Management Discussion & Analysis In the Financial Year 2015-16, Your Company recorded a 19% growth in EBIDTA at constant revenue. This was the result of operational efficiencies as part of the transformation process. Your Company also recorded a 4% growth in PBT over Financial Year 2014-15 (without the benefit of the one-time additional income). During the fiscal, there were multiple developments that had a mixed impact on your Company's business. The Indian ethanol blending program gathered momentum which augurs well for the domestic ethanol business. The Exbrssion of Interest for 2nd generation ethanol technology floated by OMCs in India was a positive for the Company's 2G program. Softening of crude prices during the year affected investments in sectors of interest for critical process equipment & systems business. However, the worldwide interest in clean and green technologies, a fall-out of the COP21 Climate Change initiative, was one of the most important developments that will define the future of green technologies like ethanol. India is committed to the de-carbonisation program. This means green technologies are here to stay and thrive. Economic recovery continued to be slow in the developed markets. Emerging markets, especially those exposed to commodity cycles, were also impacted. Amidst these challenges, your Company has maintained export business at 42% of the total revenues. Business Lines Your Company defines its business verticals as core and emerging business. The emerging business contributed 25% to the revenues in the Financial Year 2015-16. Being brsent in multiple verticals, your Company faces different business cycles in different businesses. However, the management is making every attempt to create a sustainable business model for each business vertical that will ensure greater shareholder value/higher return on capital. We will now elaborate on the various businesses and their respective performance through the fiscal. Ethanol Plant & Equipment The Government of India has shown strong support for ethanol blending program (EBP). They have removed all hurdles including excise and logistical issues to enable smooth implementation of 5% blending. During the fiscal, ethanol blending reached 3.2% nationwide. OMCs have contracted 1.3 bln liters of ethanol which is equivalent to 5% blending. This is a first for the EBP since it was launched. Exports of sugar and the expected firming up of sugar prices have also helped improve health of sugar mills. It has created a positive ecosystem for ethanol production in the country. In addition to this, government has also shown support for 2nd generation cellulosic ethanol. The EOI from one of the OMCs for development of 2nd generation cellulosic ethanol project testifies this. This EOI also invites technology suppliers. Globally, we observe that EBPs are not unduly affected due to low crude prices and countries continue to blend as per the mandates. In fact, in some countries blending mandated have been strengthened viz. Argentina, Thailand, Mexico etc. However, international markets have been limited due to weak economic environment which has impacted new investments. Your Company launched a separate modernization and upgradation business two years ago. Praj is increasing its focus on the international markets for the same. While greenfield plants will remain the mainstay, your Company will increasingly pursue modernization opportunities as value addition to the existing business. Beverage alcohol market in India continues to grow, albeit at a slower pace. Prohibition in certain state/s in India has created an unexpected opportunity for increasing fuel ethanol production, which is attractively priced. Africa remains a destination of interest for beverage alcohol plants. Your Company is known for the quality of the product achieved through its technologies and is pursuing opportunities within and outside India. Praj is also making headway in its efforts of installing a 12 MT per day, 2nd Generation Integrated Bolt-On "Smart Bio Refinery" Demonstration Plant in Maharashtra. This will be a multi-feedstock and multi-product plant capable of producing bio-ethanol, bio-chemicals, power, Bio-CNG and CO2, complete with an integrated effluent treatment plant. Combined with over 3 decades of experience in multi-level scale-ups, strong process and project engineering skills and integration engineering expertise, the plant will deploy the fully validated technology "enfinity". Brewery Plant & Equipment With consolidation in the global beer market, investments in greenfield projects have slowed down. With these structural changes, we saw increasing enquiries for brownfield projects. There are some bright spots like Andhra Pradesh in India. Due to division of erstwhile Andhra Pradesh (AP), the existing capacities have moved to the newly formed Telangana state which has left a demand supply gap in the newly formed AP. Praj HiPurity (PHS) The Make in India campaign and the union budget 2016 have created a number of tax incentives promoting R&D initiatives aimed at increasing research investment. Indian companies are already becoming serious players in vaccine innovation. With this, Praj HiPurity - a wholly owned subsidiary of your Company, is at the right place at the right time. The BioWiz bioreactor, the in-house developed system launched a year ago, has received orders from reputed biopharma Companies. Critical Process Equipment & Systems With India moving toward Bharat Stage VI standards of fuels, Indian refineries are geared to make investments to the tune of Rs. 40,000 crore in various unit operations of the refinery namely - hydro-treatment and isomerization. Your Company will be a participant in this and bid for equipment of interest by way of its Critical Process Equipment & Systems business. With focus on skids, it is a matter of time that this segment will scale up. Water & Wastewater Treatment Systems Ganga Action Plan, which was one of the major promises of the government, is progressing in phases with the municipal sector and tendering process for sewage treatment plants. Your Company is closely working with industries along the Ganges, which will form part of the 2nd phase. Ministry of Environment & Forest in India has come up with stricter pollution control norms for coal-fired thermal power plants. All the existing plants have to restrict water consumption to 3.5 m3 per unit whereas plants coming up after Jan 2017 need to reduce it to 2.5 m3 per unit and achieve zero liquid discharge. Your Company is working on several enquiries in this sector. Human Capital Formation of Leadership Institute: C-LEAP initiative The Company had 978 permanent employees as on 31st March, 2016. For maintaining continuity and growth of business, a strong line up of leadership is an imperative. Over the past three decades, the process of leadership development was more instinctive. Given the growth opportunities and the need for organization build to drive exponential growth, it was felt that a strong pipeline of leaders should be created. Institutionalizing leadership and a structured approach to facilitate leaders to develop competencies for managing complexities is critical. For this, Your Company has established a Center for Leadership Excellence at Praj (C-LEAP) which will create future leaders with a concerted effort on development of high performing individuals. The vision of C-LEAP is to develop a culture for the next growth phase, supporting customers' business, partnering in their growth as well as creating knowledge for customers' and stakeholders' benefit and a shared journey to create a future for both parties. Innovation and R&D Matrix, the R&D Center of your Company employs multi-disciplinary expertise to bring in sustainability in its offerings that is passed on to the customers. Your Company has 16 patents to its credit till date and has filed for 33 patents in the Financial Year 2015-16. With this, the total number of patents at different stages of approval are 79 in number. The fiscal saw your Company launching many new technologies to the market- a) EcoSmart ED - energy saving technology for enhancing distillery capacity b) CombiFerm fermentation system for enhancing yield and capacity of distilleries c) EcoSmart MP - to produce multiple grades of alcohol/ethanol viz. beverage, fuel and pharma, perfumery grades along with savings in energy d) Ecodry ATFD - Agitated thin film dryer for waste water treatment in pharma, textile and distillery industries e) HBRTF (High Brix Ready to Ferment) - innovative technology to store sugarcane juice for round the year distillery operations f) EcoClean - Biogas cleaning for removal of CO2 and H2S to generate power and Bio-CNG g) The Company entered into an MOU for electro-coagulation system for high purity water systems for pharma, biotech and cosmetic industries. h) It has also signed an MOU for Forward Osmosis technology which has applications in several industries including pharma, textile and desalination. Awards & Recognition During the year your Company and its leadership received several recognitions. Enlisted are a few of them: • Sanaswadi manufacturing facility received recertification for ASME U, U2 and R stamp approval. • ISO 9001-2008 certification was renewed for the Sanaswadi manufacturing facility. • ISO 18001, ISO 9001-2008, ISO 14001 certifications were renewed for the Kandla SEZ manufacturing facility. Mr. Pramod Chaudhari, Executive Chairman, Praj Industries Limited - • was honoured with the IIT Bombay Distinguished Service Award in recognition of his contributions to his Alma Mater. He is one of the few to have the distinction of being selected to receive both, the Distinguished Alumnus Award in 2005 and the Distinguished Service Award in December 2015. • has been voted amongst the Top 100 People in Advanced Bio-Economy, globally, by Biofuels Digest. The selection is through a worldwide poll within the biochemicals and biofuels sector. • was appointed as Chairman of Confederation of Indian Industry's (CII) national committee on Bio-Energy for the 3rd consecutive year. Future outlook India Inc is in the throes of a transformation. Various structural and policy level changes are putting India on way to becoming a better place to do business. The economy is on an upswing. Projected growth rate of 7.5% is encouraging amidst weak global scenario. With interest rates lowering, good monsoon projected combined with expected uptick in the rural economy, one can look forward to greener shoots. In the global economy, USA, some countries in Africa and some in Asia look promising. On our specific businesses: • With the Government's intent to increase use of biofuels, ethanol will assume a significant portion in India's energy matrix, while supporting the farming community. Greenfield plants will remain Praj's mainstay. At the same time, we will increasingly pursue value addition through modernization projects in India and abroad. In our attempt to maximize revenues for clients through product diversification, we are in the process of expanding current offering to distilleries through value added bio-energy products like Bio-CNG which is increasingly finding acceptance and application as a transportation fuel. • Where brewery group is concerned, we are engaging with all the key players to work on their growth plans in India, in Africa and South East Asia. • In Praj HiPurity, we see good response to the process solutions suite. We will also grow in the international market aggressively. Key markets have been identified and teams are being put in place including the local rebrsentatives. The government is due to announce major reforms in the pharma industry to help it propel itself to the next level of innovation and generate more value. • In water & wastewater business, we plan to target larger ticket size orders. We are currently executing one such project for a solar panel manufacturer. • In Critical Process Equipment & Systems, our focus is on skids as a key differentiator while engaging with global EPC & consulting companies to increase our registrations for business. Internally, we are well brpared to respond to market conditions. A lean structure, higher levels of empowerment and committed team is already in place. As the market opportunities improve, we will be the quickest off the block to seize the opportunities. Risks and concerns Your Company has well documented Risk Management Policy. The policy is reviewed periodically by Management and Audit Committee and appropriately modified, as and when necessary. Based on the operations of the Company, risks are identified and steps are taken to mitigate them. Economic and Political situation in key markets of Your Company is seen as an essential risk element. Your Company has no current exposure to any high risk markets. Between 40-50% of the Company's business comes from overseas markets; the Company has put in place a forex risk management system. The Company is also exposed to raw material risk which shows considerable volatility. A suitable purchase and stocking policy is followed. Apart from the above specific risks, the Company recognizes various risks inherent in the performance of a contract which may relate to commercial terms. The Company has a robust policy in place to counter these risks to the extent possible. The Company is also exposed to risks on account of the sector it serves. Biofuels/Distillery and Brewery businesses are governed by the legislations of different geographies served by the Company. The Company has adequate geographical sbrad. The Company is making its planning and review more stringent so as to bring greater granularity and brdictability. Internal control systems The Company has instituted adequate internal control procedure(s) commensurate with the nature of its business and the size of its operations for the smooth conduct of its business. Internal audit is conducted continually, at all locations and covers the key areas of operations. It is an independent, objective and assurance function, responsible for evaluating and improving the control and governance processes. The Internal Auditors do not have any adverse comments on the internal control systems of the Company. In Financial Year 2015-16, your Company has employed a reputed agency to strengthen the internal financial control. Forward looking statements Statements in this report, particularly those which relate to Management Discussion and Analysis, describing the Company's future plans, projections, estimates and expectations may constitute "Forward Looking" statements, within the meaning of applicable laws and regulations. Actual results might differ materially from those either exbrssed or implied. |
