technology that enable feed stocks. For the agriculture residue mostly 1G look at different set of molasses and grains. These are two very independent tracks. There were movement on restriction of 1G , Ethanol , Molasses , import tax and export tax within states so that were not allowing technology. Now it has been provided in the Bio-fuel policy. So now lots of thing will happen because company have to see that blending must be done in a way so that the Ethanol must be available at the spot where blending is required and the earlier restrictions has now gone.
  • If 1G is given full priority then how much blending can be done and how much Ethanol can be produced in 1 year ?
    • Close to 10 percent.
  • Regarding the 3 MOU that company signs with the OMC so what is the status now on those plans ?
    • For all the 3 cases the soft portion of the job are all signed in and under execution. Next phase is ordering of critical equipment which is where company will be supplying the critical equipment for each of these plants.
  • How many MOU are yet pending to signed ?
    • Currently in a worst phase company is building 3 projects and two more are there in the pipeline . Almost 6 MOU are pending for sign.
  • Does company see the potential to signed the remaining MOU over next one year ?
    • If all things remain in momentum than yes it can happen and also the outside project in Europe will come because there only 2G ethanol if going to encourage for blending moving forward.
  • On Export side does company see any attraction because of rupee depreciation and high oil prices ?
    • Company is seeing attraction in several countries like south America , south east Asia. Thailand ,Argentina and many country are beginning to roll out programs for economy.
  • What comfort are the existing distilleries having that they are looking for expanding capacity ?
    • There was ethanol production happening in the country at the prices at which it was being bought and there was adequate production. Now there were restrictions for the production which all has now gone so actually the policy had make it more flexible and more practical for any owner to sugar dispatch distillery . This is a bigger issue infront of government for managing the Forex , indepth issue of company energy equation and driving country on a sustainable growth path while taking care of the future environment because company is not recognizing it today but very clearly the impact on the environment from using continuous use of fossil fuel to using green fuel. Company has been sharing a big movement of realization and this is a development agenda for the government.
  • What does this 114 distillery cover of overall requirement ?
    • 30 % of total distillery and still more to come.
  • In terms of high purity business , How is the outlook there and what kind of growth company expect ?
    • First six month in India the investment in Pharma was moving down consistently and this has been reflected in the order book as well. Now company is seeing investment coming back. Also there is a good movement now in API capacity. There are very good opportunity for company both in short and medium term.
  • In Brewery segment what kind of growth company is looking ?
    • Double digit
  • Is the execution of orders in this quarter is higher ? Any part of contract has been subcontracted ?
    • Yes, Company have a balance and there is always a supplier base for company so company cant go ahead and sub-contract the components outside.
  • What will be the execution rate going forward ?
    • Better than current quarter.
  • What is company outlook on Non-Ethanol orderbook ?
    • Overall order book is naturally improving and in that bio-energy is fast because of the movement happening in the biology side. The component of bio-energy is going up. In proportion only its look like that engineering is not growing.
  • Out of total 114 applications approved how much will convert into actual order book ?
    • Atleast 50 %
  • At current infrastructure what is the peak level of business company can do in Bio-side and translate into margin ?
    • Company have enough capacity to meet the need till next Financial year from company projection.
  • What is the opportunity on the engineering side and Der-LD ?
    • Company is seeing good attraction under brewery and looking to increae footprint on international side of business in a sustainable manner by tie up with big brewery maker.
    • Company is working to change the customer profile to a more educated profile of customer.
    • Company has been on the capital side of the customer budget so far and company is now going to operating into revenue budget because of technology driven customer demand. On the CPEF business in that company have to be a partner of few global player among the area where they buy and company can make those equipment than company can become their partner.
  • When do company will see attraction on the business ?
    • Company has now started and will seen serious attraction from now only.
  • Kindly elaborate the brewery element that?
    • It took pressure on company to do anything on a quarter basis so company is looking at strategically and than company will add capacity for production . Company can add the African market to company portfolio because they have opposite cycle oI So company can do great balance and creating a value added offering and that is what company is tracking now.
  • What is the scope of improvement in cost because the margins are quite low as compared to the historical level ?
    • The moment company start leveraging its capacity the margins will start improving. It is improved compare to Q1 FY19 and on the basis of leveraging side because company is not going to add much on the Forex side or CAPEX side which will help company to improve margins. Company will not dilute any kind of margin guideline The movement seen from current quarter will start giving better operating margin also.
    • Margin got impacted because of the sales mix also . It was more on the higher export side or soft engineering order side there will be very much difference in margins.
  • What will be the execution cycle for the order book ?
    • 12-15 month
  • Will there will be some changes in company distillery because of more orders ?
    • Yes because if more alcohol is produced and for that one need a larger plant for it. So balancing plant would be required to put up.
  • If blending goes above 10 % than will auto companies object to it because than it require some changes in the engines ?
    • Upto 20 % there is no change on the automotive side.
  • On this 2G project how many project have been finalized and how much company have ?
    • 4 projects are finalized and 3 projects company have
  • On 2G projects what is the kind of license charges that company charges to customer ?
    • It has already been done and it depend on the capacity of the plant and all the 3 project put together it is 45 Cr.
  • What kind of funding will be required by government on viability side ?
    • 150 Cr per Plant
  • What will be the CAPEX per plant ?
    • 1000 Cr
  • What is company market share present and how do company see going forward ?
    • It is in excess of 60 %
  • Who are the other players who are grapping the opportunity ?
    • Eject is one and many small companies are there.
  • Does company is having a target of 15-16 % EBTIDA margin ?
    • Yes, company have to plan for long term not for a quarter
  • If any order come than how much revenue can company generate at peak level ?
    • 1.5 times more than current revenue
  • How much would be the Bio-energy business and how much will be the inflow and when company say 150 lakh kilo liters to and 5 % blending going to 10 % so what will be the business translates into kilo liters ?
    • 43 % sale is from Ethanol , 41 % from Engineering and 15 % from High purity business. 75 % of capacity utilization is there in the country.
  • Will the 1 KLPD for 1 Cr will be same for fuel alcohol or food alcohol ?
    • More or less same
  • Who was the engineering partner for the 4th MOU ?
    • ICT DPT
  • When will be the Compressed Biogas fuel technology will get launch?
    • Company is ready with the technology also with certifications in terms ByproductsIt is ready now to take advantage of this opportunity to unfold. Government may be looking for a 2 quarter time. Company is working with lot of customers now. It has very much lower challenge to overcome the CAPEX .
  • What is the attraction company is seeing on ethanol that is made from Sugarcane juice ?
    • There is lot of attraction seeing In terms of technology outside India.
  • What kind of fees companywill charge to OMC for various stages of Bio-refinery mainly on the proprietor technology and basis hearing ?
    • That depend on the quantum of the work there is no fix number that company can say exactly.It is in few crores of Rs. And unlike an equipment will come under 3 digit Cr.
  • Is there any thumb rule about cost of feed stock and which feed stock is one of the best ? What is the estimated cost for Molasses ?
    • Today the cost of ride straw is zero and still it will take time to get the exact outlook
  • What is the size of compressed Bio-Gas opportunity ?
    • It is a very big opportunity but it will take time to know the total opportunity size.
  • What is the un-build revenue and advances received from customer as on 30th September ?
    • Advances are almost 214 Cr and un-build revenue should be in range of 40-50 Cr.
  • What will be the tax rate going forward ?
    • Still no clarity is there so company has put a deferred tax on 30 % . But going forward it must be in range of 25 %.
  • In Q2 FY19 there was forex loss of 1.3 Cr compare to gain in the previous quarters so how it will be going forward and what is he hedging policy for the company ?
    • Company have to protect its Bid rates so whatever company is bidding at company need to rotate that rate and that’s what company exactly try to do and on the entire half year company is on the same number there is no gain or loss as such company policy is not to speculate. So if a project is taken at today rate of 73 and 74 than the policy would be to protect it on that kind of rate irrespective of what happen in future.
  • What is the status on equipment updating stage ?
    • On the equipment side company is looking at the various innovation.
  • On the European opportunity, few month ago Europe company has observe company plant and there were indication setting 2 pilot plant so any update on that front ?
    • Still discussions are going on and working for next step to take out.
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Praj Industries declared a superb result for Q3 Fy19

https://www.moneycontrol.com/news/business/earnings/praj-industries-consolidated-december-2018-net-sales-at-rs-330-31-crore-up-33-04-y-o-y-3445801.html

Ever since the sugar upcycle started, Praj industries was on my watch list. The ethanol procurement policy and Biofuels policy of the GOI provided the tail winds for Praj. But after frustrating retail investors with three year long consolidation / range bound price movement…Praj gave a very strong breakout signal @110 at the end of December.

Following the strong breakout signal at end of December on long term charts, I have purchased Praj with average price of around 122…

The stock is now very bullish on long term charts and can give very good returns in the next 12-18 months. Insofar as the fundamentals are concerned, Praj may have an EPS of around 10 rupees for FY20 and that’s good enough of a turnaround to propel the stock price higher and higher.

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Praj Industries Ltd

Key Highlights of Q3FY19 and Nine Month FY19 Results

Financials

  • Q3FY19
    • Revenue grew by 33 % to 330.32 Cr last year same period
    • PBT grew by 148 % to 29.4 Cr last year same period
    • PAT stood at 22.43 Cr compare to 7.53 Cr last year same period
    • Export revenue accounted 32 % against 44 % Q3FY18.
    • EBITDA margin excluding other income was at 8.4 % compare to 6.7 % last year same period.
    • In total revenue :- 54 % is from Bio-energy, 36 % from Engineering business, 10 % from HiPurity.
    • Total order intake was 421 Cr in which 70 % is from Bio-energy , 19 % from Engineering and balance 11 % from PH business.
    • Order backlog as on Dec-31st 2018 is at Rs 990 Cr.
    • Cash and cash equivalent position as on 31st Dec 2018 was 350 Cr
  • Nine Month FY19
    • Revenue grew by 19 % to 772.94 Cr compare to same period last year
    • PBT stood at 46.74 Cr compare to same period last year
    • PAT stood at 34.86 Cr compare to same period last year
    • EBITDA margin is 6.3 % compare to 4.7 % last year same period.
  • Key highlights
    • Secure order worth 80 Cr from IOCL for supply of critical equipment for one of the 2G plant that company is building
    • Unveiled Bio-Gas renewable technology. CBG demo plant is one of its kind in the country This plant will help to improve the production of CBG with variety of waste.
    • In recent quarter there was drop in revenue from exports and increase raw material prices.
  • Outlook
    • Expect CBG cycle to execute in 10-12 months.
    • For next one year the requirement of EC is rationalize so if one already have a plant and going for expansion then they do not want to go to EC required. One can go with the same EC that he has for existing one.
    • CAPEX will be 6 Cr in next 2G demonstration and expect to complete in next two quarters.
    • Government aim to build 5,000 CBG plants in next 5 years.
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Yes,you are right.The outlook is bright for Praj. The problem is that it has been bright for sometime now, yet the future luster has not made it’s share price lustrous at present. So far,it has flattered to deceive.But with the government giving incentives to ethanol and ethanol blending,with the sugar cycle looking up, the promise could translate into performance. The FY Q3 results could be the beginning of that upside. But sustainability and consistency in financials need to be watched carefully.
Disclosure. Not invested.

I have a tracking holding in this company and have started watching it. Very interesting to find its name in the top 10 companies globally in the niche areas. Ethanol mix threshold in fuel seems to be poised for a revision upwards in US and India … this will help sugar companies (starting to see sugar stocks getting some interest) and also Praj … The oil marketing companies have started investing in plants for ethanol and while I have heard about the prior track record of false hopes, I was unable to find if there was any actual investment flow that took place when these announcements came. This time HPCL, BPCL and IOC are all setting up ethanol plants and this is one data point that makes me hopeful.

Disc: Tracking investment recently.

Notes from my recent meeting with Praj industry. There may be few mistakes/misinterpretation from me while preparing notes):

1G PLANTS :

Q.Cost of ethanol procurement for OMCs is more than cost of petrol. Why does Govt will continue to procure at high rate in case crude goes down. In spite of all possible benefits with forex savings,environment,job creation it does not make sense to pay more? What is your opinion based on interaction with Govt about continuation of this policy and supporting sugar sector?

A: We have to look at this whole scenario differently than just sugar sector. Govt is keen on reducing the import of oil,forex and wants to generate employment here. Also to maintain the environment and reduce carbon burden blending of ethanol with ethanol is necessary. There is increased awareness of these factors globally and many countries are pushing for ethanol blending.

Even if crude prices collapse, OMC will continue to go ahead with ethanol blending. Don’t see problem unless crude goes less than $50. Our assessment is that the positive changes brought by govt policies to ethanol industry will likely to continue irrespective of political change if happens.

Q. India has been importing ethanol. Do you see this as threat in case if sugar mills can not produce ethanol is molasses prices go up or deficient?

A: India imports of ethanol is mainly for industrial use not for blending with petrol. In fact there was discussion to allow ethanol import for blending but the whole thesis of reducing import bill will go away if India starts importing which is unlikely to happen. Govt has allowed B heavy molasses and sugar cane juice for ethanol production and increased price accordingly.

Q. How many 1G projects are in pipeline. What is approximate average revenue from each plant, margins and market share for Praj? Out of 114 proposal how many have finalised. Have you witnessed enquiries from them. How many of these proposal are brownfield expansion.

A: Number of proposals have increased from 114. 120-140 in the process of sanction.

Average capacity of 1G plant is 60 to 100 KLPD. For calculation take average of 60 KLPD and investment required will be 60Cr for the same. 50% of this(30 Cr) will be our share of revenue per plant.

Praj executes our process related parts like design,engineering,supply of critical parts,erection and commissioning of plant. We have 60% market share.

The remaining work and equipments like turbine,boiler ,building…etc is done by others.

Presently at any time we have many ongoing projects including new plant,refurbishment…etc. Execution time of 1G plant is 12 to 18 months. We are witnessing increased enquiries and getting orders which is reflected in our order book.

Margins with domestic business is less compared to overseas. Saving utility,steam,water by our technology will be paid by EU but not in latin america countries.

Q. How do you command major market share in ethanol industry. How does you differentiate from other competitors? Praj seems to ahead of game in technology/new demo plants, focusing on R&D. How does company will progress to next level of new inventions?

A: We have been investing in R&D to increase efficiency,cost optimisation,better products which help our customers. We have dedicated centre for this. Till now Praj has processed 6000 samples of molasses from different region and parts of world. This knowledge helps us to built customised solution for each customer. Molasses can be different in a single region also.

We have edge over customer as we provide concept to commissioning of ethanol plant (we don’t do civil and non core work). Others will be doing only certain parts of ethanol project like consulting,erection,critical equipments…etc.

We get premium of 20% over our competitors and roughly 30% for us are repeat customers which reflects our strength. We do technical audit of plant set up by other players and help them with refurbishment and efficiency.

2G PLANTS:

Q. Why govt is pushing for 2G plants. How it will pan out in next few years?

ANS: Govt has plan to reach 20% blending which is not possible from 1G plants alone due to dependence on sugar sector. Sometime the molasses prices can go up significantly affecting availability of molasses for ethanol plant. Abundant agricultural waste is available in India which is burnt every year by farmers and causing significant environmental pollution. By using this agri waste for ethanol production we can reduce environmental pollution and contribute towards farmers income.

Presently 2g plant is not viable as technology has to evolve further and cost production has to come down. Govt has announced viability gap funding of 150 Cr per plant to support 2g.

Q. Update on various 2G plant announced by Govt. What is Praj market share and opportunity?

Govt has planned for 12 such plants. Already six have been awarded and are at different stages of execution. Out of six projects declared we have got 4 rest one to the DBT and Chem-police(foreign player).

The whole 2g projects will happen in phases. Initial licensing and engineering followed by order for critical equipment based on our proprietary technology and certainly it will come to us. For 2g project of 600 to 800 cr investment, our revenue share will be 150-200 cr. Initial design and licensing of technology which accounts for small part of revenue(around 30 Cr) followed by proprietary critical equipments which gives us revenue of around 150 cr. Rest of the project will be done by epc contractor in which we may bid for certain non critical equipments.

Q.What is Praj edge in 2G technology why should additional investment come to us.?

We have demo plant at our unit built using our R&D. We can demonstrate to customers about our technology for 2g using different feedstock. Our demo plant was visited by interested domestic and foreign clients and witnessed our technology.

We are getting enquiries from customers from Europe also which are in advanced stage of discuaaion. If we get those orders the size and revenue for us is going to be more than domestic as the capacity of these plants is more than double. But how these whole 2g plant will play we have to wait and see in view of economic non viability. Once we start operation in 2020 we will have clear picture and further improvement are possible.

Cost of feedstock also not finalised but it will be agri waste like rice straw,corn cub…etc…likely it will be sourced at community level procured by OMC.

BOLT- ON technology: How is it different from 2g technology. Where you are going to use this. Is this add on to 1G plants to use different stock and run it throughout year.

A : Bolt on technology is for existing 1G plants where we can modify certain things and make plant produce ethanol using material like rotten tomatoes etc instead of molasses. It will be helpful for mills during off season and when molasses prices are high. But on ground it has taken off much for us.

CBG(compressed biogas) plants :

Q. Under SATAT policy Govt has announced setting up CBG plant across the country. How big is market for us if it progresses as planned by Govt. Do you think it will be major revenue driver after 2-3 years? Any ground level enquiries for the same?

A: Govt has proposed to set up 5000 CBG plants by 2025 which translates into opportunity size of 1,75,000 Cr.( Each plant cost is 35 to 40 Cr). We have demo plant for the CBG technology. So for we have not done any such project except for one pvt player.

These plants will be based on municipal solid waste,agri waste…etc.The gas produced will be procured by OMC/CNG stations for transport. Likely that these will be set up near existing CNG stations so that transportation will be easy. It may require area of around 5000 sq feet per CBG plant. No of CNG stations also need to be increased for it. As of now only 1500CNG stations exist in the country. All these are in discussion phase only nothing has come to us. It will be learning curve for Praj also.

Overseas business for 1G and 2G plant:

Q. What is our market share in latin america and update on blending programm. Regarding European union, whats is the future outlook for biofuels as they have announced renewable energy directive II (RED II )for blending with advanced biofuels .

A: We have good market share in latin american countries. In Columbia our market share was 100. Argentina,Peru are other countries we have good market share. Brazil we don’t have presence as it has enough local resources and they essentially does not depend on our technology. Asia pacific countries like Vietnam,Thailand progressing well with blending programme and we have been getting ordeers.

With RED II directive EU has to do the blending using advanced biofuels which is by 2G technology. We are discussing with few customers to set up plants for them. With this change likely that green field capacity may not come up for 1G but brownfield will keep happening.

OTHER BUSINESS SEGMENTS:

Hipurity: We supply machinery required for making medical garage water by pharma companies. Our Hipurity business depend on pharma growth and presently we mainly depend on domestic players. 90% of sales comes from domestic pharma. Our export business did not pickup as expected. We had plan to expand our business overseas with Indian pharma players but things didn’t progress for pharma players with US FDA issue. We have 40% market share and enjoy good margins.

Wastewater treatment and zero liquid discharge plants:

Praj predominantly serve sugar industry waste discharge. The waste discharge from distilleries is spent wash which needs to be processed as per Govt norms. We don’t do business with govt companies. We have been witnessing orders but nothing like great growth is seen there. With new proposals of 1G plants has 26 proposals for zero liquid discharge.

Brewery segment: Who are our major customers. Is this farms major part in Q4. How is our plan of internationalisation of this segment progressing?

A: Almost all industry players are our customers and we done projects for them. Its seasonal business and most brewery companies will complete projects by Feb to use it in summer. We have entered African market but hasn’t done much till now. We have done only two projects in different countries.

Critical equipment: We supply to equipments to oil/gas exploration and refineries, fertiliser. We are getting good orders from epc contractor.

Financials:

Q. Looks like Praj is going to get majority of revenue from domestic market for next two years in which margins are low. How does operating leverage will play out as topline increases. What will be our capex guidance.

A: Major revenue will come from execution of 1G plants. Our margins in domestic business slightly low compared to overseas orders. We have tax benefit from Kandla unit which is in SEZ.

We don’t need much capex for next few years except for maintenance. We outsource work to contractors and project will be executed under our engineer guidance. As topline grows we are going to get benefit of op leverage and margins will improve . ROE/ROCE will improve further.

Q.R&D what is next for praj. Any new products expected near future?

Our R and D will continue with spending of 2% of sales. Our new products innovations will continue which gives revenue in long run. Working on isobutane which is used as fuel for flights. Various bioproducts work is going on but cannot share details. More than 100people working in R&D, 80% of them are doctorate doing research.

Overall I felt Praj is going to be major beneficiary of Govt focus on ethanol blending and sugar companies investing on 1G plant. With 60% market share Praj revenue should get major boost by domestic 1g plants expansion. Difficult to have visibility after 2-3 years,lot depends on how 2G plant and CBG plant business will progress. Biggest and possible risk is :change in Govt policy.
Diclosure: Holding, less than 2% of portfolio.

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