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Praj Industries Ltd
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Good day, ladies and gentlemen, and welcome to the Praj Industries Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
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 Praj Industries Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the second quarter and 6 months ended our financial year 2023.
Before we begin, let me mention a short cautionary statement. Some of the statements made in today's con call may be forward-looking in nature. Such forward-looking statements 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 in making any investment decision.
The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review.
Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Shishir Joshipura, CEO and Managing Director; Mr. Sachin Raole, Chief Financial Officer and Director of Resources.
Now without any further delay, I request Mr. Joshipura to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good day, everyone. I welcome you to Praj Industries' earning call for Q2 and H1 FY '23. Trust all of you had the opportunity to go through our results presentation for the quarter ended 30th September 2022. It is once again a pleasure to connect with all of you. Let me now briefly take you all through the quarterly business highlights and industry developments. Following which, Sachin will take you through the financials.
We closed the H1 FY '23 on a strong note with a healthy growth in order book and delivery volumes. The challenge around volatile commodity prices, global inflation, supply chain imbalance though softened existed throughout the quarter. However, with continued focus on customers combined with our technology progress and increasing favorable business environment, we are able to stay the course.
Global economy continued to face headwinds in form of geopolitical situations, high inflation and continued uncertainty and volatility on the energy front in several parts of the world. Energy transition is creating several new opportunities for sustainable fuels, and we are confident of leveraging and delivering to our potential.
India's EBP20 program is marching ahead of its target. There is a clear recognition that biofuels have increasingly important role to play, as they address multitude of issues across economic, social and environmental spectrum. Introduction of flex-fuel vehicles, ethanol-driven power generators, diesel blending program, et cetera, are likely to drive future demand for ethanol beyond EBP20. Earlier this month, country saw launch of pilot vehicles on flex-fuel, strong hybrid electric concept. This is a solution that will favorably address several dimensions of the ecosystem in future.
Recently, the Uttar Pradesh government has issued a comprehensive policy to attract big ticket investments in biofuels projects and increase agriculture income in the state. This policy aimed at supporting and promoting production of compressed biogas, as well as other biofuels in the state. The government has also given the go ahead to the MSME policy that seeks to open and promote such units in all the districts of the state.
Coming to the business update, our bioenergy business in '21, '22 sugar marketing year, India exported almost 11.2 million tons of sugar, which clearly indicates that we have enough sugary feedstock available for ethanol production in a sustainable way. Along with this, availability of starchy and cellulosic feedstock will ensure India can address higher ethanol demand in near future.
In domestic market, we continued strong performance on the order book and our execution activities are at the optimal levels with multiple project sites in different geographies. On the international front, the U.S. government passed Inflation Reduction Act, IRA, that has significant provisions for support on advancement of biofuels across different modes of mobility. As a result of this development, low carbon ethanol is likely to emerge as an interesting business opportunity. With the announcement of blending mandates in Canada and Mexico, our market development activities are finding good traction for lead generation in these baskets.
Our first project in Brazil is on schedule for commissioning at the end of this year. Our service business is receiving positive response from customers for combination of operation and maintenance and performance enhancer offerings. During our trials at few select plants in Brazil, we have successfully demonstrated performances of our PE solutions.
On the 2G front, our plant at IOCL Panipat was unveiled by the Honorable Prime Minister in August '22. This plant will benefit more than 100,000 farmers and is expected to create around 1,500 jobs for rural youth.
2G ethanol has high potential to displace GHG emissions, higher potential to displace GHG emissions compared to 1G. This plant alone will help eliminate around 320,000 metric ton of CO2 every year, which is equivalent to replacing 63,000 cars on road annually. 2G plant will address the serious concerns arising due to stubble burning. The success of this project will pay away for many projects in domestic, as well as international markets.
On international front, discussions are progressing favorably for establishing 2G plants in Europe. With Russia Ukraine war and energy crisis in Europe, it will further propel need for 2G ethanol, which is the most sustainable fuel alternative.
Earlier this month, International Civil Aviation Organization, ICAO, announced that ICAO member states have adopted a collective long-term global aspirational goal of net zero carbon emissions by 2050. This will give further boost of demand for SAF. In September, I had an opportunity to attend Global Clean Energy Action Forum organized by the U.S. Department of Energy in Pittsburgh. It was widely attended by different ministers, government officials and global CEOs. Organization across the globe may speak different languages, practice diverse cultures, but it was heartening to see everyone talking in unison about clean energy with zero emission.
On the CBG front, customers are now seeking solutions for different varieties of agriculture residues. Our R&D is working on a program to find optimal solution for addressing this need. After conducting extensive trial at our demonstration plant, we are integrating our learnings to enhance scope and performance of our solutions in the field.
On the CPES front, the energy transition phenomena is driving development of blue and green hydrogen projects across the globe, creating interesting business opportunity for this business. Our ability to modernize engineering solutions across the technology platform is helping us to create significant competitive advantage. Our additional capacity at Kandla is now fully operational and we are exploring further capacity enhancements.
On the brewery front, the beer consumption levels have crossed the pre-pandemic level, and we are now experiencing healthy flow of inquiries from India as well as Africa. The new capacity formation is expected to catch up speed in the latter part of FY23.
Our zero liquid discharge business, we see good business potential mainly from the private sector players and expect few important contracts to be concluded in second half of the year.
On PHS business front, our strategy of focusing on high capacity fermenter space is receiving positive response from customers, as this enable us to offer enhanced suite of solutions to pharma industry. PHS is also witnessing increasing traction in international markets with very healthy inquiry inflow.
On the renewable chemicals and materials front, Praj has entered into an MoU with ICT to establish Center of Excellence & Innovation for biopolymers. This center will undertake research, promote academic pursuit and explore newer applications, including developing biodegradable plastic solution to curb the plastic menace.
Before I end, I would like to share with you a couple of awards that we won recently. Praj received CAP 2.0 AWARD from CII for contribution in the climate action initiatives. Several different industry organizations, such as Indo-American Chamber of Commerce, Renewable Energy India, and Manufacturing Today honored our Founder, Chairman, Dr. Pramod Chaudhari's recognition for his contributions to trade and business and sustainability initiatives.
With this, I now hand over to Sachin for his comments on the financial performance.
Thank you, Shishir. Good day, everyone. Let me take you through the financial highlights for the quarter and half year ended September 30, 2022. The consolidated income from operations stood at INR 876.58 crore in Q2, FY '23, as compared to INR 532.41 crore in Q2, FY '22.
PBT has increased by 40.6% and stood at INR 65.78 crore in Q2, FY '23, as compared to INR 46.77 crore in Q2, FY '22. Similarly profit after tax stood at [ INR 48.13 ] crore in Q2, FY '23, as compared to INR 33.34 crore in Q2, FY '22.
For H1 FY '23, income from operations was INR 1,606.45 crore as against INR 918.67 crore in H1 FY '22. PBT stood at INR 120 crores in H1 FY '22 as against [ HY '23 ] as against INR 76.57 crores in H1 FY '22. PAT of INR 89.39 crores in H1 FY '23 as against INR 55.54 crores in FY -- H1 FY '22.
Export revenues accounted for 17%. Of the total revenue, 74.7% is from Bioenergy, 19.5% from Engineering, and [ 5.7% ] is from PHS business.
The order intake during the quarter was INR 981 crore, almost 93% from the domestic market. Of the total order intake, 85% came from Bioenergy, 10.8% from Engineering, and balance from PHS business. The order backlog, as of September 2022 is at INR 3,346 crore, comprising of 87.5% from domestic orders.
Cash in hand on September 30th is INR 514 crores.
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] The first question is from the line of Dhananjai Bagrodia from ASK Investment Managers Private Limited.
Thanks, sir. Is it audible?
Please proceed.
Hello. Can you hear me? Hello?
Yes. Please proceed.
Sir what explains the difference between stand-alone PBT of [ INR 82 ] crores versus consol PBT to -- PBT of INR 65 crores?
Dhananjai, we can't hear you.
Sir what explains the difference been stand-alone PBT of INR 82 crores versus consol PBT to -- PBT of INR 65 crores?
In other income, we have INR 20 crores dividend income coming from the subsidiary company, which is standing in our stand-alone results. But in consolidated, the INR 20 crores naturally gets knocked off. That's why the consolidated PBT looks lower than stand-alone.
Okay. And sir, our operating cash flow has come negative this quarter because of higher receivables. Any comments on that?
More than higher receivables, actually we had gone ahead with the increased inventory this time, which we have taken in last 2 quarters that we will go for very calculated inventory accumulation on the commodity side, commodity prices side. That's what has resulted into our inventory going up more than the receivable. Receivables number of days are absolutely flattish as compared to last quarter. This [ phenomenon ] of increased working capital is mainly on account of inventory pile up.
Okay. And, sir, lastly regarding our payables have reduced, are we losing bargaining power with suppliers due to dependence on them now?
Sorry, payables [ were received ], that's right.
Payables, is it, are we losing bargaining power with suppliers due to dependence on them?
No, no, there are various means and methodologies in which we are using free cash on our balance sheet. When we have any negotiation happening with the vendors, we also go for early payment with the cash discount for that matter. So these are the 3, 4 measures, which we have taken to counter the commodity price increase. One of them was to make the early payment for payables and go for the cash discount.
Okay. And so, lastly, regarding your margins, your margin is not improving despite falling RM. Is there anything, which you can read into that because our margins have been the lowest this quarter?
So if you look at even the composition of our sales is majorly or why majorly, it's almost tilted towards the domestic sales. Domestic sales it has, given the [ APC ] component, it is not only A and P component, but C component is also really plays a role there. And that component naturally carries little margin, as compared to your supply component, one aspect.
Second aspect, if you look at traditionally, I mean our exports are more than 25% or 30%, our margins are very different. But today our export sales, as I already mentioned, are not in tandem with the growth, which we are seeing in the domestic market. They are good. They are definitely better, but they are not running in equal speed with the domestic number. And that's the reason why this blended margin [ books play ]. Otherwise, of course, there is a component of commodity prices, which we are continuously saying that we will see this impact continuing at least since H1 and that's what has happened to some extent. It is coming down, but it has not completely gone away. So these are the 2 major reasons.
[Operator Instructions] The next question is from the line of Shailesh Kanani from Centrum Broking.
So first of all, congratulations for clicking -- clocking, I think, all-time high quarterly revenues. So my question is with respect to ethanol current capacity, current production capacity, as per you what is the current capacity on India [ on domestic basis ]? What is the capacity we are having on ethanol production?
So Shailesh sir, very clearly government has said that there is now a 10% blending that has been achieved in the country. So from the capacity perspective, I think that's where we are. We need to go to 20%. So we are at halfway mark as far as capacity is concerned in terms of what is required.
So I mean, last we checked, we -- I think we were at 850 crore liters, right, and ordering book of further INR 300 crores or INR 400 crores was already tendered. So I just wanted to know the opportunity pending on the order pipeline?
Correct. So as we had said last time as well that when the EBP20 program started, we had roughly estimated that 1,000 crores liter will need to get added. And we have said that we are at halfway mark on that, right.
So just -- no, no, just to get some numbers, right, last time, I think, we -- our interactions [ said that ] we were at 1,800 crores to 1,900 crores would be the potential capacity requirement to produce something in the range of 1,400 crores liters, right, or 820 liters, where 1,000 crores will go for blending and...
Correct. Correct.
Yes. So just wanted to know...
[indiscernible] straightforward number -- sorry, if you're looking for the straightforward number based on what is the current capacity already created and ordered and what is the balance? Balance will be in some -- somewhere in a range of [ 500 crores to 600 crores ], which we saw at the beginning of this year, something has got ordered during this quarter. So still, I believe that balance capacity creation should be in the range of 500 crore of liters.
Okay. So I just wanted to see till how many more quarters we can see good amount of traction on that front? Okay. So that answers that question. And just on your opening remarks, sir, you had mentioned that post EBP20 as well, we are seeing opportunity coming up, right, even -- so 2 questions on that front. Till what level do you see that kind of opportunity or what capacity you see over there? And also on the feedstock availability fund both of them [indiscernible] happen.
Correct. So as I said, that applications will change. So right now, it's very simple, plain vanilla, 20% blending, all vehicles on the road that run on petrol kind of market segment. But if you look -- start looking it differently and let me start, so we just saw the first flex-fuel vehicle, which was also strong hybrid connections, so which we believe is the ideal solution for India, was launched this last week by an auto company. So that is very positive development. So flex-fuel vehicles will drive demand because then it's no longer limited to 20%, and it can go all the way up to 85%. So that's the first answer to you.
Second, we have talked about the stationary, and I am not [ calling it ] stationary, what we call is DG Sets in the country, switching over to a more sustainable form of fuel, which is ethanol. That's the second one.
Third application that is likely to emerge would be about the application on mobile diesel engines and that's where -- one is the railway is one segment, and the vehicles -- automotive is another segment. So there are several other revenues. There may even be in future a development around the sustainable aviation fuel.
So several avenues will open based on application. There is telecom towers [ that you said ], there are many, many of those, which are currently running on diesel, but they can very sustainably shift to ethanol, and I think one is the EBP20 program, but all of these will also start to drive and the numbers one need to compute, exact numbers when we can probably connect back with you on that one. But that's an opportunity is even bigger [ in size ].
So aren't there any question marks on the feedstock availability? I understand last 2 years have been bumper and diesel is also -- it is expected to be a bumper on the sugar production side. But overall, in general, do we have that kind of availability of feedstock on a sustainable basis?
Yes. I think you picked the point that I made around excessive sugar production and export, et cetera. So that, that's very clearly one feedstock availability indicator to all of us that, that is adequate, number one.
Number 2, the bigger and actually the biggest opportunity is going to be the lignocellulosic feedstocks, which is why we have -- we are so positively looking forward to commissioning and handing over of the IOCL project because that will prove beyond any doubt that, that's the feedstock to stay. Currently, there is no use of that. We just burn it off, right. So there is a huge amount. So I don't know -- I don't think that -- sorry, not know, I don't think we have a -- currently any worries around feedstock availability, there is enough and more, of course, but we'll have to continue to find different feedstocks and their usage, as we move forward. But right now, I don't think that's the challenge at all.
Okay, sir. Sir last question, if I may [Technical difficulty]
Mr. Kanani, sorry to interrupt, I would request you to rejoin the queue, sir. The next question is from the line of Ravi Dharamshi from ValueQuest Investment Advisors.
I just wanted to check on the CBG. Are we starting to see any kind of traction on the ordering front?
We are beginning to see some activities developing. As I mentioned, the policy -- very, very supportive policy that came out from the UP government. It's just about 2 weeks old. So we will -- maybe a little later in the time, we will be able to answer this question in a more affirmative way. But we are clearly beginning to see activities beginning to develop in that space.
So there were some issues regarding the supply chain, those have been sorted out? Policy wise, supply chain wise, financing wise, everything is in place, and ordering is the only thing left or there's still something that we need to get right?
No, no. So it is -- the supply chains are very local issues in this case. It depends on where the location is very clearly. On the funding basis, there is a provision that's made available to fund these projects. But not many projects have come up and that's the -- that's the key point. So obviously, some more ironing out is required on offtake, et cetera. But in general, the environment for setting up of an ecosystem involving CBG plants is becoming visibly more favorable.
And just one last follow-up from my end. On the margin fronts, of course, you gave a good explanation of the domestic and exports mix, but just to understand, steel prices have fallen almost 60% from the top, and also, our gross margins, which had used to be much higher earlier, so -- and you have earlier guided that this year, we are likely to double digit. So just wanted to check, I mean, first half almost gone and we are still at -- stuck at sub-8% kind of margins. Will we be able to still stick to 10% plus kind of margins guidance?
So we are not giving any guidance on what the next [ movement ] will look like, except to tell you that, A, we believe that the highly volatile commodity price changes that we saw are hopefully behind us and that should have a clear bearings on what we do forward. Although, there will be some, as you can see, this -- at about [ 1,000 ] crores odd level, so we still have some residual impact left that we will see, as we travel through the year. Sachin is also mentioning around improving the mix, which will also lead to improvement in margins. So as we move forward, we have said in the past that we expect H2 to get better and that's where we stay.
The next question is from the line of Vikram Suryavanshi from PhillipCapital (India) Private Limited.
Congratulations for good growth. What we are looking at is that how or when we can see the pickup in export given the geopolitical situation because I know we are doing extremely well in domestic market, but I think probably export is the area, where we can also do much better and how we can see pick up in that area? That is my first question.
And second on bio-CNG side, now I think [ the government ] is priced conditional in terms of not only CBG prices, but even byproduct prices also. So is that helping to really see the ground level pick up or how is your reading on opportunity?
So Vikram, on the export side, I think your observation is bang on. So we -- as we had mentioned that we expect the second half at least to start changing on the order booking side and probably that will reflect as we travel through the few next 4 quarters to 6 quarters in terms of sales as well. But we first, obviously -- so already, as Sachin was mentioning, it's not that our order book is low, it's just that the domestic is very -- is progressing at a very different speed. Having said that, we are also cognizant of the fact that we need to increase the speed of our international order book and that's what we're focused on and we expect that H2 will be different than H1. So that -- I hope that answers your question.
Yes. Second on the -- this CBG side?
So on the CBG front, yes, there is still -- as I said, there has been some last mile connectivity issues to be settled in terms of pricing point for byproducts, offtake agreements, and policies for fertilizers because that's an important byproduct out of CBG plant.
On the gas pricing side, I think, a lot has been done, but some of these interconnected as I call them the last mile connectivity issues that still need to get addressed. State of UP has tried to address some of these, but not all. And I think as we -- as I said that as we move forward, we expect to see a more favorable environment in which to come. So maybe next quarter, we can talk around this. This is a bit too early.
The next question is from the line of Isha Agarwal from VT Capital.
Sir, my question is regarding the BIOSYRUP tech. Can you help me understand what's the update and how people are adopting it especially the sugar companies. Are you seeing any demand coming from them? Hello? Hello?
Sir, we cannot hear you. Ladies and gentlemen, please stay connected, while I try to reconnect the management. [Technical difficulty] Ladies and gentlemen, thank you for your patience. The line of the management has been connected. Sir kindly proceed.
Yes. So Isha, could you please repeat your question?
Yes, sir. So my...
Sorry for that drop. Yes.
Yes. Sir my question was regarding the BIOSYRUP tech, so just wanted to understand how are we seeing the sugar companies adopting the decent tech? Are we seeing any good demand coming up for this BIOSYRUP tech?
So Isha, BIOSYRUP -- when we developed the BIOSYRUP technology, it was in the purpose to demonstrate that syrups can become a sustainable feedstock, that can enable ethanol plant connected to sugarcane to run right through the year and not be dependent on season [indiscernible] right. So that was the purpose of demonstration of the technology.
Obviously, there are some other dynamics which still have to be resolved in terms of establishment of BIOSYRUP as feedstock, the storage system infrastructure for that, also the dynamics in the sugar market that decide whether we want to produce sugar or we don't want to produce sugar. So there are many other dimensions that also have to play. So our purpose was to demonstrate that the technology is available. When -- as and when the factors align themselves, this is an option that the customers can offer just the way they are today opting, let's say, molasses, [ beetroot ] juice or anything like that. This is another feedstock that is available.
[Technical difficulty] Hello?
Ms. Isha, we couldn't hear you. Can you please repeat?
Can you hear me now? Yes. Sir my next question was regarding the 2G plant. So just wanted to understand the rationale, like, for setting up a 2G plant, if the cost is double, then why would somebody opt for going for 2G plant setup rather than 1G plant? And also, just wanted to understand if the prices for 2G ethanol is set by the government or it is set by the OMC?
Okay. So second question first. There is no notification has yet on 2G ethanol prices. So we don't know as to what the prices are going to look like and what metrics [ that ] will come into play. That is number one.
Number 2, why would somebody want to put up 2G plant? So there are 3 or 4 dimensions. First and foremost, that the 2G technology actually reduces emissions of CO2 by over 85%. That's not possible for a 1G technology to do because obviously it is limited, it has its own inherent limitations. So that's number one.
Number 2, availability of the feedstock. That is a question that was also previously asked by one of your colleagues. We have to understand that what is the problem that we're trying to solve. Purpose of technology would be to -- what. So for example, if stubble burning is a problem we're trying to solve, this is one way to solve it. If we want to address the CO2 emission, ethanol is the way to solve it, right, and 85% reduction in GHG emission is a very definitive way of solving it.
Tomorrow when aviation fuel starts to become the norm of the day, the airlines will look for a very low carbon intensity fuel to be put into their wings, right. And if that happens, then obviously, at that time, this is the only solution because this is the way it will go [ next month ]. This will also -- this also provides an outlet for farmers, who not to burn their spending of crop, but actually realize money out of it. So different strokes, different goals, but there are very different set of reasons, as to why 2G plants will come up because what we're not factoring in when we look at only the current one investment perspective.
But what you said is correct, it is high investment. But what -- we're not looking at it. The farmers income doubles, the calamity of climate, the amount of health costs that we have to bear, now, it just so happens and different stakeholders are bearing this cost and that's why we need an enabling policy environment that sort of brings everybody on the same platform. And I think, we are moving in the direction not only here, but also outside in rest of the world.
The next question is from the line of Dikshit Mittal from LIC Mutual Funds.
Sir my question was on -- just on margins itself. So because the kind of growth we have seen on the top line, so at least operating results should have played outright in terms of the EBITDA margins. So as you mentioned that because of export and domestic mix that margin is low, but does that mean that the domestic orders we are basically taking below 7% kind of margins? Or also are there something else that I'm [ missing off ]?
So not necessarily. I was only saying that the blended margin will go up only if there is an export element coming in. And if you look at in this entire revenue mix, export revenue is very minuscule in the first half because another element, as I was mentioning, about the construction activity, there is a little less, as compared to the supply portion. So the blended is looking like this. It doesn't mean -- of course, there will be different projects and different businesses carrying different margins, investments. So not necessarily that domestic is [ carrying lower ] and that's the reason, why it is getting reflected in that way.
Okay. But, sir, what is the impact of this commodity volatility in overall, maybe, if you can give a ballpark figuring for the first half?
First half, it should be in a range of at least 1%.
Okay. So that 1% can come back in second half and that is a fair assumption, maybe or -- yes.
That's right. Rather last year it was higher than 1%. Now at least in H1, we are seeing the lower impact of that, but the impact is still there.
Okay. But sir, like if I see your historical margins on a much lower top line, you were touching double digit also in some of the year. So entire [indiscernible] [ purely thing of the ] 10% dip in the exports because I think your exports have been [ annually ] 30% historically, so now at 17%. So that much impact is totally because of exports?
That's right. That's right. Because that 13% -- again, I'm repeating that it is completely from the engineering side or on the equipment supply side and no construction component at all. That's the mix of the sale and naturally margins should be very different.
[indiscernible]. And sir, lastly, as you mentioned, this difference of stand-alone and consol numbers is because of dividend, so that dividend is from Praj HiPurity or any [ other discipline]?
Praj HiPurity.
The next question is from the line of Lokesh Maru from Nippon India Mutual Fund.
Am I audible?
Yes.
Thank you, sir. Sir 2 questions. Number one was on other expenses. So other expenses right now would be 20%, right, and it is more or less around the onsite charges -- sorry, the onsite expenses and labor charges and travel and freight, which form major component of it. So it has been trending mostly downwards in the last 2 years, but like you -- as our top line goes up, cost should remain where it is, but other expenses, which is variable in nature should also go up in tandem with the top line. So any guidance or any comments around how would you look at this component as percentage of your top line going forward and in this fiscal [ as such ]?
So your observation is right. Mainly these other expenses, as you mentioned, are completely related from the business activity point of view and major component of that is sitting in the project activity. So currently, if we are doing 80 projects and tomorrow if we are going to do 150 projects, the absolute number will change, percentage will remain more or less in the same kind of range because it's almost 90% variable in that sense. Hello?
Mr. Maru, we are not able to hear you. [indiscernible] on -- can you provide how much volume were we be able to do in last quarter, like we have the case number, but could you also provide the volume number in terms of KLPD only for the biofuel space?
No. So we don't provide this breakup. We only provide the breakup on the basis of business segment.
The next question is from the line of Amish Kanani from JM Financial Services.
Congrats on a great execution, sir. Sir 2 parts question. One is, sir, as you mentioned, exports might be...
Mr. Kanani, we are not able to hear you properly. Can you please switch to your handset?
Yes. Yes. Yes. Is it better?
Yes.
Yes, sir. Sir, so one, you did mention exports might see some traction in the second half at least from the order book side. If you can give us some sense of -- in the past, we were hoping for some 2G orders from EU, but maybe the war has kind of appreciated that environment. So if you can give us some sense of whether that's happening? And in that context, you did mention about Brazil, Canada, and Mexico, so if you can give us some sense, where is that traction and what is the kind of pipeline or inquiry there?
So Amish, as I was mentioning, there are driving forces in the market. So we are clearly seeing blending mandates coming in Mexico and Canada. So the illustration was that this energy transition is a phenomenon, where all economies and countries are thinking increasingly in terms of being their own producers of their energy needs is something that's now visible. These are initial proof. But I think that's the first dimension.
Second is, we clearly see the demand emerging for decarbonized fuel more and more and, as you know, biofuels are a clear answer for that, irrespective of the mode of transport, whether it is on the road or surface or air or marine or wherever. So that's the second one.
And so we believe that we -- when -- if you look at these mandates, energy security plus decarbonization as an agenda, then I think that opens up a completely different canvas on which the demand for biofuels across the globe drastically accelerate. In Europe, the driver is that the fact that there is a RED III directive, which says they need to create capacity by 2030 for 2G ethanol. It's a mandate given. So that is -- that's the driver there.
In America, low carbon ethanol because that's how the market mechanism works. So the high -- lower is the intensity of carbon in production of that particular fuel, the better realization in case. So that's their driver.
Brazil has introduced a renewable bio-program. Right now, because of their political situation maybe there's a bit of a gap there, but I'm sure that they will pick back. It's not uncertainty, just that they have to go through the election process. So different drivers in different markets, but everywhere clearly, energy security and decarbonization are 2 very, very clear drivers for driving the business.
And sir, post this IOCL Panipat plant being commissioned, is there any pipeline of inquiries from the domestic oil and gas companies for, say, additional plants? So that I understand it's expensive, but maybe the domestic oil and gas companies would go further [ is a hope ], but the way oil prices are volatile and their balance sheets are bit impacted. So any sense of where the traction will be post the commissioning of this plant?
So Amish, my answer probably is based same as what I gave in the first case. The security and decarbonization is the driver. And this is a big decarbonization drive, right, if you go through the lignocellulosic feedstock route. That's the highest reduction of GHG footprint. So we will clearly see this trend developing.
Yes, lot of people are watching with interest the results that come out of the Panipat commissioning. We are very, very aware of that, and we are working on that. And then, of course, there'll be 2 more projects that will get commissioned towards end of next calendar year in India itself. So I think that will give a very, very clear -- so, yes, it is a 15-month kind of period from now. But in that 15 month, we would have actually showcased to the world of what's the possibilities are and I think that will become a very, very definitive anchor for driving this opportunity forward.
And sir, last question, what is the average execution of this outstanding order book and if possible by vertical, that will be helpful?
The outstanding order book as of September, right?
Yes. Yes. Yes, sir. So say 80% is bioenergy, so what is the average execution there, sir? If it is different from vertical that -- by verticals [indiscernible].
So it will be -- it will be in the range of 12 months to 15 months. Certain orders are going beyond 18 months, not necessarily of bioenergy. But on an average, it will be falling within a basket of 12 months to 15 months.
[Operator Instructions] The next question is from the line of [ Aman ] from Goldman Sachs Asset Management.
Sir, this is on the [ CPES ] segment, if you can highlight what kind of equipment are you supplying? And specifically you mentioned something on the hydrogen fuel cells, et cetera, side. So what is the equipment? What is the exact play that we have over there?
Yes. So Aman, in case of CPES, as mentioned that modularization is a big offering from that business and what we do is, given a process -- and the process is not ours, somebody else's, given a process, we are able to conceptualize and engineer a plant that gets modularized, so that the site work is reduced to minimum. That's the basic concept.
And for blue and green hydrogen projects, that's becoming a big demand from -- because on multiple counts, A, that many capacities are being set up; B, only handful of companies globally have the wherewithal and technology to actually give the process licenses for these. And then, we are also working with CPES business, very closely with them to create the solutions, and this enables them to go onstream by reducing the site time significantly and obviously cost as well. So that's the driver for this business.
And we are in a position not only for processes and technologies that are made available on this space, but as I was mentioning also for our own ethanol 1G and 2G technologies, we are finding traction in terms of our ability to [ modernize ] the plants, which then reduces significantly the site work, especially in the advanced markets of the developed world. This is a very big attraction.
And then just what would be the scale of these projects? And on the hydrogen side, what kind of capacities you are -- are you able to cater to?
So depending on the process path and many other factors as to is it coal operated project or an isolated project, which part of the world, what's the feedstock for them, there are many variables, I may not able to give you a rubber stamp answer on that one. But each of these creates this opportunity depending on who the OEM is, so many, many factors. So I will not be able to give a rubber stamp answer. Sorry for that.
And any tie-ups, which you can highlight in this space, which you have done?
Mr. Aman, hello, sorry to interrupt, I would request you to rejoin the queue please. There are many other participants, who are waiting for their turn. Thank you.
Yes. So Aman, just to very quickly close the answer, yes, we are working very closely with several leading technology providers in the world. Our agreements do not permit me to state their names, so that I won't be able to do.
The next question is from the line of Amit Anwani from Prabhudas Lilladher.
Am I audible?
Yes, Amit.
Hi, sir. This is Amit Anwani. So my question is with respect to exports, as you have already highlighted few things about it and I think on the Bioenergy side, anything -- I mean, just wanted to understand this engineering business, which is more export oriented as I understand. Can you go to what levels in next 2 years, 3 years? And how, if at all, we have to see, let's say, next 2 years, 2.5 years, how the business mix is going to change?
And second point is on the margins. Obviously, I understand that you cannot share the nitty-gritties on that, but anything directionally, where the margins are heading in each of these 2 sub segments would be helpful to understand?
Yes. So just to give answer to the second question first. If I tell you that our effort is anything, but to drive it [ not only ] in both the segments, it will be a wrong answer, so that's what we're attempting to do. Yes, there are factors that we have to -- and the challenges that we have to meet and overcome. But fundamentally the effort is to take it [ not only ] in the direction.
In terms of your question on the engineering businesses, probably this call is too shot a duration for me to or Sachin to make an explanation. You probably hold our capabilities into higher regard that we'll be able to do an elevator [ speak ] on these. So maybe that is not the answer, but maybe we can meet separately and we'll be happy to walk you through those.
And second, sir, on the competitiveness, if you could just highlight about the market share and how much premium be, if at all we are winning the awards, what is the typical gap between the closest competitor you might be facing? Yes.
So as I mentioned in my call, we are actually seeing in this quarter our market share move up, especially for the domestic business. We've moved it significantly upward excess of 66% now. But having said that, on how much premium we get paid by customers? Well, I don't have a fixed answer for that, and maybe I'm not the right guy to answer that. It is for our customers to perceive the value that we deliver and share that with us. And we are very glad that our customers do see value in what we are delivering, and we're able to get our share of that as well from them.
So sir, this market share increase was because of the value added product or something as -- if you can just highlight anything you have to...
What happens is that we built these plants over 3 decades now and over a period of time sometimes the first price may become attractive, but then experience is not attractive and then that's when they -- you come back and say, no, maybe I do understand that there is a value in your experience and technology and knowledge that we deploy and that's the phenomenon that we're seeing. Probably that's the phenomenon that we're seeing people are beginning to value what we are able to deliver in difficult markets with certainties. And even if there are some, what [ I recall is ], even if -- when there's difficulties, we have the knowledge and the organization's will and commitment to set things right. And I think that's what is [ trending us in good deal ].
Sir, last question, if I may. About this, yet to be tender out 500 crore to 600 crore liter opportunity, I understand this will be mostly grain-based. So if you could just highlight what kind of traction -- which kind of customer profile, where we are seeing the maximum traction for this grain-based plants?
So Amit, actually, as we had mentioned in the past, the country did go through a phase, where grain-based capacity creation became more significant than the sugarcane base, but indications are -- and as I was mentioning that now that we are exporting so much of sugar. So maybe this was a special year. But as world sugar supply starts to stabilize, maybe we will see a lot more sugar diversion taking place for ethanol production. So probably we will see a balance coming back. I'm not saying shifting back, but at least traveling in the direction of higher share of sugary feedstocks. And when we -- as we discussed in the next year, when the lignocellulosic plants are commissioned, maybe even lignocellulosic feedstocks will walk in from [indiscernible].
The next question is from the line of Prathamesh Sawant from Axis Securities Limited.
So sir, I have 2 questions. So one is regarding now that we have launched the second generation IOCL plant, I want to understand what is the commercial feasibility of this 2G plant like? Have you achieved commercial feasibility or we are dependent on government subsidies [ or other] thing?
Okay. Prathamesh, so let me tell you this. So first of all, this is a global phenomenon, and we -- there are markets, where it is feasible to put up a 2G based plant, okay. As I was mentioning, in India, the ethanol, 2G ethanol rates are still not specified and that needs to get specified, obviously, and that will determine the viability as well. We need to commission. But what's more important is to understand that this is the technology that cuts the emission by 85%.
Yes. And that no other technology can do so. When the focus shifts to GHG reduction or carbon footprint reduction, I think the cost dynamics -- because we don't have in India, at least not yet, the carbon markets, but in markets, where carbon is priced and valued is already viable.
So our core focus on 2G front would be on the export front, would you like to -- would you like to say that?
Indeed. Indeed. We don't -- we are very clear. We -- our job is to create solutions for a feedstock and wherever the feedstock is. So if we go to Nordic countries, the feedstock could be [ corn ] residues. If we go to -- if we talk in India, it is more like rice straw at least to start with, there could be cotton straw, we have to see. If it is in Eastern Europe, maybe it is wheat straw, so it's depending on where we are. If it is in Southeast Asia, maybe it is some or the other component of the palm trees.
Yes. No, no, no, I mean to say that, you see the market coming for this particular product in more in an export scenario not in the domestic front as of now.
Yes.
And sir, on the Kandla capacity expansion, I wanted to understand, can we put a number of capacity utilization on our business as in we are -- at what rate are we [indiscernible] because we can see that we usually have an execution run rate of roughly 29% of our order book. So is it to say that we can see this number going above 29%, as we can expand our capacities, so our revenue figure start increasing, as we have a large order book already?
So Prathamesh, the existing capacity which we have already created, which has in-house and outsource both is good enough to take care of the current order book. The comment related to -- we are looking for expansion of our existing Kandla facility was -- mean for our export business and we believe that we would like to ramp it up going forward. And mainly it will be required on the critical equipment side more than on a bioenergy side, because in critical equipment the manufacturing has to happen at our end 100%. In the bioenergy, we can actually outsource some non-critical equipment. So that's the reason the balancing is little different. But to answer your question, the current capacity is good enough to take care of our current order book. We are preparing for the next phase in the engineering business, especially on the critical equipment side and that's what we're evaluating from capacity expansion point of view.
The next question is from the line of Harsh Bhatia from IDFC Mutual Fund.
Just on this fermentation side, when you're talking about PHS, what is the level that we can see in terms of inquiry pipeline in terms of volume or value? Anything that you can share for the domestic market, where we are currently? And if you could provide some metrics for context like where could China possibly be as of today or any other Western country, so that we can gauge the overall opportunity size for the fermentation side? I'm talking in terms of the pharma side for fermentation?
[ Maybe on the ] Praj HiPurity side? Yes. So I'm sorry we're not in a position to answer the question as compared to China because I think the industry itself is at a very nascent stage right now in India as compared to Chinese fermenter capacities are. So we have to see how the industry develops. We are clearly seeing a trend by which the dialogues as well as some specific capacity is being created by especially the early leaders in the industry. So it is still very early to -- probably a question is more rooted a year down the line and that's when we'll be able to answer it in a more affirmative way.
Right now, I mean, it's not that there is a clear visibility in terms of how much of Chinese capacity is either shifting or being replicated or additional capacity is being created. What we're seeing is that the inquiry levels have significantly changed from very small fermenter size, which a few companies are doing, to reasonably large fermenter size to multiple companies, and that's what we're seeing right now.
The next question is from the line of Sagar Kapadia from Anvil Share & Stock Broking Private Limited.
Sir, could you please elaborate, in your statement you have said comprehensive ecosystem is being setup by UP for CBG and other biofuels because whatever I have inquired with people, they say to get even the rice straw and other agri raw material, there is a lot of problems here, the farmers are not giving their...
So I think, your question is correct, Sagar, that it has to happen. So first and foremost, there needs to be a policy, which sort of encourages people to do the right thing, right? And I think that's what where the government can do. The actual action on the ground will have to be translated by industry, by farmer cooperatives, maybe a more action even on a state level. So what I meant to say was that the steps and the policy changes are indicative of government's desire to make this into a successful program.
I mean, today we are all talking about the ethanol program with such -- because the 2018 biofuel -- national biofuel policy actually enabled that. But we have been at this ethanol for over 30 years and we have seen that this ecosystem development does take time. We know that in gases case. Hopefully, it will not take that long. But the fact is that it has also taken 4 years, 5 years and maybe a couple more before it becomes a very robust operating system, that's the way, say, ethanol market is today. And that has to be the case and to be understood that.
Yes, sometimes, some very new -- we are not even a gas economy yet. So for our -- lot of other -- our infrastructure around that is not there. We are in dialogue with a very -- the leading automotive manufacturers, and they have a strategy to roll out engines that are gas based. But -- so it's a whole ecosystem that has to move in tandem and come to a minimal inflection point and after that it takes off.
But anything you want to highlight, sir, in UP government policy you said they are doing some so -- something, which will help the setting up of plants to get such raw materials, agri raw materials?
Yes. So as I said, the policy is there, now that needs to get action on the ground. So there is a lot of -- there is a lot of push that is taking place to create predictable supply chain, which is new business, there's a new application, and I think we need to give it some time before it -- we can get to a stable answer.
The next question is from the line of [ Ravi Nadar ], an individual investor.
Yes, sir. Sir what is the -- sir, what is the progress on diesel blending, sir? We are developing a binder, so I want to...
Yes. That is still a project that is under progress, and we will let you know once we are ready with it very soon.
And sir -- and sustainable aviation fuel, when will you get the first order, I think?
It's not about getting the first order, Ravi, it's about understanding that what needs to happen. So there's still dialogue going on as to -- because even if I put up a plant, there must be an agreement to buy SAF and use it in the aircraft side. So I think, we are -- we have to go through that phase in U.S., which is a leading market in the world right now. I was there 2 weeks ago and they -- even they do not have any capacities today, but they have said that by 2030 they want to create a certain capacity, which is still at about 5%, 6% of the overall market that they need the fuel for.
So I think what I'm trying to share with you is that, maybe SAF is in a little early for us to talk about, but [indiscernible] setting capacities, but what we are definitely seeing is, as I mentioned, the ICAO announcement is one positive step. The U.S. IRA program is the next definitive step. And as you would all know, an aircraft and flights from point A, it has to be land at point B, and there also it needs to have the fuel availability. So it will develop, but maybe this is still very early days, Ravi.
And, sir, any order update from second generation ethanol from Europe, sir?
So as I mentioned that because of the war it has got a little pushed, but the heightened awareness on energy security and the need to fulfill the directives on the RED III program in 2030. We are into very active and very advanced dialogue with the few developers in European based on 2G.
And sir, last question. Sir any -- do you have any plan to buyback share or give bonus to shareholders?
So there is nothing on the platform -- our platform right now. This is a matter to be discussed at the Board level. And if it happens, naturally exchange end people will be communicated. But right now this is not in -- on our card.
Ladies and gentlemen, that was the last question that the management could answer today. I now hand over the conference to the management from Praj Industries Limited for closing comments.
Yes. Hello, everyone. Thanks a lot for your time today. If you have any more questions, please feel free to write us at info@praj.net. Thanks, again, for your time today. Wish you a very Happy Diwali. Thanks.
Thank you. On behalf of Praj Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.