Praj Industries makes US acquisition to further its ethanol ambitions
India's Praj Industries buys Omaha-based CJ Schneider Engineering.
IndiaÆs Praj Industries has announced its first cross-border acquisition acquiring 100% of CJ Schneider Engineering for Rs225 million ($5 million).
Schneider is an Omaha-based company with experience in providing detailed engineering services to the bio-fuel industry including ethanol plants. The acquisition, although small in terms of outlay, is highly synergetic for Praj and marks a quantum step forward for the company in the US.
Praj has a 6%-8% share of the global market in the construction of plants that produce ethanol. It has benefited from the recent wave of sentiment in favour of ethanol fuel which burns cleaner than conventional fuels and emits less greenhouse gasses.
High oil prices, tensions in the Middle East, and concerns over global warming have all contributed to giving the alternative energy sector a huge fillip and ethanol is widely perceived as a future hope. The ethanol sector has been further buoyed by the passage of the Renewable Energy Bill in the United States last year requiring the use of four billion gallons of renewable fuels in 2006 and increasing to eight billion gallons per year by 2012.
Many countries are embarking on ethanol blending programmes. In India for example, where Praj has a 75% market share, the Ministry of Petroleum announced earlier this year a countrywide mandate for refiners to blend 5% ethanol with gasoline. As a result global ethanol production is expected to double from its present level of 42-44 billion litres per year by 2010.
It is worth noting that Praj did not start off in the ethanol business. The company was established by first generation entrepreneurs in 1984-85. Its founders are alumni of one of IndiaÆs leading engineering schools, the Indian Institute of Technology, Bombay.
Praj started life providing systems and consultancy service to the distillery industry. The company's founder and chairman, Pramod Chaudhari, was familiar with the sugar industry and believed it was the backbone of the Indian agricultural sector. The company initially specialised in systems for industrial alcohol and beverage alcohol. In 1987 Praj was IndiaÆs first engineering company to get venture capital assistance and as a result set up a research and development (R&D) centre, which was to prove critical to the companyÆs development.
Praj built its first fuel ethanol plant for an Indian client in 2002 which was followed by a plant in Malawi the same year. Since then, ôthe ethanol rally has overtaken our other plansö, says Chaudhari. Today Praj positions itself as a ôsolution provider, a one-stop shopö for ethanol technology. Ethanol and alcohol technology are at the heart of what the company does with around 85% of revenues derived from the distillery sector which also includes related wastewater treatment systems. The balance is derived from brewery and customised engineering projects.
Between 2002 and 2006 Praj has grown sales 4.5 times from Rs538 million to Rs2.65 billion and increased profitability a hundred fold from Rs23 million to Rs217.6 million. Praj also has a healthy order book of around $120 million including orders of $20 million from US-based Cilion. Cilion is a Californian ethanol producer set up recently by the state's largest grain milling company, Western Milling, and KhoslaÆs venture capital firm, Khosla Ventures. One of the orders includes a 55,000 tonne per annum fuel ethanol plant in the UK û the countryÆs first.
About half of PrajÆs current revenues come from global markets. Praj hopes to double its global market share over the next few years and has opened offices in Thailand, Colombia, South Africa, and the UAE, with new offices planned in Europe.
On August 30, Praj announced its board had approved a proposal to invest up to Rs1 billion ($21.5 million) to expand in the US, including acquisitions. Praj said at the time it expected the investments to be phased over the next 12 months. The investment in Schneider comes within a month of the approval.
Praj joins a growing list of Indian companies that are acquiring offshore. Indeed, some bankers say Indian companies have been involved in more cross-border M&A activity than companies in other Asian markets. FinanceAsia magazineÆs cover story in May took a closer look at three large Indian companies that have used cross-border acquisition to grow their businesses.
Silicon Valley venture capitalist and co-founder of Sun Microsystems shares the euphoria on both the ethanol rally and in PrajÆs prospects. In April this year, Vinod Khosla was given a preferential allotment of shares and warrants in Praj Industries. Upon exercise Khosla will have a 9% stake in Praj at a cost of Rs975.4 million.
Praj Industries gained more then a percent in bullish Mumbai markets on Tuesday to close at Rs167.50.
Schneider is an Omaha-based company with experience in providing detailed engineering services to the bio-fuel industry including ethanol plants. The acquisition, although small in terms of outlay, is highly synergetic for Praj and marks a quantum step forward for the company in the US.
Praj has a 6%-8% share of the global market in the construction of plants that produce ethanol. It has benefited from the recent wave of sentiment in favour of ethanol fuel which burns cleaner than conventional fuels and emits less greenhouse gasses.
High oil prices, tensions in the Middle East, and concerns over global warming have all contributed to giving the alternative energy sector a huge fillip and ethanol is widely perceived as a future hope. The ethanol sector has been further buoyed by the passage of the Renewable Energy Bill in the United States last year requiring the use of four billion gallons of renewable fuels in 2006 and increasing to eight billion gallons per year by 2012.
Many countries are embarking on ethanol blending programmes. In India for example, where Praj has a 75% market share, the Ministry of Petroleum announced earlier this year a countrywide mandate for refiners to blend 5% ethanol with gasoline. As a result global ethanol production is expected to double from its present level of 42-44 billion litres per year by 2010.
It is worth noting that Praj did not start off in the ethanol business. The company was established by first generation entrepreneurs in 1984-85. Its founders are alumni of one of IndiaÆs leading engineering schools, the Indian Institute of Technology, Bombay.
Praj started life providing systems and consultancy service to the distillery industry. The company's founder and chairman, Pramod Chaudhari, was familiar with the sugar industry and believed it was the backbone of the Indian agricultural sector. The company initially specialised in systems for industrial alcohol and beverage alcohol. In 1987 Praj was IndiaÆs first engineering company to get venture capital assistance and as a result set up a research and development (R&D) centre, which was to prove critical to the companyÆs development.
Praj built its first fuel ethanol plant for an Indian client in 2002 which was followed by a plant in Malawi the same year. Since then, ôthe ethanol rally has overtaken our other plansö, says Chaudhari. Today Praj positions itself as a ôsolution provider, a one-stop shopö for ethanol technology. Ethanol and alcohol technology are at the heart of what the company does with around 85% of revenues derived from the distillery sector which also includes related wastewater treatment systems. The balance is derived from brewery and customised engineering projects.
Between 2002 and 2006 Praj has grown sales 4.5 times from Rs538 million to Rs2.65 billion and increased profitability a hundred fold from Rs23 million to Rs217.6 million. Praj also has a healthy order book of around $120 million including orders of $20 million from US-based Cilion. Cilion is a Californian ethanol producer set up recently by the state's largest grain milling company, Western Milling, and KhoslaÆs venture capital firm, Khosla Ventures. One of the orders includes a 55,000 tonne per annum fuel ethanol plant in the UK û the countryÆs first.
About half of PrajÆs current revenues come from global markets. Praj hopes to double its global market share over the next few years and has opened offices in Thailand, Colombia, South Africa, and the UAE, with new offices planned in Europe.
On August 30, Praj announced its board had approved a proposal to invest up to Rs1 billion ($21.5 million) to expand in the US, including acquisitions. Praj said at the time it expected the investments to be phased over the next 12 months. The investment in Schneider comes within a month of the approval.
Praj joins a growing list of Indian companies that are acquiring offshore. Indeed, some bankers say Indian companies have been involved in more cross-border M&A activity than companies in other Asian markets. FinanceAsia magazineÆs cover story in May took a closer look at three large Indian companies that have used cross-border acquisition to grow their businesses.
Silicon Valley venture capitalist and co-founder of Sun Microsystems shares the euphoria on both the ethanol rally and in PrajÆs prospects. In April this year, Vinod Khosla was given a preferential allotment of shares and warrants in Praj Industries. Upon exercise Khosla will have a 9% stake in Praj at a cost of Rs975.4 million.
Praj Industries gained more then a percent in bullish Mumbai markets on Tuesday to close at Rs167.50.
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