See demand push for ethanol producing machineries: Praj Ind

The government is trying to extend ethanol blending with petrol in all states in the country. At present, only 13 states have been brought under this ambit. The decision is likely to imprve demand of ethanol, a by-product of sugar factories. The oil ministry is expected to issue a notification to oil marketing companies for implementing ethanol blending across all states from December 1, 2012.

Shares of Praj Industries were up after the news broke. Pramod Chaudhari, Chairman of the comapny expects a demand push for ethanol producing machineries after the implementation becomes effective. According to him, ethanol generated from food grains are also expected to get a fillip.

Here is the edited transcript of the interview on CNBC-TV18.

Q: How much of this could be a trigger for you? What has been the scenario so far, have you seen domestic demand improving in any case and also what are the export markets looking like for you?

A: This decision from the cabinet committee is much awaited for quite sometime. There are two major developments in this decision. One is the word mandate. Now we will be of course awaiting what it implies in terms of legalities, whether it has to be a compulsory 5 percent blending with petrol or not. Earlier, it was not being used compulsorily and that was the major change.

The second was the issue of price. In the past there used to be a debate about what is the right price. Here it is kept open between the oil marketing companies and the producers. I think these are the two major positive developments out of this decision by the cabinet committee.

Q: What we are driving at now is what will therefore be the demand for ethanol machinery? For instance, since you know the machinery market well or the ethanol market well, what is the capacity of the current sugar producers to produce ethanol at all?

A: The total production is in the range of about 2.8-3 billion liters and roughly, 5 percent will require 600 million liters which is close to 20-25 percent of the total production. That will be the demand for ethanol and the demand ofcourse is growing all the time.

Q: So the industry is well within its capacity to supply this 5 percent, that much ethanol is easily available?

A: That alcohol, basic alcohol will be available which has to be converted into ethanol. That’s the small change.

Q: Is there a revenue upside for you in the immediate short term?

A: There will be some opportunities here and there to put those plants. Some of them were put earlier but, there was no consistent policy. We are having this mandate but, the most important thing is that it is going to become an infrastructure available for next generation of ethanol. Hence, 5 percent is just the beginning.

If you go for the bio-energy mission document which the government is trying to prepare, they want to go for close to 20 percent in the next 10 years time and that is something which is happening in many of the developing countries.

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Q: More immediately you don’t see a rush of demand for your kind of equipment because of this rule, because the industry is already well prepared?

A: There is a lead time required and considering the lead time and other things there will be a requirement. People will wait for the gazette to come out and there will be some people who don’t have those machineries and they will definitely try to get it.

Q: You expect an upside demand?

A: Definitely, there will be upside demand and that will be definitely getting ready for a continuity of the business for them. That’s the way we are looking at it.

Q: Do you therefore expect ethanol for the liquor industry to become expensive now that there is this competition and do you expect sugar prices to become expensive?

A: I won’t be able to comment on sugar but, the ethanol for liquor industry is also slowly switching over to grain based or starch based ethanol. The normal ethanol will get a major fillip, there will be a total basket of ethanol getting generated for chemical industry, for blending industry and for the beverage industry. That market is getting to almost an average level of 15-20 percent.

Q: You supply equipment even for production of ethanol from grain?

A: Majority of the plants in the country are based on our technology and I think we are leading this entire pack of requirement.

Q: What about the export markets?

A: Exports are going to have a rubbing effect. Thailand already has a policy but, many other countries also will now draw strength from this policy which India is launching. The most important thing is that second generation is round the corner and that will give a continuity to the second generation ethanol in maybe the next year or two years down the line.