Praj Industries held a conference call on Jan 23, 2009 to discuss the performance for the company for the quarter ended Dec 2008.
Key takeaways of the conference call
Total income for the quarter was higher by 18% to Rs 220 crore. About 12% of the revenue is from engineering for the quarter and the balance is from equipment supply. Ebitda was Rs 47 crore compared to 41 crore, up 14%. About 67% rise in other income was largely on account dividend received from mutual funds and scrap sales. The PBT was Rs 54 crore compared to Rs 45 crore in the corresponding previous period.
For the nine month the total income was higher by Rs 582 crore, up 16% from Rs 502 crore. The PBT was Rs 120 crore up from Rs 107 crore in the corresponding previous period.
The time period from enquiry to contract finalization has lengthened. The global recession is the main reason for the slowdown in demand for ethanol plants rather than fall in oil price. The ethanol demand largely depends on the fuel blend mandate rather than oil price.
With fall in interest rate in most of the countries has lowered the break even time. This along with fall in metal prices has lowered the project cost. Lower project cost and lower interest rate has lessened the gloom. Following fall in oil price, the logistics cost has also came down and ultimately the cost of execution.
The European Union Parliament has mandated 10% (by energy content) biofuel blending in all transport fuels by the year 2020. This entails an additional demand for 12-14 billion litres for bio ethanol. Similarly the US Government has pre-poned its renewable targets from 2012 of 11 billion gallons to 2009. This move is expected to support capacity build up.
As far as South America bio fuel market is concerned the market is growing largely on account of export demand from Europe and USA. Mexico has recently mandated 10% blend in transport fuel. The company has bagged projects in Mexico.
Current crush margin in US is not yet good enough to trigger investment in corn ethanol projects in US market. Thus the market still remains subdued. The government has clarified 10 cents/ gallon incentive has been extended to other feed stocks such as sugarcane, cellulosis ethanol etc in US auguring well for the industry.
Order book is around Rs 800 crore. The order intake for the quarter is Rs 150 crore. The fall in order backlog from Rs 900 crore plus as end of Sep 2008 is largely on account of the company’s move of removing some un-executable projects.
Two third of the order book is international orders and balance is domestic. Of the orders for potable alcohol about 90% is for ethanol projects.
Drop in order booking has been largely on account of economic slowdown rather than correlate to fall in oil price.
In South America the company has recently bagged order from Mexico.
The company is yet to make a breakthrough in Brazil, the second largest market for Ethanol plants. Ethanol consumption in Brazil though steadily increasing, the demand for ethanol plants has seen slowdown on account of credit crunch in Brazil.
The key challenge for the company in Brazilian market is supplying equipment confirming to local norms and design along with local content.
Company has not seen any cancellation of orders even though the order finalization is slow. However there was couple of projects whose execution has been happening slowly.
Though the company is getting the benefit of lower input costs, the company is witnessing pricing pressure on the back of economic conditions. However with the successful cost control programme and better sourcing the company expect to sustain margin.
Debtor’s days are around 70 days.
Hedging exposure – cover is in the range of 20% of the receivables.
Brazil the consumption of ethanol has been growing. In Brazil, newer project were slow in coming up. Ethanol industry in Brazil is on consolidation phase. Of the total for ethanol plant projects about 25% is through Brownfield expansions and balance are Greenfield projects.
Cash of the company has been parked in FD and liquid mutual funds
Commissioned the pilot plant in R&D Centre. Cellulose to ethanol programme is progressing well the company.
Reduction in raw material has been helpful in sequential rise in margin.