Biofuel producer Praj Industries is seeing more demand for ethanol from international markets, but fears that domestic demand for the fuel will remain weak due to slowdown in economy.
“We have a very large order which we announced yesterday from Philippines market for Rs 160 crore. Some of those have helped us to sure up our order book for this quarter but domestic remains to be a challenge,” Gajanan Nabar, CEO & MD of Praj Industries told CNBC-TV18 today.
Praj Industries today reported net profit of Rs 14.84 crore for fourth quarter as compared to Rs 10.16 crore in a year ago period. The company’s income from operation fell to Rs 187.77 crore from Rs 268.01 crore from a year ago quarter. The company’s pending order book currently stands at Rs 870 crore, it said in a earnings release.
The company’s second generation cellulosic ethanol plant is expected to commence operations by end of September.
Below is the verbatim transcript of Gajanan Nabar’s interview
Q: It is tepid income growth down whether you looked at quarter on quarter or whether you looked at it year on year, what is impacting sales and more importantly margins, half a percent shaved off?
A: Yes the tough environment around us continues. We had 17 percent lower sales than last year. But the initiatives that the company has taken on, value engineering services and also on emerging businesses has helped us to sure up some of the variable margins. Variable margin corresponding is lower by minus 3 percent, profit before tax (PBT) is lower by 28 percent mainly on account of lower other income of about Rs 20 crore. So, lower intake of orders in the first two quarters. Though we are seeing some green shoots in the next two quarters especially in the fourth quarter. They are mainly international opportunities that we are looking at; domestic environment continues to worry us.
Q: With regards to the geographical breakup can you just tell us how exactly the domestic business did this quarter as well as your international business?
A; We have about 60 percent of sales this quarter from domestic business and 40 percent from the international business from the revenue stand point mainly on account of domestic ethanol.
Q: Can you just break it up for us in terms of how exactly the growth was in the domestic business in terms of the ethanol demand?
A: The demand was flat for this quarter. In fact, as I mentioned earlier the environment remains to be challenging, both in terms of order book as well as invoicing this quarter was challenging for domestic market. Though international market we have significant order gain. We have a very large order which we announced yesterday from Philippines market for Rs 160 crore. Some of those have helped us to sure up our order book for this quarter but domestic remains to be a challenge.
Q: But isn’t the ethanol blending programme a major positive, is it seen as impacting your FY14 revenues positively at least?
A: Yes. We are also hoping that. In fact, this programme is ready to roll in June of 13 and oil companies have gone and asked for the tenders for about 55 crore litre. They need another 50 crore litre to complete the volumes. But as we said in our earlier call, is that the impact of this on the capacity build up will take some time. It will help us to help the industry to improve their utilisation but the capacity build up will take probably six to nine months from thereon, so we have to wait and watch for that. It is definitely a positive move for us.
Q: You will see any impact of this in the current year?
A: Yes. Towards the latter half of the current year we should certainly see a positive impact of this.
Q: What about the margins because you have managed to maintain the margins at around 10 percent- we do understand that we have a particular raw material procurement strategy in place where your stainless steel which is a major component is actually hedged – can you just take us through how long it is hedged for and whether these margins will be sustainable because of this procurement strategy?
A: Yes. We surely believe that the margins are sustainable. One, on account of procurement policy is one aspect. Also our blend of international and domestic markets we are about 50-50 on international and domestic business which also helps us in terms of better margin recovery on international markets.
On procurement of steel we do conservative estimates and hedging. On international, we have a natural hedge as we also have raw material which is being imported. So, all these factors definitely help us to keep our margins at the levels that we see should hopefully improve as our order book improves.
Q: Shouldn’t margins improve because of lower raw material prices?
A: Yes. Going forward that is one positive indicator that is what we are looking at. As the order book would improve and more of international play would come in, all new businesses would start kicking in, one would see an improvement in the margins going forward.
Q: What should we expect in terms of an income trajectory for FY14- will it be growth in the first place and how much of it as well what would margins be – much better than 10 percent- would it be 11-12 percent?
A: We normally avoid giving futuristic indications but just to help you with- our order book is looking better than what it looked end of last year so that definitely a lead indictor of how the revenues and profits will flow. As you rightly said, the raw material prices especially on steel are softer and also we are seeing traction on international business as well as emerging business. We are optimistically cautious going forward on FY14.