The Landmark Bangkok Hotel
29-30 May 2008
Om Narayan, DirectorAnant Pande, COO
Indo Greenfuel Consultants Pvt. Ltd., India
The beauty of economic theoryPrice
Quantity
Demand
Supply
Sweet SpotEquilibrium price
Equilibrium volume
Sweet spot : an Ideal situation where demand & supply are in perfect equilibrium
Price
Quantity
Demand
Supply
Surplus = Exports
The beauty of economic theory
Price
Quantity
Demand
Supply
Deficits = Imports
The beauty of economic theory
How does one get to the Sweet Spot ?Price
Quantity
Demand
Supply
Identify economically attractive options for the surplus/ deficit
The track-record in IndiaMillion tons of sugar
-2.2
2.0
3.4
-0.8
-2.1
0.5
2.9 2.6
0.7
2.2
-3.6
-5.8
1.4
9.1 8.8
Surplus
Deficits
Time
A large imbalance between production & consumption of sugar
2.7
5.3
7.8
5.55.9
7.4
10.7
12.0 11.712.4
9.1
5.24.2
11.5
17.3
93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08e
The track-record in IndiaMillion tons of sugar
Sugar surplus : a problem or an opportunity -> ” a new paradigm ”
Higher oil prices - a short-term event or a structural trend ?12-months moving average
0
20
40
60
'87 '97 '07
US$ / Barrel
90
Huge demand-supply gap leading to a secular uptrend in oil prices search for alternative fuels
Objectives from a more intensive usage of biofuels
E - 5E - 10
E - 20 E - 85
Conv
enti
onal
pet
rol
etha
nol
100 % = 1 liter of gasoline
• oil to last longer
• reduce OPEC dependency
• reduce global warming
effect
• . . . .
Flex-fuel engine
Before
Objectives and benefits
Normal engine
Ethanol : the sustainable fuel for the future . . . . . .
Rapid growth in Ethanol production in the USAProduction in Million of gallons
870
1,470
4,855
1980 19
8219
8419
8619
8819
90 1992
1994
1996
1998
2000 20
0220
0420
06
1,000
2,000
3,000
4,000
Key players of the automobile industry already endorsing E-85 technology
US auto majors also taking up the cause . . . . . .
Large and rapidly growing number of E-85 pump stations across the US
E-85 : No longer a myth . . . .
Key players of the automobile industry already endorsing E-85 technology
Apart from US, the other global auto majors also pushing for E-85
By 2007, most new cars in Brazil running on flex-fuel E-85 engines
Gasoline, Alcohol,
Diesel
Flex Fuel 10
84
16
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07
100% = 114,140 units 130,118
90
Monthly sales on new cars
successfully eliminated the oil bill deficit with high growth rates in flexi fuel cars ~ 800 folds increase in last 4 years
Ethanol composes an important share of vehicle fuels in BrazilIn %, of total gasoline and ethanol consumption
39 38 42 39 41 43 40
61 62 58 61 59 57 60
2000 2001 2002 2003 2004 2005 2006
Average mandatory blend ratio = 23%
ethanol
Gasoline
100% = 28.3 bn ltrs
27.2 27.7 28.1 30.0 31.0 31.1
Brazil : > 40% blend ratio of ethanol against mandatory requirement of 23%
Billion liters
Ethanol
Conventional gasoline 514
2005 2015
530
609
16
518
122
191716 Production of US, Brazil, and rest in
2006
E - 85
E - 20
Consumption of gasoline - USA Demand of Ethanol in 2015
Additional need for 450+ billion lts.
52
Demand for ethanol bound to increase by a factor of > 10 in the US alone
Huge upsurge expected in the demand for ethanol with most companies producing E-85 compatible cars
World demand for oil likely to increase dramatically
MotorizationPopulation
100% = 780 cars per 000 inhabitants100% = 2,409 Million
China + India US
Additional demand for
fuel
China + India US
Driven by the staggering growth in the emerging markets . . . .
60
10
Ethanol 2007
Sugar cane
Corn and other grains
Other
30
Sugarcane by far the largest fedstock for production of ethanol in the world
100% = ~ 16 billion gallons
> 60% of world ethanol being produced from sugarcane
In US$ cts. per liter – in late 2006
Ethanol from sugarcane is the cheapest to produce
18 - 24
28 - 32
34 - 38
68 - 72
Brazil - sugarcane
India - molasses
US - corn
EU - beet/wheat
+ 200 %
Financially, the most viable option . . . .
In %
Cost of production of ethanol/industrial alcohol in India Non-binding, indicative only
100% = ~ US$ 28 - 32 cts. per lt.
Total cost
71
Feedstocki.e., C-Molasses
Direct labor
5
Depreciation Maintenance & repairing
9
Manufacturing overheads
2
7
Energy
6
With feedstock constituting > 70% cost, raw material securitization would be the key . . . .
India is the second largest producer of sugarcane in the world
430
260
88
47
45
Brazil
India
China
Pakistan
Mexico
Million tons of sugarcane, based on crops 06-07
India has significant potential to becoming the ethanol hub of the world
Sugarcane can be grown practically everywhere in the country
Vast land & water resources available throughout the country . . .
Sugar Production '06, in Million tons
Ethanol Production'05, in Billion lts.
Ethanol Export'04, in %
Ethanol has been a neglected activity in India so far
32
26
Brazil India
15.4
1.7
Brazil India
11
Brazil India
0.1
Large untapped ethanol production potential . . .
The majority of the sugar mills in India are of very small capacityDistribution of 583 sugar mills, 2006, by daily crushing capacity
> 10,000
7,500 – 9,999
5,000 – 7,499
3,000 – 4,999
1,000 – 2,999
< 1,000
Capacity, in tcd
11
12
58
70
384
48
Fragmented industry, small size mills . . . .
Large majority of the distilleries in India of very small capacity
Distribution in % of a total of 297 distilleries, 2006
As per annual production capacity, in Milion lts per year
> 40
30 - 40
20 - 30
10 - 20
5 - 10
< 5 34
31
24
5
5
1
Still almost 200 sugar mills with no distilleries in Maharashtra and UPNumber of sugar mills and distilleries in the top 5 regions in India, 2006
186
132
5142 38
67
44
29 25 21
Maharashtra Uttar Pradesh Karnataka Andhra Pradesh Tamil Nadu
Sugar millsDistilleries
Huge un-cashed opportunity for ethanol production . . . .
18,376
16,998
3,849
1,900
950
647
386
280
USA
Brazil
China
India
France
Russia
South Africa
U.K.
Ethanol production in India can easily be 6-7x larger than it is todayEthanol production 2006, in Milion lts.
Significant value creation potential for PE funds . . . .
India has a great future as a world-
class producer of biofuels
Targeted investments for the US$ 150 Million to be raised in the IGF-I cell
IGF-I
US$ 150 Million
Build greenfield ethanol plant
side-by-side to existing sugar
mills
15 - 25 > 25 %
Co-investments
Type of
investment
Size
in US$
Million
Likely IRR
Build greenfield ethanol
plants on a stand-alone
situation
20 - 35 > 35 %
Acquire stakes in existing ethanol
plants and/or sugar-mills10 - 25 > 20 %
Loans
Total investments in 10 - 12 plants and mills: 250 - 350
Intended timing of activities of IGFnon-binding, indicative only
Value of the portfolio
Build-up phase
2009 2010 2011 2012 2013 2014
Managing & optimizing phase
2015
Disposal time-window
Preparatory phase
2008
Time
Valuation of ethanol plants in terms of US$ per ltr. of installed capacity, Summer 2007
~ 1.5 - 2
~ 0.42
~ 5 - 7
US
~ 3.5 - 4
Brazil
~ 3.5 - 4
China India IGF capex
Value of sugar/ethanol assets in India have a large up-side potential
There is a significant
potential for capital
gains
High capital appreciation potential – timing is the key
Ethanol = new reality for India as sugar playerMillion tons of sugar
-3.6
-5.8
1.4
9.1 8.8
Surplus
Deficits
Time
India + ethanol
means
more sugarcane, but
NO surpluses of sugar any longer
A new paradigm for sugar business in India . . . .
Question : will it happen in India ?
2010 2011 2012 2013 2014 2015 20162009Time
Substantially reduce large dependency on foreign oil
Improve balance of trade
Secure a leading role, and at a world-scale level, in the promising sector of renewable fuels
Once-in-a-lifetime opportunity to enable 45 million farmers to escape from poverty and misery
Production of Sugarcane
Thank You