India achieved the target of an average of 10 percent ethanol blending in petrol five months in advance earlier this year, and the more ambitious target of 20 percent blending by 2025-26 is achievable with a little push on supply chain logistics, said Dr. Pramod Chaudhari, Chairman, Praj Industries. The Pune-headquartered industrial biotech company expects to grow 30-40 percent annually driven by increase in demand for sustainable solutions for bioenergy. The company is working on expansion in new areas like sustainable aviation fuel technology and biochemicals, Chaudhari told Moneycontrol’s Rachita Prasad. Edited excerpts follow:
India achieved the target of an average of 10 percent blending across the country five months in advance. Now, the country hopes to achieve a more ambitious target of 20 percent blending by 2025-26. Is that achievable?
The policy came into effect in 2018. On one side, the government looked at this policy to support cane plantation and farmers’ remuneration. On the second side, with oil getting costlier, this was going to help set off the cost. And a third aspect was climate action; this would help reduce the carbon footprint. These three aspects helped speed up the 10 percent blending target in the last three-four years, and the target to blend 10 percent was met five months in advance. Why has the government preponed the target for 20 percent? The same tailwinds continue and that's why they think it's possible. In the middle of this, there is the issue of surplus availability of grains, especially rice and other things.
So, that is also another feedstock available to convert into ethanol. Streamlining and strengthening the ecosystem across the value chain to cope with huge demand of 20 percent blend, especially in supply chain logistics related to feedstock is a critical success factor. Otherwise, I don't see any other reason to come in the way of this program.
Talking of the supply chain, are people investing more on it? Is the sector becoming more organized given the kind of volume that is being generated?
Yes, the ecosystem is getting better day by day. The only fear was how long the support is going to last; that has been reasonably assured till 2030 or 2035. The onslaught of EV (electric vehicles) will not disrupt the consumption of ethanol; you will go one step backward. In case of IC (internal combustion) engines versus this motor driven in EVs, IC engines are going to stay.
What is also emerging parallelly is the hybrid system where there will be an IC engine running on ethanol and there will be the EV getting an elliptical motor or battery charged by running of the vehicle. In the EV you have to disengage and charge batteries but in hybrid cars, it will keep on charging while running. The only issue is that only some automakers are making hybrid vehicles. It can become more popular with time and the fuel for that can be ethanol. There is a comfort that all these programs with the flex engine and hybrid are on the horizon.
All this put together, the system looks very robust. I don't see a hesitation now, for at least building the capacity. The other aspect is if we can reduce the transportation of ethanol from point of production to point of consumption as that transport has carbon footprints. By having the 100 percent ethanol pump being distributed in the rural areas or in the interior part, there will be a saving on the carbon footprint. This is another idea which has been discussed to make sure we see a reasonably smooth passage for ethanol production, consumption, blending, and a good environment friendly solution.
The government has also made amendments in policy to include more feedstock for the production of biofuels. How has the industry responded to it?
We are a key player in the whole value chain; we offer solutions from sugar to starch and all the way to lignocellulosic (agricultural waste). All these possibilities of solutions from a variety of the stock is going to give more sustainability to the entire program. At the centre of the whole thing is the farmer, and this agri-based solution will help reach the zero carbon goals, which many governments have declared.
You have been an early mover in the industry and have gone through a learning curve. What is the strategy now? What will be the key growth drivers and would you look at entering any new segments?
This year (FY22) we’ve over 70 percent growth. We have launched a Bio-Mobility platform. We started with first generation ethanol and then second generation ethanol. Now there are two-three things which are in the offing like sustainable aviation fuel. That is the next big thing as aviation has a high carbon footprint in the atmosphere and blended fuel can reduce that and there is a huge requirement.
We’ve signed a MOU with Indian Oil Corporation to make this technology commercially viable. We are also working on marine fuels; another area which is causing a lot of pollution in the sea. We are seriously taking it as our mission to work towards the decarbonisation of the transportation industry. Here, most of the technologies are in-house; we got an American partner for sustainable aviation fuel.
Are you looking at any significant investments in this space?
Not immediately, we are working on the next growth plan.
Any plans for growing inorganically?
Nothing is stopping us from doing that. The only thing is that any acquisition should complement our effort where two plus two to become five and not four.
What's happening in the brewery and beverage businesses?
Brewery business is down after the pandemic as brewery sales went down and the space remains somewhat dormant. Praj Hipurity Systems, which caters to the pharma industry, is growing. The other business which is catching up and growing a little bit at a fast pace is critical process equipment and modularization; we have aligned this business to international customers who are engaged in energy transition.
What are the plans for biochemicals?
We are also looking in a big way at biochemicals. That work is also going pretty well. We’re developing molecules from the biochemical route which will replace the conventional plastic; we are at a pilot scale right now. It may take two years’ time for it to be a commercial activity.
What is your orderbook looking like right now and what growth do you expect?
I won’t be able to talk about it, I'm looking at the bigger picture. Our CEO handles the business and financial performance part.
Are you looking at entering any new geographies?
On the technology front, we're going ahead of Brazil. We are reopening in the USA. So these two markets are being revisited and recaptured.
You spoke about the growth rate being over 70 percent. Was this more due to the pick up after COVID or is this sustainable?
It was 70 percent in FY22, before that it was in the range of 20 percent. A little bit of bottled up potential has come in, and the growth rate showed our scalability. We can operate in the range of 30-40 percent growth, I can say that with reasonable confidence, given huge thrust on energy transition and climate action.
Would you be looking at increasing the market share as well?
This year, we would focus more on profitability because that's one area where there's definitely pressure due to the spike in raw material costs. There's a big challenge there and we have to see how, by adjusting the business model and modifying something we can do it.
