Visit http://indiaer.blogspot.com/ for complete details Recently we had the opportunity to meet management of Praj Industries Ltd. We
had discussion with Mr Pramod Chaudhary, Executive Chairman of Praj Industries
along with his team members to understand current state of business and various
measures company is taking to bring itself back on growth track.
The synopsis of our discussion is as follows:
• On recurring disappointing performance of Praj for last few quarters:
There has been order cancellations both in Europe and North America due to
recession and though some orders were not cancelled officially by client,
financial commitment was not made towards the same. This is reflected into
Rs 150 cr order write-off by the company during September quarter. As on
September 30,2010 confirmed order-book of the company stands at Rs 600cr
to be executed over 12-14 months period.
• US senate has passed the law making 15% ethanol mixing mandatory: US
senate has cleared the bill making it mandatory for Oil companies to mix
15% ethanol. This move by US will create demand for additional bio refinery
capacity of approx 4bn gallons per annum. Current benchmark suggests
capex requirement of USD 1.75 for each gallon of bio refinery capacity
creation. Thus US Government’s move will present a business opportunity
of USD 7-8 Bn for Praj Industries. Company has informed that they have
started receiving enquiries for the same. However, they refused to divulge
any further details.
We are of the opinion that this move by US government to allow additional
ethanol mix is prompted by motive for employment generation and this
business opportunity is very real in nature. Praj will be able to win good
chunk of this business.
We expect positive announcement on this front during visit of US
president in November 2010.
• Company is taking measures to enhance management bandwidth: As with
most of the small to mid size companies, Praj had limitations on its
management bandwidth which was reflecting in muted project execution
and lack of new order wins. They had people with good technological
background but with limited relevant project execution capability. Recent
management shuffling with induction of Mr Prakash Kulkarni ( Exec
Chairman- Gabriel india, Ex MD- Thermax) can be seen as an effort to
address this crucial issue. They have shortlisted another industry stalwart as
replacement for Mr shasank Inamdar who is expected to lead the ship with
more vigour.
• Company has chalked out a sustainable long term strategy: The
management has drawn a clear roadmap to sustain momentum in existing
stream of business while at the same time nurturing R&D to tap emerging
and untapped opportunities to add additional basis points to bottomline
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