Agree with your point. Everything is good in the company - Innovation, R&D, Patent, market share and many optionalities but at the end it’s EPC company and whether margin will improve in the future that’s the biggest question.
As company is having fixed price contract so they don’t have any power to pass on increase in commodity prices.
Different views are welcomed on margin front.
Disc : Invested
Q3 Results have been good led by Bioenergy mainly domestic ! I have summed up my findings here https://twitter.com/amitabhvatsya/status/1491294084220481536?s=20&t=kcMbwFlADfNt6KUijQlzlw
A 30 min complete analysis on the stock is here:Praj Industries: A Moated Large Cap in Making | Complete Analysis - YouTube
Dis: Invested
Q3FY22 Concall
Increase on rs 2 tax on unblended fuel is positive for us from next year.Govt intention is very indicative.
India currently stands at 8.1% blending on petrol in 2021, 90% from Sugar base
MoU signed with IOCL for jet fuel,1g &2g ethanol.50-50 JV.Will look into setting up plants with an operational partner forming SPVs.
Post 2025 we will focus on bio-diesel and aviation fuel in India. Flexi fuel engines will provide demand beyond E20 fuel.
965cr order book this quarter - 64% from bioenergy, 30% engineering, 6% PHS
600cr in bio energy division order book in this quarter,20% is export.
2/3 order book is grain based
order back long 2605cr , 78% domestic orders
bio syrup patented successfully demo done, increases storage from 24hrs to 12months for sugarcane.
From 65% domestic business to 80% domestic business share has reduced margins.Commodity prices have squeezed the margins by 2%. Only after Q1FY22 order book we have increased prices to customer.
Govt has withdrawn subsidy for setting up CBG plant.A byproduct has a good traction in fertilizer industry.Govt policy clarity will be obtained by end of FY22.
ricebrand wax patented product having interest in personal care was sent for trial and marketing.
For meeting 20% blending target for Fy2025, as of now 30-35% of the capacity has been ordered(not be built yet).Praj market share of 65% stays.
Sugarcane ethanol plants also have a line for starchy feeds stocks to produce ethanol all around the year.
Engineering division showing growth because of zero-discharge order from metal companies, its a repeat order.
PHS providing hi purity water for pharma, planning to look into fermentation opportunities in pharma.
Building capacity on internal manufacturing and outsourcing.In next concall we will give capex plans.
Working on increasing IRR of ethanol plant based on feeds like straws and grass
CRISIL Rating as on 28th Feb’22
https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/PrajIndustriesLimited_February%2028,%202022_RR_285353.html
Below snapshot is taken from their most recent investor presentation (Uploaded today on BSE): https://www.bseindia.com/xml-data/corpfiling/AttachLive/d791fd3c-d1aa-4377-8e3f-1f9e21ab7567.pdf
Ethanol demands are projected to flatten out after FY25 as expected. This means, ethanol capex growth will flatten out by FY24 end (If we consider 1 year of project construction time). So wherefrom will additional growth come for Praj?
This is the most key question for Praj Investors as it largely determines whether at 50x TTM PE Praj is overvalued or fairly valued right now. This question was put to Mr. Joshipura in the Q3 concall and below was his answer
As you can see, Mr. Joshipura’s answer hinges on 3 key points for growth post FY25:
Ethanol blending for diesel will become a reality. Presently Praj says its close to achieving technical feasibility in blending ethanol with diesel as per BS VI requirements; BS IV requirements already achieved. As far as I have seen, MoRTH hasn’t yet commented on Ethanol blending for diesel.
Use of ethanol/CBG in aviation fuel - Praj has a tech tie-up with Gevo for constructing sustainable aviation fuel technology plants. But I don’t this this has yet reached commercial feasibility. Recently Praj also signed an MOU with IOCL to accelerate development of sustainable aviation fuels. Impact of these partnerships? To be understood in coming quarters, not clear yet.
Flex fuel engines to take India beyond EBP20 - Brazil is the obvious use-case to model after for FF engines. Brazil started the flex fuel program in 1993 and by 2015-16, 90% of new passenger vehicle registrations were for FF engine automobiles. These engines are capable of running an arbitrary mixture of ethanol and gasoline ranging from 0% gasoline to 100% gasoline. Depending on relative prices of gasoline and ethanol, the mix is changed by vehicle owners. Brazil has an advantage in that sugar stocks are abundantly available (Although India produces almost same amount of sugar as Brazil, the per capita production for Brazil is way higher due to its low population). Therefore, success of FF engines in India will take time (Brazil took 10-15 years to reach maturity) and its viability will depend on 2G ethanol generation as sugar stocks will not be sufficient to cater to this demand.
So its evident that while Praj is a very promising story with multiple optionalities that can create huge investor value, till the optionalities become reality on-ground, Praj depends heavily on E20 led capex demand for revenue and EPS growth. And that E20 led capex demand will drop after the next 3 years. And in these 3 years, Praj is likely to be under margin pressure due to elevated steel prices. One way of mitigating this impact for Praj could be to find ways to start generating opex revenues such as licensing revenues from sale of by-products generated from Ethanol plants. This can tap into a whole new and sustainable revenue stream for Praj.
Bullish on the company but limiting position size in portfolio due to above reasons as I believe Praj is overvalued right now as things stand. Will look to increase position size if another major revenue stream gets close to opening up.
For Diesel blending & FF engine if materialize, sucessful commercialization of 2G is must. We may know this around DEC 22 when 1st 2G IOCL plant may start operationalized.
Also 4 other stream Cbg, renewable chemical, zero discharge system & high purity businesses are emerging business and may provide growth but quantum is unclear to me.
“Diesel does not blend that easily as petrol with ethanol. That’s why we are developing the binder,” the Praj Industries CEO & MD said.
So we knew Gasohol = Gasoline + Alcohol or Ethanol.
Now here it comes Diesohol= Diesel + Alcohol or Ethanol
Diesohol will also be known as E-Diesel
Well, the Diesohol technology was known and experimented 3 decades back and in fact I was involved in a project in ARAI on this topic…
And in fact it was tried out in MSRTC and APSRTC Buses up to 10% Ethanol diesel blend with an additive called Jatropha Methyl ester. The objective was to reduce diesel particulate matter in diesel exhaust gas.
But at that time , it was not economically viable as Ethanol production cost was as high as 60-70 Rupees a litre and Diesel cost was half of that.
But now situation has changed…Ethanol cost has come down to Rs 46 a litre and Diesel cost more than Rs 100 a litre. And day by day, India our country is badly hit due to rising Import burden and the environmental need for arresting carbon emissions.
Now it makes sense for us to revive the project.
Ethanol has already been tried out in the past in diesel engine vehicles in various ways: (1) Fumigation - Ethanol spray in inlet manifold (2) Dual injection ( 3) Diesel ethanol emulsion (4) Diesel Ethanol blend…
Commercializing this would be a game changer for India!
Just look at these figures, our diesel consumption was 88 Billion litres in 2020,and petrol consumption was 37 Billion litres…
10% diesel ethanol blending is doable with the help of a Binder / solublizer/ emulsifier which are known compounds.
ARAI has started reviving the age old research with new learnings and I can attach the latest ARAI report of 2019 in brief which is available in public domain.
And those of you are intersted to know more on Diesohol or e-diesel , can give you some articles of interest.
@1957 Thanks for your valuable input and suggestions. Can you please advise what is the progress in this regard in Brazil and other technological developed countries. Also what are the challenges in developing such technology. How is this development going to benefit Praj or other plasyers, as we do not even have sufficient ethanol to blend with Petrol.
Questions are relevant.
And may be, you can get some insight if you read this post ( if you have not read )
Biofuels mandates around the world, updated up to 2022 is attached below…there are 69 small slides which would be interesting to read.
However, why worry about what is happening in other countries?
Let us look at our position in the world and what we can do and what we can not, given a set of conditions !
(1) India is the 2nd largest populous country in the world after China
(2) India is the 3rd largest Energy consumer in the world ( After China and USA)
(3) Goes with out saying that India is the 3rd largest carbon emitter to the Earth’s atmosphere after China and USA… In fact China , USA and India- only 3 nations put together account for 50% of carbon emissions of the world and to that extent responsible for Global warming.
(4) On crude petroleum production front we are not even in top 20 countries of the world.
(5) we are among top 3 nations of the world importing crude and we are subject to wide fluctuations in crude price…so in India we are aware that we have a big Energy Security issue apart from the fact that we have obligatory requirement to reduce carbon emission.
What we have !
(1) India has the highest land parcel - arable land which means we can cultivate crops , vegetation.
(2) We are blessed with adequate sun light and wind and adequate open space to put up large Solar and wind mills!
(3) We are blessed with good monsoon year after year- so no dearth of water. We can produce hydro electric power. Our country is surrounded by sea from East, West & South.
(4) And we have adequate talents in science and engineering & technology.
Necessity is the mother of invention.
Now, let us come to Ethanol blending with diesel.
Diesel engine is a versatile engine - compression ignition with multifuel capabilities.
Way back in WW-2, when diesel was not available , Germans used Soyabin oil in M.A.N Tanks successfully. They called it as Bio-diesel.
So , ethanol blending with diesel is not a big issue at all. Now , we are more advanced.
For Gasohol , we call it E-5, E-10, E-20, E-30…E-100.
Similarly for Diesohol, it would be called as B-5, B10, B20…B100.
B-100 is 100% Bio-diesel without any Petroleum diesel.
B-5 is 5% Bio-diesel plus 95% Petroleum diesel.
How Bio-diesel is made ?
Ethanol can not be directly blended with Diesel since both don’t mix well. However , Ethanol can be esterified by an organic fatty acid triglyceride like edible oil soyabean/palm oil or non-edible oil like Jatropha.The ester so formed is called
Bio-diesel.
This Biodiesel ( ester ) can be easily mixed with petroleum Diesel without any issue - otherwise normally, alcohol does not mix directly with Diesel.
How Ethanol /Alcohol can be made ? I think we know about 1G, 2G…if you have read all the posts under Praj.
It is true that We took a longer time for Gasoline Alcohol blend introduction…it is true that we are running short of ethanol …so much so even we are importing Ethanol…
But we have a forward looking govt, they are walking the talk , may be they are bit slower than we expect them to do so …but at least there is intention to do things.
But coming to Praj, praj is a pure play on Biotechnology with many verticals, ( Ethanol may be one of them which is playing out now )
…Given the current situation in our country and elsewhere on energy Security and carbon emission, Environment issues, Praj in my opinion should do well in the Long term.
Discl : Invested in Praj for the long term. May be biased. Please do your own assessment before investing
Please guide on following points:
i. Do we have surplus ethanol to bled with diesel…
ii. Viability of 2 G plants.
iii. In my opinion Ethanol production in India is to primarily divert excess Sugar to Ethanol …Sugar Cane is water guzzling crop, does it makes economical sense to grow it on a standalone basis for producing ethanol.
iv Why Bio diesels have been a non starter in India.
Perhaps a more simplified response was required 
Anyway will try to respond to the best of my knowledge !
i. India’s current Ethanol capacity is 782 Crore litres , which meets 10% ethanol blending with Gasoline according to ISMA and Govt agencies. In fact we had to import ethanol up to 75 Crores litres in 2021 to meet our blending target of 10%.
It is targeted to enhance our ethanol capacity to 1500 Crore litres by 2025 to meet 20% blending with Gasoline by 2025… A short answer to your question …no …current capacity can not meet Diesel ethanol blending.
But no one stops us in importing ethanol from USA or Brazil - there is no fluctuations in price of ethanol- and USA imported ethanol is available to us at a competitive rates vs indigenous production… but it would be an embarrassing situation for us to import which we are capable of producing.
ii…2G future prospects appears to be bright especially we are an agricultural country and 2G Bioethanol can be produced using inedible farm waste left over after harvest i.e Corn cobs, rice husks, wheat straw and sugarcane bagasse can all be transformed into cellulose and fermented into ethanol…and Praj is in a sweet spot when the 2G story plays out well.
iii. In my view, Ethanol vs India are made for each other as there are multiple benefits - political economical and environmental. Incentives for farmers, usage of our vast arable land parcel for cultivation, irrigation schemes , fertilizer subsidy and so on… .further Govt has undertaken many steps …interest subvention for farmers , GST from 18% to 5%, concessional import duty on ethanol importing and so on.
iV. Bio-diesel -a non-starter, though the concept is well known.
In case of Gasoline/petrol blending ethanol gets easily mixed with Petrol without any other additive. It is a straight forward blending.
But Ethanol does not mix with Diesel. So Ethanol is required to be esterified by an Organic fatty acid triglyceride such as any edible oil or non-edible oil or even animal fat , tallow.
This Easter so formed out of ethanol and plant based oil known as Biodiesel can easily mix with petroleum Diesel …and up to 10% does not require any engine modification.
But where is our surplus ethanol to be used for diesel blending???
In stead of ethanol, Another way of getting an Ester is out of Methanol or methyl alcohol…which is much cheaper than ethanol but methanol needs to be produced either from Coal or Natural Gas CH4- both involves carbon emission. Using methanol in place of ethanol may meet our threat from Crude petroleum import , but would not meet our carbon emission target.
Moreover, Our coal production is just able to meet our thermal power plant needs …so we don’t have additional coal capacity to produce methanol.Our methanol production from natural gas is costlier…( In fact we import cheaper methanol for our industrial requirements @28 rupees per litre which are produced from coal in coal mines rich country )
This is interesting!
USA is the largest producer of crude in the world and more or less they are self sufficient. In fact they don’t have the fear of crude imports like India which lives always with fear of imported crude price.
Still, USA is having 10%-15% ethanol blending with Gasoline rule ( just in line with our current norms). With15 % blending , it appears they had Smog in some cities during June - Sept , which they attributed to 15% alcohol blending. Therefore , they prohibit 15% ethanol petrol selling during this period.
Now ,they want to reintroduce 15% ethanol petrol during June -Sept in a bid to lower Gasoline price… naturally by implementing 15% ethanol blending , they would generate surplus crude which would help cool down international crude price…
Well, what is going to happen to Smog which was supposed to be due to 15 % ethanol in USA during the said period ?was it a Hoax?
My guess is that researchers / Gasoline lobby perhaps did not want Ethanol to come up. There could be many other reasons for smog.
USA Motor Vehicle density - 1000 vehicles per 1000 people,…India 22 cars per 1000
People.
More the no of cars , more are the overall pollutants.
What about the other industrial pollutants ? USA is supposed to be the most industrialized country. Industrial activities also emits smoke.
Atmospheric inversions especially in winter could take place due to which the pollutants could get trapped near ground level where temperature remains low and same could also happen in Summer season if the city is situated in a valley surrounded by hills…City of Los Angels is an example of a valley where smog is very common.
In India Smog may be rare (Delhi could be an exception), look at our V-shaped land mass towards South , East and West surrounded by Sea.Most of the pollutants could blow in to the sea.They would not get trapped.
Moreover, we dont have too many cars when compared with USA ( 1000 vs 22)
So no worry for us in India for Smog even with 20-25% ethanol blending !
Any concall/results insight please ?
Praj results are out.
Please do comment.
Good growth especially in biofuel from Praj specialised raw material
Good order book growth
