Praj Industries Limited (PRAJIND) Earnings Call Transcript & Summary

Good day, everyone. We welcome you to this conference call organized to discuss Praj Industries Operating Performance and Financial Results for Q4 and FY '20, which were announced yesterday. I have with me Mr. Shishir Joshipura, CEO and Managing Director; and Mr. Sachin Raole, CFO and Director, Finance and Commercial, on this call. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to our financial performance were emailed to you. Those documents along with quarterly results presentation have also been posted on our corporate website. I would like to hand it over to Mr. Shishir Joshipura for his opening remarks.

I welcome you to Praj Industries' earnings call for Q4 and FY '20. I'll be covering the industry developments and quarterly business highlights for the quarter, following which Sachin will take you through the financial. As the quarter progressed, an unprecedented challenge in form of coronavirus pandemic emerged, disrupting life and economy at a massive scale across the globe. In absence of a cure, lockdown appeared as the only viable alternative to save human lives. This led to an unprecedented shutdown of economies and human activities across the world. The complete impact on business of this pandemic is still to be ascertained. Praj operations were no exception, and we were equally impacted. Now before I cover the business update, I would like to share with you how Praj is coping with the COVID-19 crisis. People care and safety was and is our first and highest priority even as we started to work on other dimensions of business care, society care and customer care as the lockdown was announced. Our facilities halted operations completely across our plants at Sanaswadi in Pune, Kandla and Wada; Matrix, our R&D center at Urawade; and our HQ at Pune and offices across the country for nearly 6 weeks. We undertook all the safety and sanitization measures across all our facilities, maintaining full compliance with the government advisory. Forming a business continuity plan, we were able to shift majority of our employees on work-from-home model to serve our customers and minimize the work loss during this period. Our engineers adopted modern technologies and developed tools to help our customers commission their plants remotely, has also helped troubleshot running units. When the law permitted, our people have traveled to sites brazing odds to help our customers operate their plants. Supply chain has been disrupted globally, impacting availability of raw material, parts and components. As economy reopens gradually, we have restarted our operations at all our production factories as well as R&D, and we are ramping up our production in complete alignment with the government directives. Our headquarter and city offices are still not fully functional given the local restrictions. However, our work-from-home model is working really well for the employees based at these locations. We are working closely with our supply chain partners to streamline supply of goods and services. Our strong focus remains on conserving cash during these trying times. A strong focus on collection of dues and advances from customers, constructive dialogue with our supply chain partners and focused inventory dilutions are key areas. We are taking a dynamic look at our costs to drive higher efficiency. We are undertaking different measures such as cutting down fixed costs, avoid discretionary spends, reevaluate our overhead expenditure, optimize our infrastructure cost, work-from-home policies, salary adjustments for employees, inventory dilutions, et cetera. We are reconsidering R&D costs for a deeper business impact. Innovation is DNA of Praj, and we will continue to invest in R&D initiatives such as advanced biofuels, renewable chemicals and materials. That will help us build our value proposition in a sustainable way in near and long-term future. We are not reducing our R&D expenses. We are thankful to our customers, supply chain partners and employees who are helping us address the challenges of the situation. Let me now take you through the highlights and the developments during the quarter. Leveraging strong innovation, our 1G business has obtained a market share in excess of 75% in domestic market in FY '20. To address the challenges of sugar glut and storage, government is encouraging diversion of sugarcane juice and sugar syrup for production of ethanol instead of sugar. This will also help improve the ethanol blend with petrol. In an important development, the government has allowed conversion of surplus rice available with Food Corporation of India to ethanol for making alcohol-based hand wash sanitizer and blending in petrol. This will help bridge the gap in demand-supply of hand wash sanitizers and improve the ethanol blending percentage. Pharmaceutical blend alcohol across the globe may see increased demand as it has application in space sanitization and personalizing apart from medicines. Ethanol plants around the world has the infrastructure necessary for meeting demand in short-term, and Praj technology in form of EcoSmart can help with commissioning of capacities in short-term and efficient operations in long-term for production of pharma-grade alcohol with minimum modifications. Praj's 2-step solution anchored on our patented technology, EcoSmart, puts us in a pole position to address this opportunity. We have a large global customer base. And we are establishing communications with them for arriving at a comprehensive solution to address pharma-grade alcohol opportunity. Oil and gas industry is having unprecedented crisis owing to combination of excess supply, with an unprecedented demand drop due to COVID-19 pandemic that has resulted in a price collapse. [Technical Difficulty] However, domestic market capacity creation is not likely...

Sir, I'm so sorry to interrupt. But your audio for a minute was not audible, sir. Could you just repeat please?

All right. So we have a large global customer base, and we are establishing communication with them for arriving at a comprehensive solution to address pharma-grade alcohol opportunity. Is this audible?

Yes, sir. Please go ahead.

Oil and gas industry is amid unprecedented crisis, owing to a combination of excess supply with an unprecedented demand drop due to COVID-19 pandemic. That has resulted in a price collapse. This will have short-term impact on demand for ethanol in the international market in terms of attracting investments in greenfield projects. However, domestic market capacity creation is not likely to be impacted due to these oil price dynamics as India ethanol pricing is premised on sugarcane prices. In international market, brownfield expansion projects for pharma-grade alcohol may present an attractive opportunity. Due to longer cycle time required to build 2G ethanol facilities, mandated under the RED II directives in Europe, we see a renewed interest in European markets for 1G capacity creation over the next couple of years, which means there will be coexistence of 1G and 2G in near future. [indiscernible] HPCL has issued a letter to us on 22nd of May, confirming transfer of license from Badaun to Bathinda for the 2G bio-refinery project. This reaffirms government commitment to advance biofuels program as specific in the National Biofuel Policy. Praj recently signed a cooperation agreement with SEKAB E-Technology AB of Sweden to upgrade and commercialize base technology to produce advanced biofuels and biochemicals from forest residue as feedstock. As a part of this cooperation, Praj will add significant value to SEKAB’s CelluAPP technology of converting forest residue in the form of soft wood to ethanol through Praj's proven capabilities to improve, optimize, integrate and scale up advanced biofuel technologies globally. On the CBG front, we have begun commissioning of a pilot facility, which is a full-scale pilot facility at our R&D center. And there is increasing interest from industrial and bulk consumer segment, that include MNCs [indiscernible] FMCG sectors for CBG. As CBG presents a very attractive avenue for carbon footprint reduction while substituting LNG/LPG as a source of energy. PHS business has continued to work on its strategy on key accounts and innovative product offerings. On the engineering business front, our brewery business has been successful in building a market share of 80% plus in the domestic market. Internationalization plans of brewery business are showing results as we received an order from Niger. We are pushing the innovation envelope in this business to generate new business opportunities in addition to our traditional business. Our sustained efforts to establish strong relationship with key MNC customers have resulted in our CPES business securing strategic supplier status with several key accounts. We are concentrating on LNG, petrochemicals, industrial gases and green energy segments. Praj's value proposition now stands expanded to TEMPO with the addition of operations and maintenance services to its portfolio. Our ZLD business recently commenced a multiyear contract for operations and maintenance services for treating effluent using ZLD solution for one of India's leading steel manufacturers. To summarize, we believe our people, our strong customer base and our focus on customer value proposition creation through technology coupled with conservative and prudent financial policies and operations will help us overcome the current extraordinary situation. Once broader market sentiments stabilize, we remain confident of continuing the growth momentum in the years to come. Before I end, I'm delighted to share with you all that the United States based Biofuels Digest, the world's most read biofuels daily, announced Praj Industries as ranked #1 among the best places to work for in the advanced bioeconomy 2020, in which 279 corporations from the globe participated. With this, I will now hand over to Sachin for his comments on the financial performance.

Thank you, Shishir. I will now take you through the financial performance for Q4 and FY '20. Following which, we will open the floor up for your questions and suggestions. Revenue from operations for the quarter stood at INR 296.29 crores as against INR 368.17 crores in the corresponding quarter of FY '19. EBITDA for Q4 FY '20 was INR 32.23 crores, whereas with the last year's similar quarter reported EBITDA of INR 39.41 crores. PAT was INR 24.86 crores in Q4 FY '20 as against INR 33.36 crores. For the full year ended 31st of March 2020, revenue from operations stood at INR 1,102.37 crores as against INR 1,141.1 crores of the last year. EBITDA for FY '20 stood at INR 82.01 crores against INR 88.34 crores for FY '19. PAT was INR 70.43 crores as against INR 68.22 crores in FY '19. During the quarter, export revenues has accounted for 40% of the total revenues, bioenergy accounted for 63%, 30% from engineering and 7% from PHS business. You must have noticed effective tax rate has come down to 15% for the year. So this year, tax was subjected under the normal tax. And because of that company could utilize its MAT credit. And that's the reason the effective tax rate is looking lower. The order intake for the quarter was at INR 222 crores with 83% from domestic market. Of the total order intake, 72% came from bioenergy, 13% from engineering and balance 15% from PHS business. The order backlog as of March 31 stood at INR 1,083 crore. Cash and cash equivalent as of March 31 stands at INR 226 crore. I now conclude my remarks, and I would like to thank you all for joining us on this call. We would now be happy to discuss any questions, comments or suggestions you may have.

[Operator Instructions] We take the first question from the line of Vikram from PhillipCapital.

Am I audible?

Yes.

Yes, you are.

Sir, can you share more in terms of HiPurity outlook because of the order inflow has been substantially weak? And I guess, has this hand sanitization market, whatever opportunities will come will that be part of our HiPurity or bioenergy? So I just want to get clarity because I think on website I saw that it will be part of HiPurity. And are we seeing some kind of orders from that segment also, so you can highlight outlook on HiPurity in these 2 regards?

So Vikram, on the hand sanitizer opportunity, what is -- so there are 2 distinct segments, right. One is the existing distilleries who have ready access to ethanol, and they're becoming producers for sanitizers. And the second is other independent producers of the sanitizer network. As we see, if it is a discourageous customer, the natural affinity of that customer is too obviously because the deep relationships that we hold in their segment using our ethanol 1G team [Technical Difficulty].

Sir, this is the operator. I'm sorry to interrupt. Sir, your audio was not audible for a minute again.

Okay. Let me start again. Am I audible now? Hello?

Yes, you are. Please go ahead, sir.

Okay. Sorry. So Vikram, I was saying that the hand wash sanitizer market is literally into 2 parts. One is distilleries that have access to ethanol as natural product for them and becoming producers for -- they becoming producers for the sanitizers. And the second is the consumer care companies, independent FMCG companies, that segment, which may not have a natural access to ethanol, but who are still -- we have decent accesses to the marketplace in terms of retail network, et cetera. So this is still a little bit early for us to comment given the fact that we are still coming out of a lockdown, but we are seeing an interest being received for both these distinctive segments. So we are addressing for obvious reasons the distillery-based inquiries where the relationships are held or held by our -- by Praj Industries' ethanol team, whereas on the other side, maybe PHS is a better owner of the -- of all the relationship. So it is currently split, that is number one. Number two, we did -- there's another thing that government said that up to July there is no licensing or certification requirement because of the unprecedented scale of emergency, and people were allowed. But I think there's a lot of -- those who are wanting to be serious players in the market are also waiting for that thing to clear out when the government has the inspection in July and certifies or otherwise any facility to see as to what the actual opportunities will look like. So still early days to call for what the size of the opportunities are going to look like. We have -- when we -- as you are aware, we had put out hand wash technology and the engineering package as a part of our service to the society. In general, it was available for a free download on our website. It's almost 400 -- nearly 400 downloads all the way from Fiji on one end to United States and everything in between. So we did see a lot of interest from people downloading the technology part of it. We then went one step ahead and told them if you do want to set up this capacity, we would be happy to help you configure the plant and put it together for you. So still early days because, of course, as you know that there is a big literal shutdown for almost entire month of April globally. So we are still assessing the exact nature of seriousness of these inquiries, but as time will progress, we will let you know.

Okay. And I have 2 more questions. One is that regarding when we have seen the price fixed for 5 years for CBG projects. So are we seeing more traction or inquiries from that with this concern of the pricing has been now no more in CBG project? That is one question. And second is on this, can you update us on this number of proposals are with the government for this benefit of distilleries and how is the status on that? So these are 2 questions.

So if I understood correctly, the first question is about the traction on the CBG part, and there, as you correctly said, some interesting development that came in January along the pricing lines because of long outstanding demand to get some kind of visibility. So there's been a very, very positive development that you have a price visibility for 10 years at a minimum level. So this is something amazing for any business. As things would stand and as all of us know, there wasn't much time between the announcement to the time we were faced with this unprecedented problem. So too early for me to comment, but obviously, this has removed one of the big bottlenecks in the funding of the projects in terms of how they will be constructed. There's another development as typically these projects -- each project size from what we know are below INR 100 crores on turnover, so they can go to an MSME segment now, which would be a good development for them. So we'll have to watch as to how that development also aids in development of the projects. What we have witnessed in the last 6 to 8 weeks is an increased level of dialogue both from the prospective developers on the retail side, which is a SATAT program of the equation, but also, as I mentioned, we are also seeing increased dialogue from several MNCs because they see this is a clear path to reduce their carbon footprint, and they all have definitive targets on the reduction of carbon footprint. So we expect the movement to come through in both the dimensions. I couldn't follow the second question. Would you be kind enough to repeat it, please?

The second question was on this distillery where the government has given interest subvention and all other benefits. So there were a number of proposals with the government for setting up the distillery. So what is the current status of these proposals? And how you are saying the sanctioning of these projects or liquidity available for these projects?

So on the -- I think 1 big development is this announcement from the government about allowing ethanol production from grain for blending programs. And I think that's a big development, as I was mentioning earlier, which will aid to build the capacity and also bridge the gap, that is 1 clear distinct direction. We were in a seminar, and one of the state government representative said that, yes, we have taken cognizance of this, and we are willing to -- we are now thinking of establishing and supporting not themselves but supporting establishment of 6 projects in our state, this is in Chhattisgarh, where there's a lot of rice, as you know, is available. So early days yet, and I think what has happened is a lot of these developments -- some of these developments also came very close to the crisis or during the crisis. So in order to actually gauge their impact on the business side, it's still early days to comment. But obviously directionally these are all positive developments. Similarly on the sugar mill side of equation, there is a lot of movement about what to do with sugar because of the situation that is now created on account of lowering of consumption and how do you overcome that problem because on the other hand we are going to have excess bumper crop. So how do we balance it out. So we'll have to see how the thing unfolds, but sugar production -- sugar consumption has gone down, which means more, and as I was mentioning earlier, government is encouraging use of sugar as a feedstock for ethanol production, which can bridge a big gap on the capacity side. So in -- directionally, it's a positive development. Specifics, we'll have to see as we unfold out of this situation.

And additionally, Vikram, this scheme is extended for 1 more year.

Okay.

Which is a clear recognition from the government that we need to do something more.

So I had heard that this number of proposals are almost in excess of 300. Is that right number? Or do you -- if you have any updated number, I think, it would be helpful if you can share that?

So Vikram, on this, a number of applications -- a number that you heard is around the number of applications that got filed. Then they were scrutinized and sanctioned. From the sanction, there was a disbursement agreement because these were subvention. So unless you have a loan, there is nothing to subvent, right? So these were around subvention applications. So what has to happen along with the subvention part is also that the project needs to be funded by bank. And only on the loan component interest was the subvention available. So subvention is an incentive to set up the project. By itself, the project has to have its own independent approval on the funding side to sort of avail this benefit. But this is [indiscernible] is already sanctioned by the bank, they're putting it up and then they avail of the loan, then the subvention comes. So subvention is an aid to the industry to help them improve the viability of the project.

Next question is from the line of Ashutosh Mehta from Edelweiss.

Sir, my first question is pertaining to the 2G ethanol projects. So what is the status there? And out of the FY '20 order inflow in the ethanol segment of around INR 750 crores, what will be the contribution from these 2G projects specifically?

On the 2G status, the first project that we are building is for Indian Oil at Panipat, where, the work has gone ahead in full swing. All approvals are in place. The project is under construction as I speak with you. All the major long-lead equipments have been ordered. In fact, we've gone to second stage now where even the not so long lead items, the stage 2 items are also under ordering right now. Civil construction in full pace. Foundations are up. And our plan is to -- on the customer's plan is to finish the foundations over the next 2 months so that we can not be hampered by the rain -- monsoon season that will obviously come to that part of the country in a couple of months down the line. On the BPCL project, they have appointed, as you know, Tata Projects as the EPC consultant. There also significant progress has been made. Already dialogues are underway. All the equipment contracting is underway right now, site target. So activity there as well at a little different shift of time line, if I can use the word compared to IOCL, about 3 to 6 months behind on a different curve. Third is about HPCL. So as we had been mentioning in calls, we are awarded the contract for building the 2G plant in Badaun in UP, and there was -- their first strategy was to build the project in Bathinda. And that was awarded to DBT-ICT combined technologies. And in the communication that we have just received from them in fact just 5 days ago, they have informed us that they would like to shift our license to Bathinda, which is [indiscernible] project for them -- was the priority project for them. And it's a new development. So we will now begin work on that. So that's also a very positive development. So that shows a path forward for the third project can be built as well. On the fourth one, there has been discussion going on [Audio Gap] what are the viable alternatives for them, some internal issues that will be on hold on viability, et cetera. So that's the fourth one. That's happening as far as India 2G projects are concerned.

And sir, what would be the contribution in overall order inflows from these 2G projects last year in FY '20?

So we received an order from BPCL last year. So about INR 100 crores of contribution on order booking is sitting from 2G.

Okay. Okay. So we still have 2 critical equipment orders yet to be booked, and that should be done in FY '21, if I'm not wrong?

Yes. So HPCL looks to be progressing in the direction now. The fourth one of MRPL, I would still hold my comment. It will happen. It will happen. It will definitely happen, but when is the question.

Okay. Okay. Sir, second question was related more towards the financials in Q4. So we have seen some sharp reduction in raw material costs as well as employee cost during this quarter. Any specific measures that we have taken? Or was it related to mix or anything that we should be aware about?

Sachin, do you want to take that question?

Yes, yes. See this spike in the contribution has been -- you are right, it is because of the mix of the revenue or the mix of orders which we executed during this quarter. Maximum was coming from exports, almost 40% export orders got executed. So that has helped us in having the better margin. On the employee cost, there was a provisioning, which we used to make for the incentives on the basis of the performance of the company, which we decided in the quarter 4, looking at the overall number the way in which it was heading post-COVID scenario. We have not provided that kind of a number. And that's the reason why you have seen the reduction in the employee cost during quarter 4.

So is it that there is also a reversal of the first 9 months of provision that was left?

That's right. Yes, you are right. You are right.

So just 1 thing on the tax part. So going ahead, what should be the effective tax rate we should be looking at?

See, our estimate is that we should be in a range of 20% of effective tax rate.

Okay.

Because we still have some MAT credit reversal, which is possible in next 1 year. So we will remain in the range of maximum 20% kind of a thing.

Next question is from the line of Ankush Mahajan from JM Financial.

Is it audible?

Yes.

[Technical Difficulty]

Mr. Ankush Mahajan, your line is not audible, sir?

Yes, is it audible?

Yes.

Yes. Go ahead, sir.

Yes. Sir, I want to know about the outlook on the export business, now it is 34% revenue from the export side. And how is the outlook for the order booking from the overseas market considering this COVID-19 situation now?

Ankush, very clearly, as you see, the situation is extremely dynamic right now. And for anybody to take a looking glass and predict is not possible at this stage to say what would happen. We are not -- we are using, as I mentioned, work-from-home model. The good news is that customers abroad are very used to interacting over the e-media, so that becomes -- e-platforms that becomes easy to -- but still we're not able to be physically there in the marketplace. So obviously, we are then referring to something which is very definitive in nature. We are not able to create. Even on the creation side, we are creating webinars for our prospective customers, our existing customer base and doing the best job that we can. Having said that -- and I would say that given the model, the way we deployed technology on work-from-home basis, it's been very, very successful. We've been able to establish connect with a lot of leading customers here and establish a dialogue with them on what the needs are, what can we do for them, how we can respond to inquiry. So we are creating quotations and submitting to them because the world is getting used to working remotely. It would be a little premature for me to say what will the numbers look like on the export side right now because we're just get -- just about beginning to get out of this lockdown. So perhaps next quarter, but as of now, it will be premature.

Sir, on the domestic front, sir, how do you see the investment for ethanol distilleries, not for the next -- adding for the next 2 years, investment in this sector?

Good question. I think what's very important to understand is that what's the demand in India. And we are now talking of returning to a normal situation, not during the last 8 weeks. But when we will go back to normal situation, and we know that there's a huge gap between the demand at 10% blending rate and the production of ethanol in the country today. So we need to more than double the current capacity to just meet the demand at 10% blending rate on the government. So from a demand-side of the product, there's a big push that is -- or a big pull that is available, and which, of course, then should drive accretion capacity. On the other hand, the developing situation on the sugar very clearly indicates that there will be a push to produce ethanol on different routes and not just stick to molasses. [indiscernible] routes on the syrup side of the equation. And we are currently engaged in dialogue with several producers to see how they can use syrup for production of ethanol because in some syrup obviously the ethanol quantity would be higher. More important than that is also the fact that there's a big technology play there because you cannot store syrup for a long period of time. It goes bad. So you have to treat it specially, store it in a special way, and then use it in a specific way to produce ethanol out of it. It's a requirement and that creates a business opportunity for us because we have the technology. On the syrup side, as you probably would know, as a company, we have very deep experience internationally. Our famous Columbia projects were all based on this and several others after that. So in terms of converting juice to ethanol, there is a very rich, very deep experience available with the organization and that we believe will be put to good use.

Sir, the last 1 is, if we did at a consol minus standalone, so this HiPurity business has done a very better margins. So any outlook, sir, for the sustainability of these margins for the HiPurity?

So we have embarked on a plan, as I had mentioned in my remarks as well to ensure that we deploy a strategy of focusing on a few key customers very, very strongly, which obviously enables us to not only create deep relationship, but also create better solutions, more understood solutions, and if we can create a higher value, we can also capture part of it, which is what you see reflected. And there's also a push for selective internationalization in the business, and we will see how that develops as we move forward.

We take the next question from the line of Sadanand Shetty from True Equity Advisor.

Congratulations, Mr. Joshipura and your team for the top ranking. Can you please share me the metrics that has been evaluated for this? That is my first question. I'll come to next question after that.

So Sadanand, as I mentioned [Technical Difficulty].

Sir, I'm sorry to interrupt. Again, we had the audio disturbance from your end, sir.

Sorry, can you hear me now?

Yes, it's better now.

All right. So thank you so much for your good wishes, Sadanand. As I mentioned, this is a global publication with a very high following. So they have their own methodology. They told it among their members. I think that's what probably they'll do and ask them to rank these 297 companies that participated in this globally. And then they come out with a rank. There is no -- we have no visibility to what exactly they want to -- what exact criteria they use because they -- obviously, it's their own internal methodology. That's -- I hope that answers your question, but it was really a moment of pride that we were rated, and there were some very big companies out there who were also part, all the big oil majors, all the big green energy companies globally, so 297 were there.

You talked about managing current situation. Is there any change in your business priorities in the medium term, which has an impact on your business plan and CapEx program?

So the way we look at it is, of course, we have to evaluate our response to the situation as it develops and different segments may need -- will need differently calibrated responses, and that is what we are currently working out. In terms of CapEx, we are not a very CapEx heavy company. So that's the good part -- what is important for us. And which is what I mentioned, is our R&D expense. We are a technology-centric company. What we have done is we took a decision that there will be some cost cuts program, but we will not cut any cost or any -- reduce any budget for R&D. We'll continue on our R&D program with -- the only thing that we have done is, we said all right lets just understand what can create a deeper impact on our business vis-à-vis our earlier program because of the changed circumstances. So that we have realigned our expenses. But other than that, our R&D program continues on the same cost level, the same budgets, no change for them, except that they're a bit reorganized to have a deeper impact. On the side of CapEx, as I mentioned, we are not a very heavy CapEx company. Each business will have to evaluate, for example, our HiPurity business, what happens to the pharma segment as we go forward, our main core bio-energy business, what is the development in different economies, maybe we have to give different responses to different economies, it may not be same. So we are aligned, we are agile, and we are aware of the fact that 1 shoe may not fit all, and we'll have to create different set of responses for different economies.

We'll take the next question from the line of the Deepesh Agarwal from UTI Mutual Fund.

Sir, my first question is, if I look at the inflows in export, it has been quite weak this year, especially in the past 2 quarters. What has led to such a sharp fall? And when do you expect it to recover back?

So it's about a good observation. Yes, we have seen some slowing down of order inflows from our international markets. A couple of reasons. One is, obviously, a slowdown in capacity creation that we were witnessing. You know United States had a very different problem in terms of, if I remember my numbers correctly, over 60% of the ethanol plants in the United States have closed down, shut over a period of time because of this oil crisis and things like that. But it's not that there will be -- that was also evident for some time and was going down on the ethanol offtake that's a policy. Therefore, I think, the different markets have seen different levers that have come into play. We have seen not too much of greenfield capacity being created in several of our leading markets like Southeast Asia or for that matter in South America, which had a different set of problems. And as they were coming out of this curve, and we are beginning to see green shoots in terms of definitive inquiries, definitive interest where dialogue has progressed, we were struck with this global problem. So we'll have to see how they reopen and how we will recalibrate. Early for me to comment on what or how it will happen. We are in close touch with our customers. There could be opportunities that may emerge out of the current situation as well. We'll have to see as to what actually. I'm not able to predict, but on the looks of it, maybe pharma-led alcohol could become an opportunity as we move forward. I'm not able to put a definitive figure yet on that for the obvious reason. We are also based on our business of ours, which is very strongly export oriented, if there are chemical processing equipment and skids business. There, we have -- I would like to submit that we have made some deep relationships with our customers. We have signed a couple of agreements, but again, the current situation has sort of pushed everything out on a different timeline. So we'll have to wait and see how the recovery plan happens at our customers end as well and their customers, and we will calibrate accordingly.

Okay. And next, on the domestic side, again, there seems to be some hurdle we are facing in converting 1G opportunity into inflows. So can you touch upon what are the challenges and by when you expect them to resolve in converting the 1G potential into inflows?

Yes. So as was also earlier asked of, I think we all know that there is a very progressive set of policies that were announced by the government to drive ethanol blending program in the country and also the ethanol production, which has interest subvention program, the policy for blending. There have been many steps that have been announced in the National Biofuel Policy in 2018. When -- and there was a rush of people wanting to set up. They freed up the feedstock, there were differentiated prices based on feedstock. So several levers or several incentives in a manner speaking were put in place by the government. So great work done by them. However, 2 things, one was that the natural producers of ethanol. Many of them had stressed balance sheet, sugar industry specially, not all, but some of -- many of them. And banks were averse to lending to them. So that became a big bottleneck to this all. So funding, so people had the project, they had the raw material, they had the end market, but the mechanism to actually tie it together and a stressed balance sheet to create a perfect mix out of this was something that was not happening. I think sugar is on a negative list of the banks for lending. So there are many of these factors on the ground in terms of capacity creation, not ethanol. Ethanol is [indiscernible]. So I think what has happened is the capital formation has taken longer than one would have desired. So that's one very clear issue. Last year, specifically, we also saw a very different situation emerge that Maharashtra had a very low production owing to both drought and excessive rains. So that created some imbalance in the system. Based on whatever has happened on the monsoon side over last -- in the last year, finally, we expect that over the next couple of years, good cane crop to come through, which is also reflected in the recognition that government is not pushing for syrup-based production because syrup can convert much larger ethanol volumes compared to sugar-based molasses. So we do see some positive factors coming into place. But again, those are in a normal market scenario. What happened post-COVID in terms of how the recovery rates are, we have several interests from many companies for understanding how syrup can be put to use in the coming season, I think, in October. And as I've mentioned earlier syrup needs treatment to store effectively for a year. It allows them to operate on sugar for 1 full year, which is a very, very big plus for the capacity. So there are additional positives, if I can use that word for the industry to switch to syrup. We are very glued to that. We are in the pole position in terms of technology, in terms of experience, customer relationships. So we'll have to see how this evolves.

Sir, lastly, if I read news article, it seems like the work on some of the bio-CNG plants in the country has already started like 4 projects in Tamil Nadu and all. So in your assessment, how many plants are under construction on bio-CNG? And what proportion of plant Praj is executing the project?

As I was mentioning earlier, the big problem on bio-CNG from a raw material stage of the press mud or agriculture-based feedstock to bio-CNG conversion, CBG conversion as the case maybe. There was a big bottleneck on the clarification of the pricing because pricing was not visible beyond 1 year, as we check beyond this calendar year. That has now been resolved in January, and government has now given us, counting this year, 9 more years of visibility in the pricing, which has been a very, very positive development on that front. That's all it -- that's to track a little bit. We already have over 55 plants commissioned in the country based on spent wash based biogas generation. So this is not the first plant. So it's a different feedstock, that's is it, right? So there the focus was on treating the effluent and then taking the biogas as a byproduct. Now when this program comes through, people will put it up as a main product. So there's obviously a little different approach, treating effluent versus treating the output -- byproduct as a main product. So that is calling for a different setup because now it's no longer an effluent treatment plant, it's a production system. As I'd mentioned in the past, we already -- and the 1 big source for that is the customers coming out of the sugar mills. We are building country's first press mud-based plant of a very large size in North of India already under construction. As we speak, we already bagged order for another 1 this year already. So the movement is visible on the CBG side from our knowledge base. And as I was mentioning earlier, there's another segment, very interesting segment that is emerging and that is a carbon footprint reduction based approach for CBG plants. And we are already cruising on that as well. So several dialogues undergo there as well. So we will have to see how -- when the things start to normalize at what speed they come back. From our dialogue that we have been having, and we ask this question very specifically to some of your customers saying, so when you come back, that carbon footprint reduction or sustainable form of energy or cost reduction energy, does it take a back-foot. They said no to the contrary. So that's a good news for us. So we are only hoping that things return to back fast, return to normal past and we are able to build further.

Okay. And sir, lastly, just a follow-up. You mentioned on the gross margin expansion, I missed on that. So what led to gross margin expansion? And is it sustainable because I see it's almost 20-quarter high right now?

Yes. So I was mentioning about expansion has happened on account of the export orders, which got executed during this quarter. So it's a mix of revenue, which has contributed in higher margins.

So going ahead, do you expect it to be kind of a sustainable range, given we are expanding into new project?

Not necessarily that this will continue in the similar thing because we will -- again, we'll have to see how the composition of sales happens in the coming quarters and what will be the composition from the exports and domestic. Depending on that, that margin will change to that extent.

Next question is from the line of Sanjeev Zarbade from Kotak Securities.

Sir, my question was on the cash and liquid investments that is there on the balance sheet, if you could tell us that?

So Sanjeev, the total cash and liquid investment, which we have is in the range of INR 226 crores.

Okay. And sir, regarding your thoughts on the buyback and dividend policy going ahead?

So I don't know whether you noticed or not, we have already taken a decision in yesterday's Board meeting that we are not going ahead with buyback. Considering the current situation and to look at the conservation of the cash, the Board has not approved the resolution to go ahead with the buyback at this point of time.

Okay. And sir, thirdly, we have a decent order book, which is like up in double-digit levels on a year-on-year basis. But the first 2 months of current fiscal has been because of the restrictions, it has got kind of impacted. So are we in a position to recoup the revenues in the remaining months of the fiscal, so that we would be able to manage the revenue level of last year, at least?

So there are 2 dimensions here Sanjeev, one, can we execute and produce results that are required to meet this number? And do we have capacity to do that? The answer is yes. From facility sense that we internally have the capacity, the answer is yes. However, there is another dimension to this, and that is the situation on this end and the customer as well, how they are prepared, how their balance sheets are or their loan disbursements are, their projectables are. So -- and there is not -- we have come to a period when everything was sort of shut. So we are not in a position to asserting the second part. We have broad level confirmation from them that, yes, we're not scratching the project and we are going ahead. That's a good news, okay? Yes. So this is a good news, right? However, for us to ascertain their exact cash flows, when will -- maybe this is little too early for us to comment on that. In terms of capability and capacity, we can. We have to marry it to the market processes, yet.

May take the next question from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, the government has now mandated that ethanol can directly be produced from the sugarcane juice itself. And what kind of retrofitting are you expecting going forward? I mean, what can be the landscape on new order intake or the retrofitting that can happen in the existing distilleries, sir?

I'm sorry, but in between I was losing you maybe because of my connection, could you -- did I understand the question correctly that with syrup what was likely scenario?

Yes. Yes. Yes, sugarcane juice part on this.

All right. So as I was mentioning that sugarcane juice to ethanol is a route that is open, number one. Number two, the commission, we have over 10 years of experience now in designing, manufacturing, installing, commissioning and tracking performance for several plants globally based on juice to ethanol route. So very, very rich experience with Praj as a company, which is absolutely unparalleled. So that puts us in a good position to serve this need that will -- that is likely to emerge based on syrup. But as I was mentioning to you, syrup has 2 dimensions. One is, of course, that it gives an increased yield on ethanol side, no question. On the second, you cannot store syrup just like that for the full year. I mean, if you just want to run it in the sugar season, that's one way to look at it, but then that is unnatural because the demand for the product is like through the year than ethanol as a product. So if you want to run this full year -- I'm saying, sorry. I'm saying if you want to run the product, ethanol production for full year because the demand for ethanol is for the full year, you can't -- just juice itself will not be enough because that will not be possible to store safely beyond the production season, which is just like 150 days in a year, maximum 120, 150 days in that range. So what you do is you have to convert that to a storable form of syrup, what we call in bio-syrup. You need to -- so there's a processing required, there's a conservation required, and then there's a reorientation required for the plant to make that happen. Then you can run it for full year. Okay. And that's the technology that we have with us. So we are expecting there's a lot of dialogues that have opened right now, several dialogues with the India-based sugar mills and ethanol producers to see how this could be done in the next season. Given the situation from where we are coming, this is still early days for me to say, okay, this is -- this presents opportunity worth x crores in this quarter versus next quarter. That is too early to say that. But a very definitive dialogue is open. There's a lot of interest. We have the technology. We have the experience. There is a good case, good financial case for producers themselves, so, therefore, it should be a positive development as we go forward.

Okay. And what kind of yield improvements are you seeing, sir, in this case? I mean, if you take both aspects into account, the storage part and the application for it to hold on, how much -- what is the delta in going through the direct part and then going for the molasses one?

So that is what we aimed at. Yes, so we have to -- what's the product mix that sugar cum ethanol complex will decide for itself. It's a factor of many things, right? What is their own molasses production? And what is their position on sugar? How much of syrup they want to divert? How much they want to produce during the season versus after the season? So it's a little complex calculation to be done, which we are ready, and we are sharing with our customers. I'm not able to give you a ready thumbs-up kind of a rule saying this is what happens. I expect to tell you that the numbers that we have run clearly indicate that you are able to -- this is the revenue, and therefore, margin maximizer approach for the producers to opt for the syrup route.

Okay. So it is a profitable one?

Yes. It is available.

And there is a payback there, I mean, whatever the CapEx they will be put up.

Yes. Yes.

And say for -- say 100-liter per day -- kiloliter per day distillery what kind of retrofitting cost can -- any ballpark [Foreign Language]?

As I said, that depends on -- because is it that they will not produce sugar at all versus that they will produce some sugar versus they will go 50:50. So there is -- this is a complex question to answer for me right now.

[Foreign Language]

So as I said that because of the fact that the situation is -- there are too many variables, so if I assert a number I will [Foreign Language], so we need to wait.

Taking into account what the situation -- yes, sir. And taking into account what the current situation and the crude oil dynamics that are playing out, sir, what should investors look forward for companies like us going forward in terms of revenue? At least revenue side, what kind of definition can we expect, sir?

So as I was mentioning earlier during my comments that, a, in India, the oil prices have no impact on ethanol because in India's pricing mechanism ethanol prices are linked to sugarcane prices and the feedstock.

Correct, sir.

So no connection to what happens to oil. As you know, the government just keeps increasing the duty, excise duty on the petrol, so [indiscernible] convincing. So there is no likely impact of oil prices onto India's ethanol. The current bit of demand that you hear about is because, I think, the consumption still has dropped because of the mobility move reduction. That's come back to normal. So that's 1 balancing. Internationally, different markets are behaving differently. For example, in United States, one fact is that nearly half the capacity is shuttered for ethanol, right? But the rest of the half, which is there, they are wanting to become more efficient in their operation side. They want to cut out their operating costs. So that creates an opportunity for us because our technology can help them do that. Okay. So maybe opportunity present in United States are situations like that. In Brazil, it's a very different model because there the producers have flexible model between producing sugar versus producing ethanol, right? And they are at a different business cycle compared to where sugar season is right now. So we have to see different markets. We will have a very -- and what happens to the sugar production. In India, already, we have seen a dramatic drop in sugar consumption over the last 2 months for obvious reasons. So all these dynamics, but 1 thing, I guess, in all these dynamics 1 dimension that is -- 1 indicator is that the ethanol consumption in India is not impacted except for this brief mobility-related issues. So there's a big gap between what is required versus what is being produced. So that is another driver for the demand. In the international markets, the demand for technology-led solutions will be higher as against setting up a new greenfield project or anything like that. And we have to see next quarter when we talk about, we'll also have some clarity on the pharma-grade alcohol, what's happening. So there will be different drivers coming up that will emerge out of this situation on the other side of the curve.

And for the U.S. front, sir, you told 50% -- they are running on 50% capacity. What -- demand destruction is the only reason? What is the reason why they are on?

Yes, it's a very balanced market. So as I said, that 1 big reason, of course, is the drop -- big drop in mobility, right, big drop. The second one is what's happening to the oil prices because there the ethanol prices are linked to oil prices. They are not linked to sugarcane prices or corn prices or anything like that. That is the second dynamic at play. The third dynamic, of course, is the policies that the governments in different markets announcing. U.S. sometime ago did announce that the small refiners don't have building obligations versus large refiners have building obligation. So different dynamics at play. I was mentioning about Europe, for example, in my opening remarks, where I said that our understanding at the beginning of this year was that because of the RED II directives there may not be any new creation of 1G capacity. But now with the realization that 1G -- 2G capacity may take -- it does take longer time to establish some ground compared to 1G project, they may actually consider getting up some capacity locally on 1G side to meet -- to build the gap. So different factors are playing out in different markets, and we'll have to tailor our response for every one of them.

Sir, in all, it is not a grim picture if we take our industry, so we only have to weather the storm.

Yes. And I'm just looking at -- I mean, yes, that is a storm that everybody -- every industry has to do this.

Every industry has to do, right. Other than that, it is not the problem of more -- business revenues are opened up. So it is only for us to rightfully grab and position ourselves correctly. That is what the sum total we can take of.

That is correct.

And other than that, sir, you were speaking about formaldehyde, I missed that opening remark due to poor connection. Sir [Foreign Language] barring the ethanol 1 and that 2G ethanol which other arenas are there where now Praj is exploring?

No. So I think I mentioned that worldwide the need for pharma-grade alcohol is likely to go up because of the huge usage it may find in space sanitization and personal sanitization because alcohol is the base. So very early days yet, but we expect that that may -- and when that happens, the natural producers are the ethanol producers because they already have the most of the infrastructure. We have a technology called EcoSmart that allows us to position ourselves in a good way. It's a very proven technology. So we'll have to see how that scenario unfolds.

And what kind of business opportunities, sir, we are looking in this formaldehyde space?

As -- what formaldehyde? I don't know what to give you a number. All I'm saying is, we know that right now the spaces are closed, right? All the big public spaces are closed, they are not open. But as and when they open, whenever they open, there will be a big sanitization price, right, again on a constant basis. So that is likely to -- and I'm saying that is likely to create demand for pharma-grade alcohol. So how that's being developed we will have to see.

We take the next question from the line of Arvind Joshi from Bateleur Advisors.

I just had a query, recent stimulus that the government announced for the agriculture sector had a large amount for agri-logistics. Does this include the agri-logistics and the aggregation mechanism that would be needed for our CPG because that will provide a very big missing link in our plan?

So I think the details are still not out on that. So that is number one. Number two, you're right, any stimulus too on the particular side of the feedstock will obviously aid the industry. But very early days for me to comment because the details are still to be out [indiscernible].

Okay. Especially in the light of this migrant problem that we are facing with so many people have migrated back to UP and Bihar, I think we could have a very strong [Audio Gap] position to explore that. That was the first view, right?

I think what you are saying is very valid, and I think we'll have to see how this whole thing in terms of the people who shifted back would they look for...

Yes, they could find environment there. Exactly. Okay.

Yes, will they not come back? So those are questions on which -- what I will call society models have been formed, and economic impact, we will have to see. But, yes, any move that -- because this is clearly -- just we've always been arguing that this is a technology that creates employment in the rural sector. We have talked about the fact that the whole concept of bio-economy is this that, a, nothing is wasted; b, it creates a local capability; c, it creates local employment, especially at rural scale, which is very, very critical. It is foreign exchange accretive, it is efficient, it is greenhouse gas efficient. So for us it is environmentally friendly, society friendly, it is economically viable, and therefore, we should get a lot more push. And what you said right now is clearly in the direction that there will actually be a possibility to create a large-scale employment in the rural side.

Okay. And sir, 1 more thing I just wanted to know, are there -- do you see any silver linings to these dark corona clouds? Any chances of migration of manufacturing capacities migrating from China, especially in the critical equipment section and especially in light of your strong tie-ups that you've been able to build up with several people like Bechtel and all? So would that open up some fresh avenues to our business?

Our current view is that -- so there are 2 dimensions. There's an emotional dimension, and there is a rational dimension, as I call it. Mostly everybody wants to create alternate capacity, alternative capacity, right, alternative source. Rationally, it may -- it takes time to create capacity. That is number one. Number two, I think we have to be aware of the fact that we -- and I'm talking now more generally that we have to be -- at the end of the day, if you take 1 year, 18 months, 12 months, 9, 6 months, whatever it takes for distillery industries, at the end of the day we'll have to be at similar level of efficiencies and cost position. There is no taking that away, eventually when things settle down. Yes, there is a risk perspective. And from that perspective, I think people will look to diversify their sourcing, so which is good. We have to be fixed, we have to be competitive, and we have to be able to stand right shoulder to shoulder with every competition in global arena to win. That is not being taken out. The only additional dimension that is coming is interesting. Okay, I never thought there is a risk because nobody envisaged that such a thing can happen where the whole globe is shut. Now they're saying, "Oh, so the risk can come in dimension that I have not thought about. So at least, let me -- whatever risk that I know of, let me try and mitigate that. So that should create opportunity for us. Yes. We are ready. We are already -- at a company level, we have a global footprint that's been Praj's motto for years, almost since its inception, that we would like to be having a global footprint in our business -- core business areas that is very accretive, practically in every economy. So that's the positive side we understand.

[Technical Difficulty] stay online I'm just trying to reconnect. Participants please stay online while we're just trying to reconnect Mr. Shishir Joshipura for us in the call. And then meanwhile would the other speakers like to just take over while we are just reconnecting the chairperson?

So Arvind, Shishir was giving you answer related to what will be the implication because of the shift. Definitely we are also eying for that. We are also having a very close monitoring of that. We believe we will have some kind of an advantage of our relationship, which we have built up in our critical equipment story. But as he was also mentioning, it's a little time-consuming process.

Yes, I can understand that.

We will definitely see a shift. And we are completely aware about and in touch with our customers to build up that kind of a relationship.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference to Mr. Sandip Bhadkamkar for his closing comments. Over to you, sir.

First of all, thanks, everyone, for your time today. If you have any more questions, you are free to write to us on our email ID, [email protected]. Thanks again for your time, and have a nice day and stay safe. Thank you.