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Praj Industries bets on 2G ethanol plants
The company's 2G ethanol success hinges on the financing and the execution of these orders
Amritha Pillay |
Photo: ShutterstocFor Praj Industries, facing a slump in orders till now, the recently signed agreements for second-generation (2G) ethanol plants could swing the balance in its favour. Analysts add that equity funding for these projects and successful implementation would be key.
In 2015-2016, ethanol contributed 58 per cent to the order intake. This rose to 62 per cent in the September quarter. The management had earlier said it would try to maintain a 50:50 ratio between its ethanol and non-ethanol business. “With these three projects coming in, it will change further. The idea was to be keen on all businesses but if we get to increase in the core business, we are more than happy,” said Pramod Chaudhari, executive chairman.
Commercial production of 2G ethanol is a new area elsewhere, too. The technology addresses previously unused parts of the input material. On December 7, Indian Oil Corporation and Praj signed a cost-sharing agreement to set up a 2G biomass to ethanol plant at Dahej, Gujarat, and another at Panipat, Haryana. And, Bharat Petroleum Corporation signed one for technology transfer to set up a 2G biomass-to-ethanol refinery at Bargarh, Odisha.
Mrinalini Chetty and Siddhartha Khemka, in a Centrum Wealth Research report in October, said: “Order intake declined by 46 per cent, YoY, to Rs 200 crore, taking the total order book to Rs 1,025 crore, down 11 per cent. We believe the bulk of the company’s growth is back-ended and would take time to witness the benefits in its financial performance.”
The company expects the final agreement for three of four plants to be completed by the end of the current fiscal.
“As ethanol is core, 2G ethanol was mandatory; one needs to scale up the value chain. The non-ethanol business cannot swing the needle. Order visibility was lower as major orders came from sugar companies and even if the (latter’s) state improved, banks are weary of funding their projects,” said an analyst from a domestic brokerage.
First Published: Sat, December 24 2016. 22:24 IST