Praj Industries Ltd Management Discussions.


Praj is a leading process solutions company with expertise in integrated offerings for Bio-Energy, High Purity Water Solutions and Engineering led businesses, viz. Zero Liquid Discharge Solutions, Critical Process Equipment & Skids and Brewery Plants. Your Companys technology led futuristic solutions are conceived & developed in-house at its state of the art R&D facility-Praj Matrix. Sustainability is an integral aspect of Your Companys business operations and Corporate Social Responsibility (CSR) endeavors.

Understanding customers stated & unstated needs and devising solutions to address them, remains the bedrock of Your Companys business philosophy. Your Companys business delivery is ably supported by manufacturing excellence, world class quality standards, competent workforce and best industry practices for project execution. Your Company gives utmost importance to compliance with Health Safety and Environment (HSE) norms. Cutting edge IT infrastructure, data security and customer centric processes facilitate seamless coordination across the value chain to deliver superior customer experience. Your Company is organized by way of business verticals ably supported by staff function that operate in tandem to create value for customers. Clearly articulated vision mission statements and adherence to set of values provide requisite framework to conduct business. Focus on innovation, global reference base and strong brand equity, firmly places Your Company in pole position to capture business opportunities.

Fiscal 2018-19, was an exciting year for Your Company, as it witnessed various favorable steps by the Central Government in terms of new policies to encourage bioenergy industry in India. In global markets too several countries are stepping up efforts to enhance share of renewable energy in their energy portfolio.On the back of these positive developments, Your Companys flagship bioenergy business has done well to grow with existing customers, acquire new customers and also enter new geographies. Your Company also expanded its offerings in the bioenergy basket by adding Compressed Bio Gas (CBG) technology solutions.

Praj HiPurity Systems undertook several measures to effectively deal with challenging business environment in Pharma industry which witnessed reduced capital expenditure.

In the engineering business, Critical Process Equipment and Skids continues to drive focus towards becoming preferred partners for technology licensors and global EPC players. Brewery business reinforced its market leadership in India. With stringent statutory environmental norms coming in play, Water and waste water business has witnessed strong market traction across industry spectrum.

Business Snapshot


Your Companys flagship bio energy business had an eventful year FY 2018-19. Key highlights among others include healthy order intake on the back of conducive policy environment for accelerating ethanol blending Program (EBP), steady progress on the execution of 1st batch of 4 numbers of 2nd Gen integrated bio refineries and addition of Compressed Bio Gas (CBG) technology solutions to its bioenergy offerings.

For ethanol supply year 2018-19, a quantity of 2.37 billion liters of ethanol has been finalized by oil marketing companies (OMC) towards EBP as against 1.5 billion liters last year. The ethanol blending rate is expected to reach level of 7.2% in current year as against 4.22% for the same period last year.

The new Biofuel Policy 2018 has fixed a target of achieving 20% ethanol blending with petrol by 2030. The government is targeting to achieve the first milestone of 10% by 2022.

In FY 2018-19 the government announced several policy interventions to boost ethanol production.

• The National Policy on biofuels 2018 is a huge step undertaken by the government to structure the ecosystem for sustainable adoption of biofuels and enhance their usage in the energy and transportation sectors in the coming years. It expanded the range of feedstock by permitting the use of B heavy molasses & 100% sugarcane juice as well as damaged food grains, rotten potatoes, corn and sugar beet for ethanol production. This step helps to bring in abundant feedstock into the system setting the stage to significantly accelerate ethanol production across the country.

• Cabinet Committee on Economic Affairs (CCEA) approved raising the ex-mill price of ethanol derived from different feedstock. This step gives flexibility to sugar mills to define the product mix between sugar and ethanol through C molasses, B heavy molasses or sugar cane juice. The Government has reduced GST on ethanol for blending in fuel from 18% to 5%.

• The Government also announced a bailout package for the sugar industry which included interest subvention for mills for undertaking expansion of ethanol plant capacity. In response the Department of Food and Public Distribution received over 250 applications for Brownfield or Greenfield expansion of new ethanol plants.

• On the 2G ethanol front, the Cabinet Committee on Economic Affairs has approved the "Pradhan Mantri JI-VAN Yojana" that has allocated र1,800 crore for supporting 12 Commercial projects. Additionally, र150 crore has been allocated for supporting 10 demonstration Projects.

The industry has responded positively to these policy interventions and your Company has witnessed a significant improvement in the order pipeline. Having set up ethanol plants in overseas markets that use B heavy or sugarcane juice or grains as feedstock, Your Company has a head start in terms of thorough understanding of associated nuances. This has positioned Your Company as a front runner to grab related opportunities.

Recently your Company successfully introduced technologies developed in-house to reduce water consumption in ethanol plants by almost 75%. Your Company has also introduced a Revolutionary Technology Solution-"PROFIIT". This zero liquid discharge solution for molasses based ethanol plants significantly improves the operational efficiency and profitability.

Your Company is making healthy progress on 1st batch of 4 numbers of 2nd Gen integrated bio refinery projects in India. These projects are being set up by leading OMCs viz Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL) and Mangalore Refinery Private Limited (MRPL). Design engineering work is already complete for three projects. We have secured first order worth INR 80.36 Crores from IOCL for supply of critical equipment of their process plant.

In another key development, the government announced ambitious "Sustainable Alternative Towards Affordable Transportation" (SATAT) policy. SATAT envisages setting up of 5,000 Compress Bio Gas (CBG) plants nationwide by year 2025. CBG is a gaseous renewable transportation fuel produced using bio feedstock such as agricultural residue, press mud, cattle dung and municipal solid waste.

Your Company will shortly commission its integrated demo plant of CBG based on the proprietary microbial treatment process, adjacent to existing 2nd Gen Bio-Refinery demo facility. Prajs CBG demo plant will be first of its kind integrated demo plant in the country. With its flexible and highly instrumented plant design capabilities, Your Company is in the pole positions to cater to opportunities that are emanating in near future.

You Company is also witnessing increased momentum in select international markets with several countries positively considering expanding biofuels in their energy mix.

• In South East Asia, Thailand is enforcing stricter implementation of E12 blending mandates. This along with tax holidays for biomass processing makes it an attractive business opportunity.

• Latin American markets are also showing traction with Argentina pushing for E15 and Bolivia for E10 mandates for ethanol blending. Rise in Ethanol demand due to RENOVABIO-2030 policy will be met through corn-based fuel in Brazil.

• After Renewable Energy Directive (RED II) was agreed among EU Institutions, European customers are taking keen interest in Prajs 2G ethanol technology solutions. Several prospective customers have contacted us, visited our 2G demo plant and further discussions for setting up 2nd Gen refineries are underway.

• Corn fiber ethanol technologies are being rapidly adopted by corn ethanol refiners in USA who are attracted by the rise of ethanol and corn oil yields as well as the cellulosic incentive tax credits.

In this financial year, Your Company expanded its global footprints by successfully entering into two new countries; Bolivia and Kazakhstan.

Praj HiPurity Systems (PHS)

FY 2018-19 was difficult year for the Pharma industry as it experienced headwinds in the form of regulatory challenges leading to a reduced capital expenditure on building of new production capacity.

We have taken this situation as an opportunity to drive focused improvements in our execution capability with strong emphasis on improvement on timely delivery, introduce new products/solutions for improved plant performance and continue deep investment in customer relationships to build a platform for future growth for our Hi-Purity business.

Time to market is dropping year on year as customers demand short delivery cycles. PHS has renewed its focus on timely delivery to fulfill customer needs. Diligence in internal processes has helped collapse delivery timelines while maintaining the quality.

Technology transfer arrangement with M/s Aquanova, Sweden for local manufacturing of systems for water for injection and pure steam generation is giving Your Company a competitive edge. With pharma industrys focus continuing on Injectables and Biosimilars, demand for Aquanova systems will continue to grow. Your Company will continue to position itself as one of the most reliable solution providers in fermentation based facilities and complex injectables space.

Your Company has charted out specific internationalization plans with two pronged approach; one to leverage existing references and second concentrate on strategic markets such as MENA region, Turkey, South East Asia and the USA.

Your Company has a strong captive customer base with more than 350 customers in India and abroad. Through our Value Added Services (VAS) offerings, we have been helping them operate and maintain plants. VAS will play a major role in retaining and growing this customer base by providing them innovative plant up gradation solutions besides spares and service support.

Engineering Businesses

Critical Process Equipment & Skids (CPES)

In FY 2018-19, the CPES business unit successfully delivered the highly complex equipment for critical applications to an international customer in Hydrocarbon industry. Currently many heavy equipment and process skids are under manufacturing for global customers from Oil & Gas, Petrochemical and Chemical sectors.

CPES works closely with leading technology licensors and global EPC companies to secure preferred vendor status. In this endeavor, Your Company has already had success this year in getting approved as a global supplier for large EPC company and has received major orders.

CPES business has established multi-disciplinary engineering capabilities and state-of-the-art manufacturing set-up that is recognized by international customers. With its strong customer focus and delivery capabilities the business is poised for robust growth in the years ahead.

Brewery Plants & Equipment

Brewery business reported the highest ever order book in FY 2018-19 since its inception over two decades back. This year your company built Indias largest Unitank with a capacity of 6000HL for a multinational client. Relentless focus on strengthening customer relationships and sharpening delivery capabilities have contributed to this achievement.

Annual consumption of beer in India touched around 26 mn hector-liter in FY 2018-19, reporting high single digit growth after slump of 2 years. Indias per capita beer consumption is only 2 liters, compared to around 20 liters in South Asian countries. This shows promising potential for growth in India. There is an upward trend observed in consumption of Craft and Flavored beer, which is prompting beer manufacturers to increase their manufacturing capacities. All beer manufacturers in India are considering strengthening portfolios, launch of premium brands, introducing flavored and craft beers for consumers.

Your Company is already a market leader in India with a distinctive portfolio of offerings for the segment. In order to fulfill its growth aspirations, it is actively considering participating in select international opportunities in Africa and South East Asia

Water & Waste Water Treatment Solutions

Water tables in India are fast depleting and unpredictability of the monsoon is further adding to water stress. To combat water scarcity and water pollution, the Central Government has enforced strict compliance norms for water usage especially for treatment of industrial effluents.

As a result, Industries are attaching high prominence of Zero Liquid Discharge (ZLD) systems. This presents a huge opportunity for the effluent treatment and ZLD solutions.

Your Company has a strong technology play by way of setting up ZLD plants for treatment of complex effluents for industries. It has focus on the latest waste water recycling technologies involving thermal solutions that give Zero Liquid Discharge in the Industrial waste water segment. Target customer segments include steel, power, chemicals, food and pharma.

During this year, our focused market approach and execution excellence has resulted in a profitable performance and repeat orders from marquee customers. Your Company remains confident of building on this success.

Innovation and R&D

Praj Matrix-R&D Center completed 10 years of existence. It is a one of its kind R&D center where biologists, chemists and engineers work together to develop breakthrough technologies in the field of industrial biotechnology.

In FY 2018-19 Praj Matrix licensed technology for production of Hyaluronic acid solely made using non animal sourced ingredients in fermentation. The R&D center is ready with Natural Vit. E (Tocopherol), Phytosterol and Rice Bran wax technologies for licensing. Microbial technology, new technology to efficiently stabilize and convert press mud and biomass to biogas is ready for launch.

In the year gone by, your Company was granted 7 Indian patents and 3 foreign patents. Your company filed 13 international patents last year. In all, Your Company has 27 patents granted to its name.

Manufacturing Capability

Your Companys manufacturing capability is substantiated by a multi-disciplinary engineering team, four world class manufacturing facilities with excellent connectivity to ports and highways. These are located at Sanaswadi, Urawade, Wada in Maharashtra and Kandla (Gujarat).

Manufacturing facility located in Special Economic Zone (SEZ) of Kandla is approved by global multinational and EPC companies for supply of equipment and skids. The facilities are accredited with ASME U & U2, R Stamps and NB Registrations.

The ASME BPE compliant facility located at Wada, Thane serves clients in the pharmaceutical industry.

Human Capital

Your Company truly believes that people are its true assets. Attract Retain, Grow and Nurture talent is a way of life at Praj. Your Company recognizes the imperative to invest and create a robust resource pool of talent, in order to make the organization ready for the next phase of growth

With exciting business opportunities emanating in different business verticals, Your Company is paying special attention to nurturing and growing talent. Strategic learning and development initiatives for leadership development at Senior and Middle management are being taken up to make the organization future ready.

Awards & Recognition

In FY 2018-19, Your Company was bestowed with the following awards, certifications and accolades-

• Ranked 8th position from 34th in 2018 in the list of Top 50 Hottest Companies in Advanced Bio-Economy for the year 2019 by Biofuels Digest

• Asias Biggest Brand by URS Media

• CHEMTECH CEW Leadership and Excellence Award 2019 for outstanding achievement in R&D Excellence-2018"

• "HIGHEST EXPORT AWARD" to Kandla manufacturing unit of Praj Industries under the category of Engineering &

Metallurgical products for the year 2017-18

• IT Security-Now 2018 Award in Best Batsman (Quickest implementation & stabilization ) of the year category

• Pune Corporate Social Responsibility Leadership Award

• Overall Excellence in Procurement & Sourcing Award to Supply Chain Management

• Pune Best In Class Manufacturing Leadership Award 2018 to Critical Process Equipment & Skid Business Unit and


Future Outlook

With rising concerns over global warming and climate change, conserving environment by working towards sustainable low carbon economy remains top priority for nations all over the world. Role of renewable energy and especially transportable renewable fuels is well recognized in this endeavor. Renewable transportable fuels namely ethanol and Compressed Bio Gas (CBG) facilitate energy security and energy self-reliance besides protecting environment.

As they work on the principle of circular bio economy, they function as socio economic enablers and are frontiers for inclusive growth as they boost rural economy.

This leaves no doubt about the fact that the future for biofuels remains bright and promising.

Therefore contribution of biofuels in achieving sustainable decarbonization has to be looked at in holistic perspective.

As for society, circular bio economy plays an important role by not only reducing environment pollution induced health hazards but also boosting rural economy by way of job creation and additional income source for farmers.

Along with ethanol, Your Company is also exploring opportunities in developing other renewable fuels. CBG, a gaseous renewable fuel technology, has tremendous potential as it complements Compressed Natural Gas (CNG). Recognizing the pressing needs of the nation, The Government of India has ambitious plans to set up 5,000 CBG plans in next five years.

Isobutanol is a high energy feedstock for Jet biofuels that presents emerging opportunity for aviation and racing industry. Your Company has joined hands with Gevo, Inc, USA, to develop and commercialize technology for the production of Isobutanol using sugary-based feedstock. This is an important element to enable it to reach closer towards its vision of an integrated bio-refinery.

Your Company being a global leader in the biofuels industry, with its strong customer base and innovative technology solutions will look to capitalize on these new opportunities.

Risks & Concerns

Your Company has well documented Risk Management Policy. The policy is reviewed periodically by Management and Audit Committee and appropriately modified, as and when necessary. Based on the operations of the Company, risks are identified and steps are taken to mitigate them.

The Company is also exposed to risks on account of the sector it serves. Ethanol plants and brewery businesses are governed by the legislations of different geographies served by the Company. The Company has adequate geographical spread.

Economic and Political situation in key markets of Your Company is seen as an essential risk element. Your Company has no current exposure to any high risk markets.

Between 20-50% of the Companys business comes from overseas markets; the Company has put in place a forex risk management system.

The Company is also exposed to raw material risk which shows considerable volatility. A suitable purchase and stocking policy is followed.

Apart from the above specific risks, the Company recognizes various risks inherent in the performance of a contract which may relate to commercial terms. The Company has a robust policy in place to counter these risks to the extent possible.

The Company is making its planning and review more stringent so as to bring greater granularity and predictability.

Internal Control Systems

The Company has instituted adequate internal control procedure(s) commensurate with the nature of its business and the size of its operations for the smooth conduct of its business. Internal audit is conducted continually and covers the key areas of operations. It is an independent, objective and assurance function, responsible for evaluating and improving the control and governance processes.

Internal Auditors do not have any adverse comments on the internal control systems of the Company.

The Company has in place ERP system and suitable web based business process systems to ensure adequate controls on key areas of operations. All these systems are audited periodically by the Internal Auditors.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios along with detailed explanations therefor required vide part B of Schedule V to SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2018:

Sr No Ratio U/M Financial Year 2018/19 Financial Year 2017/18 Variation over 2017/18 Major reasons for variance
1 Debtors Turnover Days 99 93 6% No significant variation
2 Inventory Turnover Days 97 95 2% No significant variation
3 Interest Coverage Times N.A. N.A. N.A. N.A.
4 Current Ratio Times 1.71 2.07 17% No significant variation
5 Debt Equity Ratio Times N.A. N.A. N.A. N.A.
6 Operating Profit Margin % 8.63% 6.52% 32% Increase in sales by 32% Better control on overheads and expenses.
7 Net Profit Margin % 6.76% 4.48% 51% Increase in sales by 32% Better control on overheads and expenses.

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with detailed explanations therefor required vide part B of Schedule V to SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2018:

Ratio U/M Financial Year 2018/19 Financial Year 2017/18 Variation over 2017/18 Major reasons for variance
Return on Net Worth % 8.55% 4.38% 95% Better profit margin as compared to the previous year.

Forward looking statements

Statements in this report, particularly those which relate to Management Discussion and Analysis, describing the Companys future plans, projections, estimates and expectations may constitute "Forward Looking" statements, within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.