Shyam G. Menon
Latha Venkatraman

Mumbai , Jan. 26

HIGH crude oil prices, which have troubled most companies this financial year, have been partly responsible for driving profits up at Praj Industries Ltd.

The company specialises in fermentation technology for the distillery and brewery industries, a leading application for the manufacture of fuel ethanol, a substitute for costly petrol.

The consumption of fuel ethanol by motorists worldwide is currently estimated at 25 billion litres. This will double in the next 6-7 years, Mr Pramod Chaudhari, Chairman of the company, said.

In results declared for the third quarter of FY05, Praj's net profit was up 380 per cent to Rs 7.93 crore from the previous corresponding Rs 1.65 crore.

During the same period, income from operations increased to Rs 79.42 crore from Rs 22.09 crore.

The main reason for this was the export thrust in Praj's business, the share of export in turnover was 60 per cent as against the earlier 30 per cent. A major portion of its overall business, 75-80 per cent of it, comes from association with fuel ethanol production. The balance is accounted for by the brewery business.

Praj's work entails export of technology, designs, critical components and provision of bought out machinery.

Underlying export growth has been the growing acceptance of fuel ethanol in foreign markets given environment concerns, the need for fuel security and the general trend in oil prices.

"Our growth has coincided with the upturn in oil prices. But the demand for bio-fuels is more because of environment and fuel security concerns," Mr Chaudhari said.

Fuel ethanol, now a strategic product for oil traders, too, given its environmental benefits, has the additional advantage of receiving Government support in many markets.

Extensive use of the product is still under study and its consumption globally may gain impetus.

In India, the fuel ethanol business has been restricted by the traditionally high sugarcane prices and the lack of scale at sugar mills. The result is that end-product prices get pushed to a higher level than the market price of petrol. Of the foreign markets for fuel ethanol that Praj caters to, Brazil, which is a major sugar producer, has viable cane prices.

Elsewhere, growth in fuel ethanol production is helped by steady cane prices, Mr Chaudhari said on the issue of poor scale as a handicap for the fuel ethanol industry.

The Rs 108-crore company has pegged its global market share in all its businesses at 10 per cent, being the share in global capacity from projects it is associated with.

It plans to double that to 20 per cent in the next 4-5 years. New markets being looked at include South-East Asia and East Europe, raw material base at the latter being grain.

Competition for Praj comes from the likes of Europe's Lurgi PSI and Technip, ICM and Broin of the US and Dedini of Brazil.

Though it is a fragmented playing field, inorganic growth is not a natural choice as technology is core to sustenance. The prime differentiator in the field is experience and knowledge of the relevant technology, including mastery of the available starchy or sugary raw material base.

In this context, Mr Chaudhari said that Praj has "finger-printed" almost 2,500 varieties of molasses from around the world at its research laboratory. Bio-processes, he said, are not easy to master. It requires thorough knowledge of raw materials and the ability to offer flexible solutions for commercial acceptance.

"New players can't easily get in," he said.

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