Praj Industries Limited (PRAJIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Praj Industries Limited Q3 and 9M FY '22 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Industries Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the third quarter and 9 months ended of financial year 2022. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking state are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarterly review. Now let me introduce you to the management participating with us in today's earnings call and give it over to them for opening remarks. We firstly have with us Mr. Shishir Joshipura, CEO and Managing Director; and Mr. Sachin Raole, Chief Financial Officer and Director of Resources. Now I request Mr. Joshipura to give his opening remarks. Thank you, and over to you, sir.

Thank you, and good afternoon. I welcome you to Praj Industries Earnings Call for quarter 3 and 9 months of FY '22. Trust all of you had the opportunity to go through our results presented for the quarter ended 31st December 2021. I hope you and your families are keeping safe and healthy. Let me now briefly take you all through the quarterly business highlights and industry developments, following which Sachin will take you through the financials. Recently concluded COP26 submitted Glasgow has brought a renewed focus on environmental issues and a dire need for climate action. Several nations have placed net 0 targets and have committed to energy transition in a constructive way. COP26 was a step forward in creating awareness and generating momentum towards sustainable climate action. India announced its climate commitments referred to a consumer, the plans to bring down carbon intensity economy of more than 45% by 2030, while achieving net 0 by 2070. Inclusion of energy transition and climate action in the union fiscal budget of FY '22, '23 as major pillars of development is highly encouraging from our business standpoint. We believe that the efforts to a sustainable climate action with focus on carbon intensity reduction will go a long way in India's journey towards net 0 target. The budget has taken due consideration of both. It is the labor intense informal sectors like MSME as well as capital-intensive formal sector. CapEx allocations have opposed at an impressive 4.1% of GDP and around 35% more over last year, which augurs when for propelling growth. We are very happy on inclusion of future impacting dimensions on sustainable development in this union budget. Introduction of additional excise duty on unblended fuel is a welcome step in line with overall direction of low carbon intensity economy. The budget also mentioned that green bonds will be issued for mobilizing resources for green infrastructure, which will help in building infrastructure for low-carbon economy. Let me take you through the market update. On the bioenergy front, ethanol binding program continues to gain momentum in line with 5-year road map acne by 2025. India has achieved highest ever ethanol blend of 8.1% in 2020, '21 with around 90% ethanol supplied from Hubei feedstock. The OMCs have tendered for ethanol requirement of 459 crore liters in the current ethanol supply year and have issued letters of intent for 369.4 crore liters as on January 16. To meet and fulfill the requirement of definite OMCs have released separate tender for 95 crore liter quantity of ethanol on 31st of January 2022. To give further encouragement for diverting excess sugar to ethanol, the government also hiked the price of ethanol expected from sugarcane by up to INR 1.47 per liter for '21/'22. BP announced availability of 17 million metric tonnes of surplus gains that can be used to produce SMR. In what is seen as a big push government has given a green signal to 196 grain-based ethanol projects amounting to ethanol production capacity of almost 859 crore liters per annum. As we go forward, some further favorable developments are expected in form of flex fuel policy, ethanol-bending, diesel, expansion of biofuel basket across different modes of transport and feedstock differentiating pricing for ethanol. On the international front, the European Commission has revisited its existing energy, transport and climate legislation in order to align them with the goal of achieving carbon neutrality by 2050. According to the suggested amendments of RED II advanced biocide will have a 2.2% contribution of transportation sector by 2030. Thus the total EU production capacity for all advanced biofuels is likely to reach 2.75 billion liters in 2030. This translates to an opportunity of setting up around 100 second-generation ethanol plants of 200 capacity each. Moving on to business updates. We signed an MOU with IOCL to explore opportunities in cleaner and genes sources for energy. Together, we will explore revenues such as production of alcohol to jet fuels, 1G and 2G ethanol, complex baggage and related products. We will jointly work towards swarming a 50-50 joint venture and identify partners to form special ores acres under the proposal line. We are very excited with this assertion and believe that this will accelerate the development of biofuel ecosystem in India. Our Bioenergy business continues its strong performance with a very healthy order book exceeding INR 600 crores in this quarter too. There is a strong momentum in the market for the capacity creation for ethanol based on state feedstock. Ethanol plants based on static continued dominance in order intake is around 2/3 of our bit. In December 2021, we launched an innovative solution to process sugarcane juice into a new sustainable feedstock bio setup for around the year ethanol production. Praj is first of its kind that patented technology for using biosyrup successfully demonstrated during the launch ceremony held at [indiscernible]. Sugarcane juice is a perishable and seasonal feedstock that cannot be stored for more than 24 hours. But if converted into condition biosyrup, it has a tolerability of up to 12 months. This facilitates sugar mills to produce ethanol beyond sugar season, thus helping increase production capacity and maximize revenue. There's been a lot of excitement for biosyrup globally, especially in Brazil. On international front, we are beginning to see good momentum building South and North America for setting new capacities for ethanol production. Successful commissioning of 2 pharma-grade alcohol plants in North America will pay for new business opportunities in the region. On the 2G front, execution of IOCL project has progressed to 80% completion level, and the execution is on track as per the plan. On the international front, our selling is technology has attractive attention from several customers in Europe and discussions have advanced with the investor group in Nordic region for deployment of this technology. On the CBG front, our 2 projects based on preset feedstocks are commissioned and currently undergoing scale-up and stabilization. The government has withdrawn subsidy for setting up of CBG plants. Different industry associations have already made submission for its restoration. On the positive side, gas prices are due for revision in April 22, which will announce financial detail of the project. As for the Engineering and PHS business, we are seeing continued momentum by way of healthy order book and improving inquiry basket. The 0 liquid discard business continues to find strong market traction in the metal sector with a very large order win from a metal major. We see this repeat order win from 1 of the leading Indian conglomerate as a testament of our technology and delivery capabilities. For the CPS front, business has built a robust order book and a healthy prospect base. Our team is successfully implementing F-16 strategy to work with a select group of progressive 16 global customers, resulting in preferred supplier status and a partner of choice. Modulation is fast gaining acceptance with global customers and is clearly emerging as a growth engine for the business. Our growth strategy to become a go-to company for modulization in green tech and fintech segment is holding for especially setup center -- we are especially set up a center of excellence for modulization, which aims to offer innovative modulization solutions and partners in energy transition. We executed a very large module order during the quarter, which will be part of the world's largest blue hydrogen project. We also won a repeat order from 1 of our key MNC customers for setting up an LNG plant in United States. This order holds great significance as first phase of this project was executed by a Chinese supplier. And our win is reflective of China plus 1 strategy, which helped us to succeed in sequeling Phase II of this project. On the brewery front, initial signs of revival are visible. However, major greenfield investment decisions are getting deferred. In this quarter, while we won several orders for brownfield expansions and our apple concentrate project is expected to be commissioned by end of this quarter. On the PHS business front, we continue to develop on steady-state growth plans. Leading pharma companies are realigning their portfolios to include complex injectables and our progress is evident through a large order win for process engineering and equipment supply in this space from a leading pharma company. Our offerings are pending high acceptance in biopharma says from customers both in India and abroad. On the operational front, we are very happy to announce that in the first 9 months of FY '22, we have already crossed order booking sales and profit for the entire year of FY '21. We continue to witness rising commodity prices, longer delivery cycles and logistics challenges. We have taken several steps such as real-time cost being advanced procurement of vertical raw material, development of dedicated engineering vendors to name a few to deal with the situation, even though we have learned to live with the pandemic. It's resurgence in the last 2 months has posed several operating challenges. Overall, there is a robust inquiry pipeline and sustained momentum in order wins. Our order book is continually building positively providing sustainability and visibility to our business. On the back of these developments, we are considering strengthening our execution infrastructure by way of financing our manufacturing capacity, plant modernization and utilization. As a sustainable climate action company to bioeconomy, Praj is contributing to concerning the environment. The Paramobility platform of renewable transportation biofuel solutions help sustainable decarbonization, while bioprint portfolio of technology solutions for renewable chemicals and materials soil carbon cycle. As mentioned in last quarter, there are small production capacity of plants using a ethanol technology reached over 10% of global ethanol production including China. On the basis of installed capacity of bioenergy plants worldwide, and I invite you to have a look at this, we have commissioned a climate action meter based on the farm to wheel principles, which -- this meter dynamically concludes CO2 equivalent emissions discuss globally using our technology. By the end of 2021, we have contributed to savings of 9.8 million metric tons of CO2 equivalent emissions including 2.7 million metric tonnes in India. We have a continued focus on coproduct development as part of our bioprism platform of technologies. Our prior metrics team has recently dispatched a trial shipment of 1.5 tonnes of our patented rice run wet to one of the MNC chemical major. Rian West is a natural wax that has a variety of applications in personal care, parasitical and edible coatings. Our trial shipment will be used for test marketing purposes and further developments at. Overall, our business environment is developing favorably, and we remain confident of positive business traction across different business segments. With this, I will now hand over to Sachin comments on the financial performance.

Thank you, Shishir. Just to give you an idea about the operations, total income from operations for the quarter stood at INR 585.64 crore as compared to INR 347.78 crores in Q3 FY '21. delivering a growth of 68.4%. EBITDA grew by 28.1%, stood at INR 51 crores as against INR 39.78 crore in the corresponding period of the last year. PBT came in at INR 50.25 crore in Q3 FY '22 as compared to INR 38.78 crore in Q3 FY '21, up by 29.6%. Profit after tax stood at INR 37.05 crores in Q3 FY '22 as compared to INR 28.16 crores in Q3 FY '21. For 9 months FY '22, income from operations was INR 1,504.31 crores as against INR 737.57 crores in 9 months of FY '21, up by 103.9%. EBITDA for the period under review stood at INR 127.7 crore as against INR 44.16 crores for the corresponding period. PBT stood at INR 126.83 crores in 9 month FY '22 as against INR 39.92 crores in the 9 months of FY '21. And PAT stood at INR 92.60 crores in 9 months of FY '22 as against INR 29.05 crores of 9 months of the previous year. Export revenues accounted for 17% of Q3 FY '22. And of the total revenue, 76% is from bioenergy, 15% from engineering and 9% from the PHS business. The order intake during the quarter was INR 956 crores with 80% coming from the domestic market. Of the total order intake, 64% came in from bioenergy, 30% from engineering and balance 6% from PHS business. The order backlog as of December '21 stood at INR 2,605 crores, comprising of 78% of domestic orders. Cash in hand as of 31st December stood at INR 488 crores. With all this, I will conclude my remarks. Thank you all for joining, and we will now be happy to discuss any questions, comments or suggestions you may have.

[Operator Instructions] The first question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.

Congratulations on a good set of numbers and the overall order book trajectory. I have 2 questions over here. One is the finance sector announced that there will be extra liter charge on the unblended feel. Now as far as the petrol is concerned, there should not be much difficulty barring some parts of the country or for private MCs to procure it all. But on the diesel front, what is the situation? And in diesel, we are also working on our solution, which you stated earlier. And secondly, on the margin front, can you throw more light for next 1 or 2 years, trajectory of the margin?

So on the unbranded fuel side, as you said that, yes, to the extent that the fuel that is being sold at the pumps if it is blended with ethanol as we -- in the coming year, it will not attract. But the important thing is it's not so much about will it attract or not, the understanding is that government is clearly signaling its intention to make sure that we move to a low carbon intensity economy. And that -- this INR 2 charge is actually indicative of that. And I think from that perspective, it's a very, very welcome step. This is a first step in that direction, but I think we are very happy with this that government is clearly indicating that the future is based on low carbon intensity fuel. And obviously, the moment that statement is made biofuels have a very, very important role to play across the segment. So that's 1 part. There is no program currently in the country on diesel lending. So there is no ethanol blending going on in diesel. We are working yet. And when the technology is finally reached the stage of BS VI engines also being approved as a part of this BS IV are already tested and approved. We are still working on that program, and we will let you know. So as of date, there is no blending of diesel going on in -- with ethanol in the country.

Okay. And on the margin side?

Yes, Bhagyesh on the margin front we are maintaining from the beginning of this financial year that there will be a pressure because of the input commodity prices, which are having an impact on the overall margin, one; and two, if you see the composition of our sales, the export and domestic, the proportion has completely changed. As compared to the last year, our exports are almost 29%. And today, we are having 10% and that on the expanded top line. So naturally, it is having some impact on the overall margin, if you look at. Question is on the -- going forward, we are -- as we mentioned in the opening remarks, we are taking several measures to work on the margin front. We have taken multiple actions to take care of increasing prices. And the new order book, which we are booking, we are naturally booking considering the current impact of the input cost. But of course, it depends how the input power cost is going to behave going forward. if it again rises completely the way in which it has seen in the last 9 months to 12 months, then the story is different, but we are trying to get this margin story under our control.

But this -- first part of my question, sir, the diesel next 5 to 10 years, what is the target? Okay, in petrol, the solutions are there that you can go up to 100% pixel also. But in diesel, there's a difference in the biodiesel and the e-diesel. So what do you think will happen in the next 5 to 10 years in diesel?

So I think the idea to understand is that if we have to blend ethanol into diesel, the normal diesel that is available, we can go to a level between, say, 5% to 8% of blending. And we know that diesel volumes are almost 3 to 4x of petrol volumes. So even at that, it will depress in creation of the market equivalent to the entire EVP 20 market. So from that perspective, our business demand will go up. We then, of course, we'll have to look at other dimensions also as to what the feedstock sources are and from which source we produce, et cetera. So those are the questions that you get answered as we move forward.

So Bhagyesh, what Shishir was making a mention about this is how the diesel scenario is looking like at this point of time, yes, there is no specific policy announcement, which has been made -- if you are asking from the cash perspective, we are working on how to have ethanol blending to happen on -- in the diesel. So we are trying to keep ourselves ready moment. There is any development on the policy front for diesel blending also.

We'll move on to the next question that is from the line of Vikram Suryavanshi from Phillip Capital India Private Limited.

And we really have seen very strong order inflow growth and just to get more clarity on order inflow, how is the traction of -- have we factored in the order from this biosyrup from Gevo and sugar in this order inflow? Just to understand, like, is there any big order which has really changed or how we see the traction going there?

Yes. So Vikram, thank you. So if you look at the quarter's order booking, almost around INR 600-odd crores is coming from the ethanol parts. But even at that strong order book, we are saying that 20% of this comes from our export order bookings. So that augers well for the business. So that's a positive development that is taking place in the shape of. On the Biosyrup side, we just launched the last end of -- towards the end of last quarter. So we have to wait and see. There's a lot of dialogue that has started with customers. We just launched this technology. And I'm sure that as we move forward, we will see traction build on Biosyrup based inquiries plan. But this order book has no element of Biosyrup in it at all.

Got it. One more because just to take it further on technology side, we have very well equipment in terms of handling any raw material and now the government support, particularly from sugar side like [indiscernible] and Biosyrup. I was just looking at the opportunity, can we take it further to the next level, particularly in sugar side. Because most of the production expectation from sugars in terms of ethanol are coming close 7 billion liter kind of annual supply. But is there any further scope of where we can work on the raw material side for sugar companies like beetroot or switch or go and really increase the working days and expand that capability to produce much more retinal from sugar side. Any thoughts on that side?

So Vikram, obviously, very clearly, we have to look at multiple levers if I could mention that way. So say, a sugar company can decide that it wants to add another feedstock. So it's process plant for production of snow. So that's 1 way they can go to a dual route if we , we can call it. Already, we are beginning to see some of the leading guys sugar companies already customer powers, they're already putting in addition to sugary feedstock, they're adding a state feedstock train to the plant to utilize it for the full year. Biosyrup makes it possible for companies to actually year on production based on sugar itself. We already have plant working on wrote in the world. So for us, given our progress and our exposure to the international market, having different feedstocks is actually a plus. And we are already seeing some movement in the direction. So obviously, the first plus start feedstock. And I think as we move forward, we'll see some of these combinations play out as well.

Okay. Okay. And last question from my side about this IOCL JV you've talked about. We already have tied with the sustainable aviation fuels. So how that IOCL will have been basically in structure and who will be the developers in this case? And if we can get more clarity on basically how whole things will pan out with our IOCL and Gevo and sustainable aviation fuel and other product?

So became the technology is being offered, it's the same technology that we have talked about between [indiscernible] and Gevo. So that's the technology that is being brought forward. The MOU that we have signed with IOCL is much more broad-based around biofuels. So it covers aviation fuels, it covers 1G and 2G and all, it covers CPC and other byproducts. So it's a much larger scope of -- under the umbrella of MOU. How the exit model will work out is fundamentally, we have said that both Praj and IOCL will form -- will explore forming a joint venture, which is 50-50 joint venture between Praj and IOCL. That, in turn, will look for setting up these capacities for biofuels across this entire spectrum that I mentioned to you about. And obviously, they've been operating partner as well that will come into play. You will hear about it as we make further progress on this.

[Operator Instructions] The next question is from the line of Deepesh Agarwal from UTI AMC.

Congrats for set of number. Sir, my first question is, in the past, you have highlighted that India requires some 10 billion liters of ethanol to teach that 20% mark. So out of this 10 billion liters, how much at the industry level have been already ordered?

If I understood the question. You're saying how much of the total ethanol is ordered out of the 1,000 crore capacity that we talked as incremental capacity build. Is that the question?

Yes. In terms of capacities. So to reach the 20% blending target, how much of the ethanol capacity is yet to be ordered out? Simple question.

As of now, about 30% to 35% of this capacity has been ordered out. It's not built yet. It's ordered out.

Understood. Understood. And our share in this would still be 60%, 65% market share?

Yes, that is correct.

Okay. And sir, with the incremental orders coming more from the grain-based ethanol, do you think the realization per order will be on an upward trajectory?

So Agarwal, the point is, as I was mentioning earlier on calls we have to see start as a feedstock. But if it gets as an add-on train to an existing sugar-based plant, then the capital outlay is different. If it's a completely greenfield project and the capital out is different. It's a brownfield expansion, the outlet is different. So we'll have to see in what form the final capacity actually turn up, but depending on what the basic construction of the plant, brownfield, greenfield and add-on train, it will determine the overall capital outlook for the plant.

Okay. Okay. And sir, can you give us some sense on how much of your bioenergy would be coming from bioCNG or 2G on the order book trend?

Sorry, could you please repeat your question?

How much of your order book on the Bioenergy could be coming from, say, bioCNG or 2G ethanol?

In the quarter, our entire order booking is on 1G.

Okay. Okay. And the last question, can you help us understand what is the extent of fit of commodity prices on the margin?

Sorry, sorry. So the overall impact on the margin because of the commodity prices is around 2%.

The next question is from the line of Saket Kapoor from Kapoor Company.

Sir, as you were explaining the impact of higher raw material prices that has resulted in lower margins. Sir, how is the back to back -- are we doing the...

Sir, your audio is not clear.

Am I audible now?

Sir, we request to use the handset mode while speaking.

Sir, firstly, you have explained the impact of higher raw material prices in the lowering of margins. Hello?

Yes, please go ahead. I can hear you.

Yes, sir. So sir, firstly, sir, what is our -- how is our raw material basket composed of the key elements? And how are we -- are you doing any back-to-back arrangement for procuring raw material with the intake of products? Or how are we covering the same to protect our margins? What steps are we taking for predicting the margins going forward?

So Saket, there are several levers that one would use for managing the margins. But what has happened in the immediate period that we are talking about and maybe some more time to come is the fact that there has been a runway and a much faster acceleration in the price rise of the basic like stainless, mile steel, and that rate rise has been much more significant. If it is a 1 point rise, one can manage to the costing. But if it is a continuous rise, as you execute to the order, then all the costs coming because our costs are contracts are not variable price contracts. They are fixed-price contracts. That's number one. Number two, when then that acceleration happens, then the only presses for it to be eating away from their margin. And we understand that. But these are, as I would call it, these are the transient factors. At some moment in time, in 2 quarters and 3 quarters, they will start to even out. What's important is what do we do next? And that is where I think very important is, a, we need to, therefore, be very, very innovative in our technology on technology development. This is what we are focusing on. As I mentioned, we are doing real-time costing and engineering to ensure that we -- as close as possible to the contracting, we are able to manage our cost points. We are doing several other levers on standardizing on mass customization to ensure through quick throughput and, therefore, reduce the cycle time of execution so that the exposure time gets reduced. There are several levers that we are using that we'll continue to use. In terms of a back-to-back agreement, the metal producers in the country have their own business model of engagement and selling, and there is no such thing as protection against future prices on steel. So we'll have to do contracting based on -- and we are doing several of that as well to buy in advance of looking at our order book, how much of steel can we buy in ahead of time. But then it is -- it's on other issues because there is cycle time issues, there are inventory issues, there's cash to issue. So we are finding a balance between all of these factors to see and minimize the impact of these runaway commodity price increase.

Sir, if we look at your longer period to sales ratio, it is very -- it has increased from -- on a quarter -- September quarter of 64% to 68%. So sir, on a normal trend, what should be that depending upon also on the competition of your order book? If you could give a trend, what should be the ideal raw material consumption to the revenue ratio?

So Kapoor, as we mentioned, I mean, because every we are project engineering company from that perspective, every 2 months or 3 months, the models don't change for us. But the mix may have a change because there could be a quarter in which international sales is higher, another quarter as other sales is higher. So -- but overall, as Sachin was explaining, we are saying that in this entire year, we see a 2 percentage point difference arising on account of the impact of these raw material increases on our bottom line.

The next question is from the line of Pratik from Niners. There's no rent from the current participant, we'll move on to the next from the line of Kunal Sheth from BNK Securities.

Sir, my question was regarding the CBG opportunity. You mentioned that the subsidy has been withdrawn. So this -- any specific reason why this has been done because this sounds quite counter intuitive because when this was announced that they want to get 5,000 plants and share of gas to increase in the overall in basket, this seems a logical thing to do. So why suddenly this change in stance is what -- if you can throw some light on this.

So Kunal, you're absolutely correct. It is contractive. And that's what I said that a lot of representation is already made to the government. There's also an impending price point change end of March for CBG because the initial price points that were declared were only up to 31st of March. And we have seen how the gas prices have only headed northwards for the competing fuel basket. So we are now awaiting what happens to the prices. It should be moving positive as well. what happens, whether there will be a price adjustment to take care of these, we'll have to see as the time unfolds. But we are -- the industry associations are dialoguing with the government to understand what are the next steps that they would like to defined to ensure that the policy goes are fulfilled.

Okay. And sir, so how does the subsidy effect the viability, I understand that the pricing will be revised upward and gas prices are going up, but in a steady-state world, if the subsidies are taken out, how should we elect the viability of CBG plan?

It does impact the IRR of the project. There is no question. and an immediate impact is that people will have to stop in their tracks and revisit their decision-making right as to what they will do. However, what has -- what is also happening is that we have to see in terms of the IRR for the project can also be then offset by a higher revenue realization on the other hand. So there are different drivers. And as I said, end of March is when we expect, that's number one. Number two, there is also a positive news on the core product side, that the fertilizer that comes out is a core product of this process has also found a very good traction and found a much higher price than what was anticipated because the quality of the fertilize is very high. So eventually, it will be a settling down of all these factors, what happens gas price, what happens to co-corporate price, yes? And I think that will have be settled. But yes, a small bit of uncertainty, but we do expect that in the next 1 quarter's time, that should get geared up.

Sure. Sir, my second question is pertaining to competitive intensity. If you can throw some light on how has been the competitive intensity while has been the dominant player and clearly benefiting from this transition. Have we seen especially in the lower ticket size of orders, the competitive intensity rising in some of the local players being much more active than they were previously?

So Kunal as you said, as the size of the opportunity increases to a very, very large pool, it does attract a higher competitive intensity for obvious reasons that there is much more food to eat. So from that perspective, it does attract higher competitive activities. The key question is then, over a period of time one has to start getting selective because when this kind of an opportunity opens up, then can also end up having a customer to be very, very careful about who are the customer segments that you try to address and work with, and that is the kind of focus that we are trying to bring to ensure that we don't end up addressing every single inquiry that comes our way to ensure that there is -- there's always this debate between what happens to the share versus what happens to your pricing power. So -- but more important is to ensure that we work -- continue to work with customers who value our technology. And there is a space for everybody in my opinion, in a very, very fast and large expanding market.

The next question is from the line of Sagar Kapadia from Anvil.

Yes. So this our other expenses, there is a sort of from INR 73 crores to INR 121 crore. So any specific reasons for the same?

So the other expenses as a component of your site-related activities. So in this quarter, there was a higher activity, which has happened on the site, one element. And if you are comparing with the last year's December number, mean YTD number. So naturally, last year, there was the travel restrictions were there also people who are not traveling. So other expenses were also not taking place this year. Naturally, it has -- it is back in the action. So the components which are sitting in other expenses are mainly related to site activities, which were heightened during this quarter.

We'll move on to the next question. That is from the line of Lokesh Maru from Nippon India AMC.

Congrats on the amazing set of results. My question is more around the order inflow. So sir, basically, given the size of opportunity with an amount that is there, like we discussed before, it was like the CapEx required is around INR 40,000 crores within this space and Praj is a leading player in that with major market share. So going forward, what is your outlook given our order book, given the opportunity -- sorry the INR 900 crores of quarterly inflow that we have seen this quarter. So this is peak -- sorry, this is the highest ever inflow. But do you see this as a starting point in the entire cycle of opportunity? Do you see at the mid of that opportunity? Or is it a peak? How would you put -- would you expect a higher inflow going forward? Or would you expect somewhere in this range or any outlook or any comments on back front?

So Lokesh, thank you for a very detailed question. Yes, you're right. We are witnessing a clear surge in demand for capacity creation for ethanol based at the back of the EBP 20 program. and order booking is reflective that if you see the order book developed over the last 4 quarters, it has continuously been increasing. And as was mentioned in the earlier part, I tell that we are right now, the 35% of the capacity has been ordered out. So we're still to go to almost 60-odd percent capacity to be built. The question is how will that 60% capacity will build, for example, if the sugar companies decide to divert sugar, that means they'll directly convert from, let us say, and again, from erupt ethanol or from last ethanol we'll have to see how these equations play out to actually arrive at a number in terms of what grows or rupees will actually get spent on the capital side. Will they as mentioning earlier, an additional train for managing grain during the lean period or off season. So several of these how -- in what combination this plays out is very difficult to predict. But I would say that we're not at the beginning of the cycle, but at the same time, we are somewhere 30% -- 35% progression of the site.

So 60%, 65% is actually yet to move it, right?

Yes.

So this INR 900 crore is not really a piece, but we can expect much more going for FY '23. Because the entire opportunity is packed within until FY '25, right? So that opportunity will be ceased within the next 3 years. Is that understanding correct?

Yes. So the government goal is that by FY '25, we should have 20% blending, which would mean the INR 1,000 crores odd liters to be additionally produced in the country. So -- and as we said, that this will gradually play out. So by '25, we'll need to have that capacity build, you're absolutely correct.

Right. Okay. And another question on micro part. Actually, we were discussing a small sugar company. So they mentioned that they are able to complete somewhere around 200 cal expand their existing greenfields were able to do brownfield at an incremental cost of 110 or 120 for 200. So I wanted to understand, is it possible to keep the boiler capacity as it is in that and the change on the delivery side? And I mean, how does it work? The brown print part? Is it possible at such costs? Because even Praj is working at such tight gross margins. It basically was a question for me, which would get some more clarity from you on this on brownfield?

So is the question that if somebody is an existing sugar feedstock plant, they want to expand using grain. Is that the question? And therefore, they are saying that we'll just add on a train for the taking care of the off season. If that is the case, then on off season, obviously, then he has the opportunity to operate on a different feedstock. And then he'll have to then see how is what I would call as the infrastructure is balanced out because I would not be able to comment on line in a little more detail. So maybe off-line, we can take this question.

We'll move on to the next question. That is from the line of [indiscernible].

So is the -- are you seeing any inquiries for the 2G ethanol as well?

Sorry, could you repeat your question, please?

Are you seeing any inquiries for 2G ethanol as well?

Yes. As I had mentioned, the 2G ethanol right now, of course, as you know that we are commissioning in different stages of installation and commissioning of the 3 projects in India. And as I was mentioning earlier, we expect traction to start building in Europe. We are already in dialogue with a few customers there, including an investment company to see as to how we can go to next step, they have come and witnessed had mentioned this a couple of months ago as well that they have come and witnessed our trial at our collaborators place in CCAB in Sweden, which we were able to demonstrate to them exactly the numbers that we had promised to them. So the dialogue is progressing on those lines with several European customers. We are not -- and there are some inquiries which are now beginning to flow in from India as well, especially from Eastern part of the country, and let us see how those developments move forward.

Okay. And how different -- how different is the CapEx intensity for 2G versus 1G?

Again, it is highly capital intensive. So we are looking at -- into this case, again, what is the feedstock, what's the condition of the physical characteristic of the feedstock that and you can say, how can you say that, but that is the truth that these are very high factors that impact the cost in a particular way. In terms of what would happen to the overall cost of a 2G project. One is much more standard. Then there are other factors, whether I will co-locate it with an existing plant for taking care of the infrastructure on the utility side, whether it's a brownfield expansion. So there are many factors that will go around determining the capital intensity. A 2G plant will have much more considerations to do before they can decide the okay, I'm going to put up unlike a 1G project where if you get a piece of land, you can probably go ahead and do a grain-based plant to in India, but that's not the case for 2G.

Okay. Okay. And any updates on the biodiesel opportunity as to are we seeing any demand inquiries for biodiesel as well?

No. We had mentioned that in the past as well, the biodiesel opportunity in India is very limited because there is no feedstock.

The next question is from the line of [indiscernible].

Just 1 question I have, sir, assuming the key raw material prices remain at current level. So what percentage of our existing order book will remain impacted in terms of margin?

So some portion of our carryforward order book, which is still not executed, which is up to at least June quarter because after that, we started taking measures related to current market prices. So we are still carrying some kind of a legacy of that order book, which will have an impact of around 2% on that also.

And what quantum of that order book would be a percentage of total order book?

Nashat, we'd like to figure it out. But yes, as I said, some portion of up to June quarter order book will have this impact.

We'll move on to the next question. That is from the line of Levin Shah from ValueQuest Investment Advisors Private Limited.

Congratulations on a very good set of numbers. Sir, last quarter, we had spoken about this about inquiry for 1, which has gone up by almost 1.5x of the previous quarter. But when we look at the quarter-on-quarter growth in the order inflows in bioenergy, then the number doesn't seem to reflect the kind of inquiries we were replaced. So has there been some postponement of orders? Or is it that we are looking at much bigger and much larger order inflows in next few quarters?

Sir, Levin, in general, I would say that our order booking is keeping is keeping up with the inquiry improvement as well. So I mean, there could always be a little bit of deferment between, let's say, December to January kind of a cycle, so which will effect. But we have no reason to believe that our order book is not keeping pace with our inquiry inflow. In fact, that is not a concern at all. for us.

Okay. So the current order inflow on an average last 2 quarters, we have received close to INR 600 crores kind of orders. Do we see this number moving much higher? Or is this a kind of trend that should continue?

So as I was mentioning to you earlier in one of the questions answered that about 30% to 35% of this delta capacity that had to be created, the country is now ordered out. So we still have to go through the other 60-odd percent to be ordered out. And what pace at what speed it gets or is also a function of many other things, right, the project funding and the land and licensing and agreements with the OMCs, et cetera. So those factors will play out. But eventually, we will have to see if we to succeed this capacity has to be based.

Okay. Even if you look at the order in the Engineering segment, we have received...

Sir we are not able to hear you clearly. Can you give the handset mode while speaking?

Yes. Is it better now?

No, it's still the same.

Yes. So sir, on the engineering side of the business, we have received a very good order inflows in the quarter. So if you can through some light, is this a particular large order or we are seeing good traction across in the engineering segment?

No. So as I was mentioning, that -- on the brewery side of business, there is still no traction that we are witnessing. So that is the fact that brewery capacities are still not being put up in the country. On the other hand, we did see a large size zero-liquid discharge system or as a repeat order coming from 1 other customers. That was one. And of course, the important development has been on our business side where we, as I was mentioning to you, and we've been talking about in the past, if there's a focused effort with a set of customers, very clear offering being made to clean tech and gen tech companies who want to commercialize their technologies. As also our efforts to work with some of the leading -- and the China plus 1 strategy being paid out that is being talked about in the newspapers as well. all of these factors are beginning some of -- we saw them play out during the quarter, and we have no reason to believe that, that will not continue to be so. So we have mentioned a large order that we got in the last quarter as well and not only 1 or we got multiple of them in the last quarter, where -- we had -- in the first phase of the program, it was a Chinese supplier, but exactly the same set of equipment and technology when it came to Phase II, we were able to win it over so.

Right. And even on the export front as well -- just a follow-up on the export order backlog as well, we have seen the highest ever export backlog as well. And now with what you mentioned that export inquiries are also going up. So even that business would see a pickup going forward?

That is correct, Levin. The thing is that the India opportunity is really at a very high pace. So export is -- for exports to keep at that pace is what Sachin was mentioning that we do find a bit of lag there because export while we are increasing and increasing significantly, the India opportunity is rising very rapidly. And so it may be a bit of a difference in speed of both. Both are increasing, both are in a good speed, but India opportunity obviously most has been.

The next question is from the line of Bhalchandra from Kota life.

Commodity prices stay in how relatively, our profitability will change because now most of the orders are at a relatively better steel prices. So how our profitability will show increment over there? Will we be able to show any operating leverage?

Good question, and that's what we are trying to do, Bhalchandra, if you look at the material prices, it looks like, unfortunately, it is unpredictable, but it looks like that they are stabilizing now. And if you look at this quarter stand-alone basis, there is a slight improvement in the margin. So we are believing that we are in a position to arrest the adverse impact of input material cost on our bottom line. So this is what first signal, which we are taking post last 2 quarters, negative impact on the profitability. Our efforts for endeavor is now to see how the improvement can happen in this margin. But it's completely -- I mean, it is not what I can say, a predictable kind of a tool, which we have which we can say that no the next quarter, it will reverse because again, there are 2, 3 more components which are going to play a part. One, what is going to be the sales composition of our execution. -- which also includes what we are going to do on a supply side and what we are going to do on the construction side, one. And second wise, what is going to be the component of our export orders, which naturally carries definitely better margin as compared to domestic which plays favorably on our overall margin. So we'd like to see -- and we had -- at the beginning of this financial year, we had mentioned that this year is going to be a little bit challenging. And we are not an exception as compared to what other market elements or other companies are seeing. So still, we are trying to figure it out how best we can take care of this. I think by end of March, we will have some kind of an idea how this trend is moving forward.

Okay. And on the market share side, since we are the oldest player, but obviously, the internal capacity addition was not up to that mark over the last so many years. And now the traction is the and peers like other peers like ex and other players are actually trying to get inroads in this are they creating any pricing pressure on the market? And do we see any market share impact because of all these things?

So Bhalchandra, the way I look at it like this. So if competition was in that's a good sign. That means they are also confident that the operative size is increasing because that's when you actually start to see competitive intensity and action increase. We are seeing that -- and I think every company will have to create its own value proposition of what they want to believe in and what's their value provision to the customer. Some will sell it based on a low cost. Some will sell it based on faster delivery, some will sell based on a lifelong high technology, better performance, lower cost of operations, reliability every company will have to find its own value proposition, and we are seeing all kinds of competition. Everybody has their own value provision to the customer. And for every segment, there's a value provision that was more than others. So that's the way it's working out.

And Bhalchandra, if I may add on what Shishir has said that if there are some kind of a run of the mill kind of in inquiries, we are even not entertaining those. They are not even looking at if there is no technology age, which we are supposed to provide as compared to the competition, we are not even looking at those inquiries. We are trying to concentrate on the very, very specific set of customers who value our technology to value our engineering super power as compared to the competition. Yes, there will be some kind of a pressure on pricing naturally because if you are evaluating 2 or 3 different competitors. Naturally, there will be a different ask from a customer, but our customers understand the premium which we are giving in our product offering. And there is naturally pricing which we command because of that technology is concerned. So if you look at from a market share point of view, it will look very different, but still we continue to maintain our market share at any point of time above 50% of the market.

The next question is from the line of Lokesh Maru from Nippon India AMC.

I just wanted to inquire on the other opportunities like I was reading on bio lignite that as had worked on with the client in Europe. Any progress on that front? And since that is actually one of the promising technologies coming forward in coming years? How big that market could be?

Lokesh I can't give you very clearly.

Hello. Am I audible now?

Yes.

Yes, I was saying Praj had come up with biotechnology of bio lignin, right? Which goes into as far I had been working with a European client for that, right? So any color on how big -- I mean how big that opportunity like that could be going forward and how big the market is there?

Okay. So okay, just to provide some port of clarification. We have developed a technology for Bio-bitumen. And that we had sent a test sample because I mean testing first sample and then a larger quantity to institute in Netherlands, which is the certifying body for same and that is you can use it in the surface is safe when you on the tenders. So that has now been done. It's whether and those test markets. Now we have to start looking at -- and you start looking for bio lignin based Bio-bitumen. Lignin is a base for creating that Bio-bitumen. And we are now -- you will hear about it as we move forward in the time as to how we plan to commercialize this technology. But you'll hear about it.

And there are there are no competitions in this segment in India, right, for this?

No, not to our knowledge.

The next question is from the line of Keshav from Bacon Investors.

Sir, my question is concerning Praj high purity health care. So I understand that the complexity in biologics manufacturing is far more than your chemical manufacturing, processes aren't that simple. On one hand, you have the equipment process side complexity. And then there is this client side competence that's needed. So with this background, could you help understand the industry landscape in India a little bit. As and if the current equipment market is largely with the global peers like Thermo, Sartorius, -- and if -- like how we plan to compete and yes, the overall competitive landscape?

Okay. So maybe that will pick up pretty long-winded session. So -- but I'll try and elevator speech briefly one. So there are different segments of pharma facility when this is set up. So PHS is currently providing high-purity systems. -- that is high purity water that is required. So water production, purification, storage and distribution, that is what they do for the pharma companies. They also acquire them, what we call as manufacturing process systems, which are then take the basic molecule that gets produced in ferment of the competition that you talked about and then help create regarded, of course, then there's a packaging section that we don't sort of go into. But what is important is that we are now beginning to position the business also a little differently by leveraging the fermentation, knowledge and strength that the parent company has got. And that is where we start to play out. We are already building a couple of fermenters for some of the leading pharma companies to see as to how we can actually bring value to that part of the business. And we are very excited about the future as to what role will fermentation play in there for the biopharma and so on. So that's a short answer for you. yes, we have not stepped into the fermentation space so far on the PHS side of business, but we are beginning to go there now.

We'll move on to the next question. That is from the line of Vishal Bharara from Max Life.

Sir, have we received any orders for Biosyrup technology yet?

No, we have not yet received any bias here of technology order in this quarter. That's what Shishir was making a mention. But the inquiry basket is strong. See, the next season will start next year. So the requirement actually will come up only in the next year from the sugar mill side for storing the sugarcane juice mix. So that's the reason why we will be expecting -- I mean our expectation is that the order book will start showing some kind of a number starting from next quarter onwards. I hope I answered your question.

Vishal, are you done with the questions? And this will be the last question. That is from the line of from ValueQuest Investment Advisors Private Limited.

Sir, on the CapEx side, so our capacity building, what we had announced last quarter that we are preponing it by a year. So if you can throw some light, what kind of investments are we looking at? And by when will be through or done with it? And post that, what is the kind of execution that we can do with the CapEx that we will do?

Yes, Levin. So we mentioned in our opening remarks about building up capacity because what traction we are seeing on the execution side going forward is very, very of high nature. So we are trying to build up our capacity on both the sides, 1 on the internal manufacturing capacity and also the outsourcing one. So we are right now trying to balance between these 2 and figuring it out what will be the requirement actually on the manufacturing side. And I think we will be firming up our plan during this quarter. So by the time we will be sitting next time, post next quarter, we will be in a position to give you a number also what we are looking at from the investment point of view. We used to talk about only on the outsourcing capacity enhancement. But now we feel that there will be a requirement to build up something internally also. And we will not only be able to support the requirement which is coming up on the biology side only through the outsourcing, which we will look at something to build on the internal side.

Understood. Sir, and just last question on the CBG front. So we have executed already 2 orders which are now under commissioning so which are already commercialized -- is there any other order that we have in our order book from CBG?

So we mentioned that 2 orders based on [indiscernible] are already executed and plants are commissioned. They are under scale-up and a stabilization at this point of time. There is 1 more order which we are executing, which is based on biomass for HPCL. So there is third order, which is under execution at this point of time.

Okay. And going forward, once like we are expecting that by March or April, the clarity over the subsidy post that, we will start seeing new inquiries and orders, right?

Yes. So the ecosystem, we believe that should actually come up in a more clearer way in the next quarter, and we will see movement on the CPG also case, you are right.

The next question is from the line of Rajamohan Vaikuntaraman investor.

Congratulations again on a good set of numbers. In 1 of your public conversations, Mr. Joshipura, you had indicated to a very tough American customer in pharma grade alcohol, whom you had satisfied post initial inhibition. Are you seeing the multiplier effects in that region play out? And say, post 2025, when we reach somewhere close to 20% ethanol blend in India, would we move the export leg in a much bigger way, taking up this lag whatever ag happens in India. So we say 2030, would we target -- where would we target exports as a percentage of total revenues?

So Rajamohan 2, 3 things. One is on the tough customer or a very demanding customer from net. Actually, it just so happens that we've just received the -- and I always say that this is the final test when a customer exes that. So we had given him a performance bank guarantee and is returned it back to us saying, okay, I'm having to plant. And we just set telling me in the morning today that they just came back late last night. So -- there's a proof of concept that the plant has been commissioned. Customers are very happy. In fact, it has written to me as well that we would like to work with you guys in the future as well. So that's a good part of it. Now that the plant is commissioned, we have a showcase in the United States to show a very high-end plant to be shown to our customer. In fact, we have commissioned 1 more after that as well. So I'm sure that, that will help us to build traction in that part of the world when we go and show customers saying. We've got a grassroot based plant, which can actually meet the best specifications of the alcohol in the world. So from that perspective, I think we are expecting that we will start to use and leverage the plant that we have commissioned 2 of them now in the United States. Did I understand your question correctly when you said that by 2030, India will start to export ethanol?

No, what I was trying to understand was by post 2025, India won't move at this rapid pace. By that time, you would have your several use cases in the export market also on play. So by cost 2025, would we see exports growing more rapidly -- and by 2030, would we have some internal targets from, say, 17%, 20% currently of export revenue to the total revenue would we be reaching, say, 30% of the total revenues or tranche?

Yes. So 2 things. One is post '24. We expect 2 more elements to emerge, which currently are not visible to everyone, but in India itself. One is -- what happens to the ethanol blending program for diesel, and we are pretty hopeful that, that will also come in to be an if that comes into being, it will get an equal size opportunity again. And the second one is about what happens with the aviation fuel. And I think that's where we know that there will be a traction that gets especially more towards that 3-year period, where we believe an ethanol could become a very good base molecule for conversion into sustainable sure. Those are 2 developments that we see could happen in India and more likely to happen. The Flex vehicle policy will also drive the demand beyond EBP 20. So those are 3 things that will happen that we believe on the India front. Coming to the interest side of the business, you are very correct. In fact, I am asking my team and we are focusing on increasing our in fact, as a saying and somebody also made an observation that our order book on interest business have also started to grow. It's just that they are going at slightly different speed compared to the very high speed of the domestic market just now. we are building international markets do take a little longer time to build, but we are very focused on building international business. And you are absolutely correct that our effort is to see how we can increase the share of contract business in our old pie, absolutely correct on that one.

Understood, sir. And since you talked about diesel, since we already have a 5%, 6%, 5% to 8% was mentioned in this quarter, blending technology capability in diesel, could we expect policy announcements to happen soon, say, by in the next 1 or 2 years? And Praj's progress on diesel R&D, are we seeing light beyond even the 5%, 8% blend possibility in diesel?

Yes. So thank you for that. Yes, we do expect that in a couple of years' time, we should see an announcement. It is also our expectation. That is number one. Because eventually, it does bring down the overall -- it meets all the goals that the petrol binding program meets, right? So why should it not happen on the diesel side. So that number. In fact, the environmental benefits could be even more enhanced on the diesel branding side. So that's one clear thing that we see as we move forward.

Right. One final question. In the last call, you had indicated to generating positive IRR on start feedstock due to the tireless work Praj engineers have been doing. Has it seen any further progress? And how close do the sugary feedstock economics have we reached? Any guesstimate on when will start the feedstock economics match sugary considering even economies of scale?

I think the sugar and starts are pretty even right now. The third one that I talked about was a lignin feedstock which is based on these straws and grasses and things like that, where there is a challenge of getting the IRS to the same level as sugar feedstock. A lot of work is happening in the direction I was mentioning earlier, we do expect actually that the commissioning of the plant will be a very, very important event, which we are expecting towards the later half of this year when we will commission the first plant in the country. The world is watching because it's the only plant in the world where technology supplier is commissioning a plant for somebody else. The user is different from the technology supplier. Everywhere else in the world, there are technical supplies were developing their own plans. So that's different. Now I'm doing it for somebody else. Obviously, the endorsement is much higher. There, the challenge of getting the IRR to -- I don't think the challenge is to get it at the same level. The challenge is to get it at a level by which it starts to attract the private investment. And we are beginning to see some initial traction now that we have done a lot of work. We have -- we've improved it from a negative 2-digit number to a positive 2-digit numbers. So that travel has already happened. But we are continuously focusing on also developing some core products that could also not only enhance the value, but will also help to improve the IRR. So that work is going on. But we expect that we should see or the -- let me put it like this, let me say, over the next 3 to 5 years is the travel time that we need to give to this technology to actually come to its full potential. And because then the question will be very different because there's a feedstock availability question that this technology will address. And right now, that feedstock is just being burnt, and then we'll be able to put it to good use.

Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.

Thank you, everyone, for your time today. If you have any more questions, feel free to reach out to Tim Valora. Also you can write us at [email protected]. Thanks a lot for your time, and have a nice day. Thank you.

Thank you. Ladies and gentlemen, on behalf of Praj Industries Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.