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Pride, Praj and a bitter-sweet lesson(Ecomonic Times, The (India) (KRT) Via Thomson Dialog NewsEdge) Feb. 4--PUNE, India -- Pramod Chaudhari and Praj Industries, have together weathered the ups and downs of the past couple of decades. The company grew, diversified, made losses, restructured and finally decided to stick to its knitting: in this case, putting up distilleries and breweries. Having learned things the hard way, both Mr Chaudhari and his over Rs 200-crore company are eyeing "quantum" growth. This will see them ride the global wave of environment-consciousness, which is mandating the use of ethanol and other bio-fuels. In the future, Mr Chaudhari admitted, the growth will come through product extension. And ethanol is just that, a value-addition in the production of alcohol. That is the current 'green' fuel, but there are others which Praj aims to develop. Harking back to the old days, the 56-year-old CMD of Praj Industries recalled, "We were always in a niche market with no real competition. When I set up Praj, I had decided that we would not let ourselves be at the mercy of a bigger player. We would not be mere suppliers to a large unit. I had seen too many SSI units go under because of this and I was determined not to set up anything as a conventional sub-contractor. I wanted to have my own product and not be an intermediary, to be exploited by a big player who had an end product. So, when I set up Praj in 1984, we began to offer projects as products." Now, as a mid-sized Indian multinational, Praj is weighing its entry into Brazil, the global leader in the manufacture of ethanol, which will probably require it to use the acquisition route. The other unresolved question for Praj is to set up a "next generation" research and development (R&D) laboratory, since it has already expanded its existing lab thrice. "We have drawn up a growth chart for the next three years, from '06-09. This involves looking at future technologies, which means moving to the next level. We could set up a lab in the Bio Tech Park at Hinjewadi, although this is yet to be resolved," he said. The same goes for the Brazilian foray. He, as the mechanical engineer from IIT, Mumbai, spent his childhood in and around the sugar industry and realised early on that the agriculture sector lacked technical and technological inputs. A limited survey showed the areas which lent themselves most to such technical inputs and the sugar industry topped the list. "I looked around and saw that the production of alcohol from molasses needed technical inputs. Till then, this was a neglected area and there were no reputed suppliers for this segment. So, we started off fabricating units and in 1985, brought in Austrian technology," Mr Chaudhari noted. The first few years from 1985-89 were a struggle. So much so that for the first time, an engineering unit took venture capital finance. "ICICI gave us Rs 50 lakh as venture capital. The engineering industry was vary of venture capital since it was seen as handing over the company to the investor," Mr Chaudhari stated. Making a major breakthrough in the Indian market in 1989, the company entered its second phase of growth and building market share. Now, it was no longer restricted to just Maharashtra, but grew outside -- UP and Tamil Nadu -- the other two sugar cane growing states. In January 1994, the company went public with its IPO, as part of the VCF investment. At that time, it began looking outside country's borders, first at South Asia and later, South-East Asia. It added breweries to its product portfolio, expanded its feedstock line from molasses to grain alcohol and post-IPO, at diversification. "We held on course with the first three targets; it was the fourth, the diversification into the manufacture of components that bombed. And that hit us very badly because it coincided with the domestic recession and the S-E Asian currency crisis, leading to the drying up of our exports just when the domestic market was in recession mode," Mr Chaudhari explained. Those tough times led to its first-ever loss in 1998-99. It also meant laying off staff, a difficult job at anytime. A tough situation required tough measures: a private placement followed which raised Rs 5 crore and a turnaround strategy was put in place. "We realised that we could not depend on just one geography. So, we spread out, downsized and closed loss-making businesses. Analysing our business showed we had gone with new products in the same market which failed. So, we decided to take the same product to new markets: we set up an office in South Africa and increased our competitiveness and competence in alcohol," Mr Chaudhari stated. It was not easy for a mid-sized company, especially with an engineering background, to introduce a product in a new market. That was when Praj decided that its area of operations would be the "equator plus minus 20 degrees", a tropical country focus. Becoming a global player meant keeping tabs on all developments. This brought to its notice the growing environment consciousness and the use of ethanol. Coincidentally, the NDA government at the Centre mandated the use of ethanol in petrol in December '02. At this time, the rising cost of oil due to the impending Iraq war, concerns of energy security all combined to build up a market for the product. "Against this background, we were the first players with a presence in countries around the world. And we have been growing over the past four years," Mr Chaudhari said. Once bitten twice doubly shy: now, he stressed, they see the possibility of a quantum growth. "We will tread more professionally now. Ethanol is the engine of our growth and we have made breakthroughs in European and US markets with it," he insisted. As part of this growth, Praj will set up its fifth overseas office in Europe and its sixth in the US this calendar year. That is not all that has changed at Praj. It has now gone sub-tropical. So, it is now aggressively targeting grain-based alcohol and cellulosic bio-mass for alcohol. It is being helped along by the global move to cleaner fuels since automotive manufacturers have developed flexi-fuel vehicles. These can take up to 100 percent ethanol from the earlier maximum level of 22 percent. This makes a huge difference in estimates for the ethanol which have been drawn up. "The global ethanol market was about 38-40 bn litres in '05. There was one estimate that the demand would be 70 bn litres by '12, but this is being revised and it is now estimated that it could be 80 bn litres by '10," Mr Chaudhari noted. This is music for the company, which has now positioned itself globally as offering customised innovative and integrated solutions. While there is an undeniable cost advantage, Mr Chaudhari categorically said the company does not position itself on the cost platform. "We position the engineering advantage over the cost advantage," he said. |