Business Plan

CellZymes

“Corn banaayega Crorepati”

Sector: Renewable Energy

1

Contents

Contents ............................................................................................................................................................................. 1

Executive Summary ....................................................................................................................................................... 2

Mission Statement .......................................................................................................................................................... 5

Opportunity ...................................................................................................................................................................... 5

Motivation .................................................................................................................................................................... 5

Expected Demand-Supply Gap ............................................................................................................................ 5

Proposal .............................................................................................................................................................................. 6

Recipe .................................................................................................................................................................................. 6

Raw Material................................................................................................................................................................ 6

Process Description ................................................................................................................................................... 7

Technical Characteristics of Processes ............................................................................................................... 8

Rationale behind choice of Raw Material ......................................................................................................... 8

Location .............................................................................................................................................................................. 9

Supply Chain .................................................................................................................................................................. 10

Procurement ............................................................................................................................................................... 11

Warehouse for Feedstock ...................................................................................................................................... 11

Processing Facility ................................................................................................................................................... 12

Final-product Warehouse & Distribution ...................................................................................................... 13

Cost Structure ................................................................................................................................................................ 14

Projections and Financials ......................................................................................................................................... 14

Risks & their mitigation ............................................................................................................................................. 15

Competitive advantage .............................................................................................................................................. 16

Social Impact .................................................................................................................................................................. 16

Future Expansion.......................................................................................................................................................... 17

Exhibits ............................................................................................................................................................................. 18

References ........................................................................................................................................................................ 23

2

Executive Summary

The Opportunity

The gasoline demand in India has been growing at a CAGR of 5% over the past few

years. In the year 2005-06, this number was placed at a staggering 10 Million Kilo litre.

Driven by the scarcity of crude oil and increasing prices, the government has been

forced to look at alternate measures, one of which is the introduction of ethanol blended

gasoline, following the example of countries like USA, Brazil and Europe. Since 1-11-

2006 the Central Government has made it mandatory for oil marketing companies to

sell five per cent ethanol-blended-petrol subject to commercial viability (Notification

580 (E) dated 20-09-2006).

A 5% blend has been implemented initially which would subsequently be

increased to 10% by October 2007.

Current Scenario

A petrol consumption level of 10 Million Kilo Litres would translate to a demand of 0.5

Million Kilo Litres of ethanol (5%), of which 30% would be domestically supplied at

current production rates.

This translates into a supply demand gap of 0.3 Million Kilo Litres.

In India, ethanol is produced from sugar molasses. Ethanol produced by sugar mills

fetches a price of Rs. 21/Litre (denaturant spirit in breweries), whereas the oil refineries

offer Rs 19/Litre.

Our Proposition

Conventional methods of producing ethanol are from corn and sugarcane, which

involve breaking down of lower carbohydrates (starch and sucrose respectively).

Alternatively, ethanol can be obtained by decomposition of cellulose (complex

carbohydrate) by enzymatic action.

Therefore we propose a new method of ethanol production in India using corn

stover (leaves and stalks left behind after harvest) as the raw material which

contains 70% cellulose.

3

Benefits of Corn Stover

1. Corn Stover is a residue that is left to decompose on the field and has no monetary

value to the farmers, and therefore can be purchased at minimal cost.

2. Corn is grown abundantly in India in the states of Bihar, AP and Karnataka with a

total production of around 10 million tonnes.

3. Corn and Sugar are consumption crops. Therefore, their use for ethanol production

would lead to inflation in prices of food products.

Business Model

Location Strategy: The Plant location decision is primarily based on the following

factors

Areas of high corn production, with production in both Kharif and Rabi seasons

Proximity to the customer : Locations of refineries

Areas of low sugar production (which is a competing substitute)

Operations:

Procurement: Corn-stover would be sourced from local markets. To limit

dependence on a single district, sourcing from each district would be kept

below 50% of factory-demand; multiple sources would be used

Plant operations: Local talent to be hired with sufficient training

Proposal

We propose to set a production plant with a capacity of 60,000 litres per day in the

Begusarai district in Bihar at a capital cost of Rs 350 million with an NPV of Rs 26

million in 7 years and IRR of 18%. Oil refineries will be the primary markets and

breweries will be our secondary markets. The plant has a ready customer base of oil

refineries in nearby districts. Initial target would be a Barauni refinery. With an initial

daily capacity of 60,000 litres, the plant would meet 30% of the refinery’s requirement.

Additional production facilities will be set up in future based on the same model

Pricing

Cost advantages due to choice of raw material and proximity of production plants and

market enables us to price ethanol at a price of Rs 16/litre with a gross margin of 30%.

4

Social Impact

Our plan has a strong social relevance. It provides key benefits to the stakeholders,

Farmers: Provides them an additional

income of 30% over their current levels

Environment:

Cleaner and more environment

friendly fuel

Market for corn stover helps

avoid its being left over the

fields, which otherwise would have affected the soil fertility

Government: 5 to 10% blending would reduce the oil bill and hence would minimize

foreign exchange risk

Additional Income from 1 Hectare (Ha) Land Holding

Size of Land Holding (Ha) 1

Yield of Maize (T/Ha) 3

Maize Produced (T) 3

Income from Maize at Rs. 5/kg (Rs.) 15000

Maize : Corn Stover Ratio by Weight 1:1

Corn Stover Produced (T) 3

Income from Stover at Rs. 1.5 /kg (Rs.) 4500

Percentage increase in income 30%

5

Mission Statement

To pioneer the biomass feedstock based production process of ethanol in India, thereby

catering to the huge emerging demand among oil refineries, in the process creating a

large social impact on corn farmers

Opportunity

Motivation

The government has been examining for quite a while the supply of ethanol-blended-

petrol with a view to boost the agricultural sector and to reduce environmental

pollution. Consequently it was resolved that ethanol-doped-petrol will be supplied in

nine states and four contiguous union territories from 1-1-2003.1

Since 1-11-2006 the Central Government has made it mandatory for oil marketing

companies to sell five per cent ethanol-blended-petrol subject to commercial viability

(Notification 580 (E) dated 20-09-2006). The blend is subsequently expected to be

increased to 10% by October 2007.2

Ethanol-doped-gasoline has been adopted successfully in a number of other countries.

For instance, ethanol is blended in 30% of the US national gasoline.3 In Brazil, about 40

to 50% of the fuel put into the cars is ethanol.4

This indicates that the percentage of ethanol blended with petrol in India is going to rise

further in the future.

Expected Demand-Supply Gap

If we assume that the petrol consumption remains at least as much as in 2005-06, we’d

need at least 5000 Lac liters of ethanol, of which barely 30% would be supplied

domestically at current ethanol production rates. (Refer Table 15)

Approximate Petrol Consumption in 2005-06 10 Million Kilo liters

5% Ethanol 5000 Lac liters

Existing Production 1840 Lac liters

Expected Unsatisfied Demand 3160 Lac liters

Table 1: Projected demand supply gap of Ethanol

6

Assuming a CAGR of 5% for petrol consumption and keeping in mind that the

mandatory requirement of ethanol in fuel is only going to increase, the expected ethanol

demand can be expected to grow at a rate upwards of 5% in the recent future.

Ethanol in India is manufactured from sugar, but there are a few factors which lead us

to believe that sugar wouldn’t be able to cater to the huge expected ethanol demand.2

The current price of ethanol offered by oil corporations is Rs. 18.75. Sugar

producers tend to sell Special Denatured Spirit (94.68% alcohol) at Rs. 21.00 to

21.50, rather than convert it to ethanol.

Sugarcane production has been relatively stagnant over the past few years. (297

million tonnes in 2001-02, 278 million tonnes in 2005-06)

Recently, Reliance aborted its plans to enter ethanol production due to

insufficient sugarcane availability (Financial Express, 2006).

All the above factors conspire to present a TREMENDOUS opportunity, which we

propose to take advantage of, through our business plan.

Proposal

To install a plant

At Begusarai in Bihar

With the capacity to manufacture 60,000 liters of Ethanol per day,

Using Corn Stover procured from the district as the raw material and,

Serving the refineries of Barauni (100 kms from Begusarai)

Recipe

Raw Material

Corn Stover, a residue of harvested corn, has been chosen as the raw material.

It has high cellulose content – to be converted to ethanol;

It is produced as a by-product of harvesting and left unused, hence available in

abundance and cheaply;

It is easy to collect, store and transport;

It has a long shelf life;

It can provide incremental economic benefits to the farmers – currently using it

as animal feed or manure.

7

Corn Stover contains a glucose polymer- Cellulose and a

complex sugar polymer- Hemicellulose; both can be

fermented to ethanol. Lignin, a non-sugar component, has

potential by-product value. On acid pre-treatment, the

composition changes to 56% Cellulose, 5% Hemicellulose and

28% Lignin, others remaining the same. Source: Cherry, 2006

Process Description

The process expertise is developed by National Renewable Energy Labs USA (NREL).

It is a government agency which works in pioneering alternate energy resources. They

have assured us of their support in implementing this technology in India.

The overview of the process is as follows:

Collection: Stover is collected from farmers and delivered to the feed handling

area

Pre-treatment: Converts Hemicellulose into fermentable sugars. Makes cellulose

reactive to enzymatic hydrolysis

S/L Separation & Conditioning: Separation of pre-treatment solids from liquor

and conditioning the latter for fermentation

Sachharification & Fermentation: Enzymatic hydrolysis of cellulose to glucose.

Microbial conversion of sugars to ethanol

Distillation & Purification: Separation of ethanol from Co2 and other residues

Boiler/Turbogenerator: Steam and captive electricity generation from lignin

residue as a possible addition in future

Source: NREL, 2002

Corn Stover-

Composition

% Dry

Basis

Cellulose 38

Hemicellulose 32

Lignin 17

Other 13

Corn Stover

Collection Pre-Treatment

Steam &

Acid

S/L Separation Conditioning

Lime Gypsum

Sachharification & Fermentation

Solids

Enzyme

Distillation

& Purification

Ethanol Steam

Burner/Boiler

Turbogenerator

Steam & Electricity

Liquor Hydrolyzate

Broth Lignin

Residue

8

Technical Characteristics of Processes

Pre-Treatment S/L

Separation

Sachharifi

cation Fermentation Distillation

~ 1.1% conc.

Dilute

Sulphuric Acid

~ Ion exchange

and overliming

to remove toxic

components

~Pressure

Filter at 5

atm

~Overlime

conditionin

g

Enzymes

~Anaerobic

fermentation trains

~Corn-Steep Liquor

~Di-ammonium

phosphate

~Zymomonas mobilis

enzyme

~Vapour-phase

Molecular sieves

~Pressure-swing

adsorption

~Three-effect

Evaporation

Temp. ~ 190oC 135oC 65oC 37oC

Time ~2 min 1.5 days 2 days

Source: McAloon, A., et al, 2000; NREL, 2002

Rationale behind choice of Raw Material

The two largest producers of Ethanol- USA and Brazil- use two different sources - Corn

starch and Sugar. The choice of raw material in both nations has been influenced by its

abundant production and consequent lower cost.

India makes ethanol from sugar molasses primarily due to their abundance.

However, most of the ethanol is manufactured for the alcohol industry as the latter

purchases at a rate of Rs 21/Liter. A small fraction of the produced Ethanol is sold

for preparation of clean fuel, at Rs 18/Liter. In our proposed set-up, ethanol

produced from Corn Stover can be sold at Rs 16-17/Liter.

Raw Material Sugar Cane Corn Kernel Corn Stover

(Sucrose) (Starch) (Cellulose)

Procurement Cost (Rs./T) 1 640 5000 1500

Enzyme Cost (Rs./T) 2 Negligible Negligible 550

Input Cost (Rs. /T) 640 5000 2050

Yield Ethanol (Ltrs/T) 72 450 300

Input Cost / Ltr of Ethanol 9 11 7

Table 2: Ethanol Manufacture: Comparison of Raw Materials

1Minimum support prices fixed by the Government. Corn Stover to be sourced from farmers directly at

Re. 1/Kg 2In USA, enzyme costs for decomposing Corn Cellulose9 is $0.10 per Gallon of Ethanol produced. We

have assumed a higher cost of $0.15 per Gallon of Ethanol to take into account the cost of importing.

Enzyme Cost = Rs. 0.15*80*45.8 = Rs. 550

9

Corn Stover is a residue that is left to decompose on the field and has no monetary

value. Its purchase would benefit farmers, even if a nominal price is paid, in

absolute terms as the ratio of production of stover to corn kernel is 1:1. However,

stover decomposition gives manure and CO2 to the soil; so, a maximum of 30% of

stover produced in a field (considered safe) is to be procured for ethanol production

Technology employed for corn stover is valid for other bio-products that are

available at minimal cost, namely municipal solid waste, rice-straw, sugar cane

bagasse, pulpwood and switchgrass (Burton, n.d.). Hence, the risk from source-side

is minimal

The facility can be enhanced for co-products in future: Lignin residue can be used to

produce steam and electricity, both can meet the facility’s requirements partially.

Different modules work at different temperatures; Heat-Exchanges can be used to

capture excess heat from one process to channel to another process. (McAloon, A., et

al, 2000)

Corn and Sugar are consumption crops. Hence, their usage for ethanol production

would mean diversion of a portion of the production away from food production.

This could lead to rise in sugar and corn prices and a subsequent overall inflation in

the prices of food-products using these two products as ingredients. Corn Stover,

being a non-consumption crop, does not have a detrimental effect on the food

market

Location

The location decision is primarily based on the following factors

Areas of high corn production, with production in both the Kharif and Rabi seasons

Proximity to the customer : Locations of refineries

Areas of high sugar production (which is a competing substitute)

Based on the trends over the last 5 years, and keeping in mind the year-round

production of corn, four states fall in the consideration set – Andhra Pradesh, Bihar

(Table 3), Karnataka and Maharashtra.

Bihar is an area of high corn production. IOCL has a refinery in Barauni with a capacity6

of 6 million tons. Sugar doesn’t offer significant competition. The new Industrial Policy

2006 of Bihar provides incentives to Ethanol production. These incentives include VAT

refund, stamp duty exemption, administrative charge waiver among others (Bihar

10

2006). All these factors make Bihar the preferred choice for the location of our first corn

strove based ethanol manufacturing plant.

Production of Maize in Bihar6

(2001-2002 to 2005-2006) ('000 tonnes)

Years 2001- 2002- 2003- 2004- 2005-

Bihar

Autumn 460.3 428.2 438 421.2 -

Kharif - - - - 410

Rabi 593.6 490 594.7 596.2 1014

Summer 434.4 431.6 440.8 448.3 -

Total 1488.3 1349.8 1474 1465.7 1424

Table 3: Maize Production in Bihar

We have identified Begusarai District in Bihar as the location for our plant.

The total maize production in Bihar is 1.4 million tonnes. Begusarai district is one of the

three major maize producing regions. The production in Begusarai district is expected

to be around 0.3 to 0.4 million tonnes (23 to 28%), which would be sufficient to meet the

Stover requirements for our plant (Refer table 4)

Plant Capacity (Liter/day) 60000

Annual Production (M-tons) 18

Yields of Ethanol ( Liter / ton of Stover) 300

Supply of Stover required (Mn-Tons) 0.06

Production of Stover in Begusarai (Mn-Tons) 0.3

% of district produced off-taken by plant 18%

Table 4: Supply requirements of Stover for the plant

Begusarai is at a distance of 100 km from the refinery at Barauni. The transportation

infrastructure around this place is good which makes it an ideal choice for the location

of the plant.

Supply Chain

Procurement Warehouse/

Storage Processing Warehouse/

Storage

Customers

Corn Stover Ethanol Distribution Corn Stover

11

Procurement

Feedstock is procured from mandis; mainly from the weekly mandi in Begusarai

District HQ area. Since, corn stover is wasted otherwise; farmers would be informed in

advance to bring their stover produce to the mandi. Alternately, it can be collected from

farmers’ fields directly. This job can be out-contracted to the local youth for a fee who

would use their own transportation viz. bullock-carts to deliver the collected material at

the mandi. The material aggregated at the mandi is transported to the factory; again by

out-contracted youth.

Corn production and Harvest in Begusarai District, Bihar

Season Months Harvest

month Usage

Harvest/

Procurement

Inventory

(EOM)

Storage

Month

Rabi Jan 8.33% 8%

Feb 8.33% 0%

Mar Mar 8.33% 30% 22% Mar - Jun

Apr Apr 8.33% 43% 56% Jun- Oct

May 8.33% 48%

Jun 8.33% 40%

Jul 8.33% 31%

Kharif Aug 8.33% 23%

Sep 8.33% 15%

Oct Oct 8.33% 4% 10% Nov – Dec

Nov Nov 8.33% 23% 25% Dec – Feb

Dec 8.33% 17%

For smooth year-long production, raw material usage is constant each month at 8.33%

of annual usage. However, its availability is lumpy, with one-third of annual harvest

available in Oct-Nov in the Kharif season and remaining in Mar-Apr in Rabi season

(Min. of Agriculture, n.d.). To smoothen availability, feedstock is stored; each batch of

Kharif feedstock for a maximum of 1 to 3 months and Rabi for 2 to 6 months. Corn

Stover has a maximum storage life of 6 months.

Warehouse for Feedstock

The processing plant would have adjoining and separate warehousing area. The storage

requirement is variable ranging from nil in Feb to 56% (of annual requirement) in Apr.

The capacity is kept to hold 65% of annual procurement - maximum possible plus a

buffer for unforeseen circumstances and future expansion.

12

Processing Facility

Land: It will be purchased from the government at the edge of a moderately populated

town in the district. The town should be located in a close cluster of many towns so that

the supply of labour does not become a constraint.

Building: The manufacturing of a single-storied structure will be contracted to a builder

from the district or a nearby district.

Civic Supplies: Electricity, water and sewage connections will be arranged with the

help of the local government and the builder

Machinery & Equipments: The equipments needed for the processes described in the

Process Description section will be purchased from various heavy machinery

manufacturers of India like L&T. Some equipments will also be procured from Praj

Industries.

Input materials: Majority of the material will be purchased from the nearest supplier.

Some of the enzymes will have to be imported from the US until their commercial

production in India. Help from the Indian Government and the US Dept of Energy

would be sought to procure these enzymes. Organizations involved in research of

stover-to-ethanol technology, viz. Novozymes, would be candidates for collaboration

for improved technology import in future.

Operations: The factory will run batches of production. The modules have disparate

residence times, with fermentation taking 2 days and pre-treatment 2 min. To

synchronize their operations, larger size of batches will be passed through shorter

modules. The intermediate products from these modules will be stored together and

passed through longer modules together. The plant will run three shifts, each shift

running a subset of modules.

13

Labour: The requirement for factory

staff would be met locally from the

district – especially the town of the

facility. The headcount per module is

on the basis of the frequency and

duration of each module.

The shorter-duration modules would

require more staff as they will be run in

larger number of shifts as compared to

slower modules. The slower modules, like fermentation, do not require constant

supervision, bringing the number of required staff further down. Most of the

administrative staff would need to have prior-experience in manufacturing and would

be recruited from the state. A fraction of supervisors and the Plant Manager can be

brought in anywhere in the country.

Training: Factory staff training would be organized locally with instructors brought

from outside. A few of the staff would be trained extensively so as to turn them into

trainers. Administrative staff training can be arranged in existing ethanol plants in India

with the help of Petroleum Ministry, Government of India.

Organization Structure: The factory set-up is best run within a hierarchical framework.

The decision-making roles would flow from top-to-bottom; reporting supervisor would

be the immediate predecessor. Each Supervisor would be responsible for one module;

with each module having two supervisors but in separate shifts. One supervisor may

have to supervise two alternate shifts in one day; however, he would be compensated

when his module is shut down for a day as a result of the batch model described above.

The Admin Support Staff assist multiple supervisors but report to a single supervisor as

mentor. The Supervisors report to the Plant Manager who is ultimately responsible for

the batch allocation of modules and the day-to-day running of the factory. He is also

responsible for the whole supply-chain. Supervisors assist him in non-production

related activities.

Final-product Warehouse & Distribution

Production of Ethanol would be even throughout the year. Ethanol would be delivered

constantly every day. For intermediate storage large vats would be needed. Self or

leased Tanker-trucks would transport.

Direct Labour ( Plan ) per Shift Headcount

Feed Handling 15

Solid Separation 15

Pre-treatment Conditioning 5

Cellulose Treatment by enzymes 5

Fermentation 5

Distillation/Dehydration 5

Office Administration

Supervisors 10

Admin Support staff 5

Plant Manager 1

14

Tanker-Trucks Required

Average Distance in km

(Between Plant & Refinery) 300

Time to & fro @ 40 km/h (hrs) 15

Time at the refinery (hrs) 2

Buffer Time for repairs/delay (hrs) 4

Total Trip time (hrs) 21

No. of Trips per Truck per day 1

Trips per Tanker per annum 190

Capacity of oil tankers (Tonnes) 10

Oil transported per Tanker p.a. (Tonnes) 1900

No. of Trucks per Plant 13

Cost Structure

Exhibits 1 to 6 give a detailed break-up of the steps involved in arriving at the relevant

costs per of ethanol produced and consequently arriving at the final price charged to the

refineries.

The total variable cost comes out to Rs. 8.26 per litre. The total overheads are estimated

to come to Rs. 1,560,000. If we assume a production capacity of 60,000 Litres of Ethanol

per day, the overheads would come to Rs. 0.9 per litre.

We estimate the total capital requirement to come to Rs. 350 million. Based on a debt

equity ratio of 0.8 (arrived at by computing the average D/E of the top three companies

in the sugar industry), we arrive at the debt requirement of Rs. 156 million. Assuming

an interest rate of 15%, we arrive at the interest cost per litre.

Based on the all the above computed parameters, and applying a mark-up of Rs. 5, we

arrive at a competitive final selling price of Rs. 17 per litre. Considering that ethanol

manufactured from sugar sells at Rs. 21, we expect to easily gain favour with the

refineries.

Projections and Financials

Our primary market, the Barauni refinery produces approximately 0.6 Million Tonnes

of Petrol per annum. Its estimated ethanol requirement would be 10% of this, which

comes to 60,000 Tonnes per annum. At an installed capacity of 60,000 Liters per day, at

the maximum, we could supply about 30% of the refinery requirement.

15

With this in mind, combined with our cost advantage and the absence of competition

from sugar based ethanol in Bihar, we can assume that we’d sell whatever we produce.

Towards this end, we have assumed a rise in capacity utilization from 50% in 2007 to a

peak of 80% in 2010, owing to learning curve benefits. This leads to the corresponding

revenue growth from Rs. 153 million in 2007 to Rs. 274 million in 2011. This represents a

return on equity of 9% in 2007 which rises to as much as 36% in 2011.

Exhibits 1 to 9 summarize the above details. Exhibit 10 also tabulates the expected

repayment schedule to the lenders.

Risks & their mitigation

1. Cost of feedstock: Currently corn-stover has no market in India. If more and more

ethanol producers turn to it, a market will develop and its cost may rise.

Due to demand of only a handful of production houses, such a scenario cannot be

expected in the short-term. Moreover, substitutability of corn-stover with other bio-

feedstock for the same production set-up reduces the risk.

2. Change in technology: Ethanol production is an emerging field, especially from

cellulose. Ongoing research can throw up new technology that might be more

efficient and cost-saving making our installed plant technology redundant and

uncompetitive.

Huge demand-supply gap would help the plant remain competitive even with a

relatively inefficient production process.

3. Feedstock supply: Agricultural production in Bihar is largely dependant on natural

irrigation. Inadequate rainfall or some other natural calamity can severely affect corn

production and subsequent corn-stover production.

Alternate biomass-feedstock can be tapped in such cases of shortage.

4. Competition: New ethanol manufacturers in the area can introduce competition for

customer.

Huge demand-supply gap and our lower costs would keep us competitive.

16

5. Shift in Governmental Policy: Currently, the government is encouraging ethanol

production by stipulating a minimum proportion of ethanol in gasoline. However, if

it shifts focuses to another renewable fuel, ethanol demand can dry-up.

6. Given the success of many nations in adoption of ethanol, such a scenario is highly

unlikely. Moreover, Government has shown commitment to ethanol since 2002

through various public announcements by its ministers.

Competitive advantage

Moving in quickly into high perceived-demand areas and setting up capacity would

corner upon us a significant first mover advantage by erecting an entry barrier for

competitors. It also means establishment of relationships with refineries.

Even if we set up plants at a few locations initially, we have the opportunity to

establish relationships with the players in the refining industry which would help us

in our expansion later. For instance, constructing a plant at Begusarai and serving

the IOC refinery at Barauni would lead to credibility with IOC, which would make it

easier for us to serve the IOC refineries in other locations as and when we choose to

expand.

Corn stover, as of now, is a farm waste, usually burnt once corn cobs are harvested.

Since there’s no alternative use for corn stover with respect to a farmer, we get it

really cheap, which drives down the raw material cost and consequently the selling

price of ethanol. This gives us a significant edge and room for pricing over sugar-

based ethanol manufacturers.

Sugar-based ethanol is subject to greater price fluctuations, owing to demand

variations of sugarcane as a commodity crop. This is not the case with corn-stover

based ethanol.

Social Impact

Corn crop is grown in India mainly for its corn kernel which is put to various

commercial uses. The remainder of the plant left after the harvest (stover) is used as

feedstock for cattle. However, 30-40% of stover does not have a market and is left

wasted on the harvested land. Because stover has high cellulose content, if allowed to

17

rot on the cultivated lands it reduces the fertility of the soil. Therefore, in most

instances, corn stover is burnt.

Our proposal to produce ethanol from corn stover will provide additional sources of

income to the farmers for their holdings. The stover will be procured from corn farmers

after harvesting of the crop at a rate of Rs. 1.5/kg. The ratio of weight of the corn kernels

to the remainder of the plant (stover) is 1:1. The Table6 below shows that at this rate the

farmer’s income would increase by 30% from current levels.

Additional Income from 1 Hectare (Ha) Land Holding

Size of Land Holding (Ha) 1

Yield of Maize (T/Ha) 3

Maize Produced (T) 3

Income from Maize at Rs. 5/kg (Rs.) 15000

Maize : Corn Stover Ratio by Weight 1:1

Corn Stover Produced (T) 3

Income from Stover at Rs. 1.5 /kg (Rs.) 4500

Percentage increase in income 30%

Ethanol production from corn stover is an environment friendly method of production.

It is a renewable source of energy since maize can be grown in semi arid regions with

little or no agricultural support.

Future Expansion

This model can be replicated by setting up plants to serve the refineries of Haldia and

Kolkata, which are expected to produce similar demand for ethanol. Like Barauni, they

are not likely to be served by sugar based ethanol. In the long term, this model could be

replicated anywhere in India, provided the relevant conditions exist.

18

Exhibits

Exhibit 1: Variable Cost breakup of manufacturing ethanol

1 Liter of Ethanol is manufactured from 3.3 kg of Corn Stover

Raw Materials Rs / Liter

Corn Stover1 4.95

Corn Steep Liquor2 0.50

Enzymes3 1.85

Denaturant4 0.25

Total RM Cost 7.54

Distribution Cost

Warehousing 0.60

Transportation 0.15

Total Variable Cost 8.29

Warehousing Cost

Cost of storage5 15 paise / bag / day

Quantity of bag 50 kg

Average Storage Period 60 days

Total Warehouse Cost / Liter 0.6

Transportation Cost

Distance between Barauni and Begusarai (Km) 100

Capacity of oil tankers (Tonnes) 10

Mileage ( Km / Liter) 4

Diesel Cost (Rs. / Liter) 35

Overheads ( driver, other overheads) (Rs. / Liter) 25

Transportation Cost / Liter6 0.15

1 1 kg of Corn Stover costs Rs. 1.5 2 Assumed 10% of the cost of Corn Stover12 3 Assumed a premium of 50% over and above the price of enzymes in the US, which comes to 15 cents per

gallon of ethanol. 4 Assumed 5% of the cost of Corn Stover12 5 Based on primary research (As per the norms of Indian govt.) 6 Cost to transport 10 tonnes over a distance of 100 Kms = (Distance/Mileage)*(Diesel Cost + Overheads).

19

Exhibit 2: Overheads in manufacturing Ethanol

Overhead Costs Rs. / Liter

Labor and Admin Cost 0.9

Energy Cost1 0.18

Waste Disposal2 0.09

Total Overhead Cost 1.17

Direct Labor ( Plan )

No of

workers Daily Wage Rate (Rs.)

Monthly wage

Bill

Feed Handling 15 200 90000

Solid Separation 15 200 90000

Pretreatment Conditioning 5 400 60000

Cellulose Treatment by enzymes 5 400 60000

Fermentation 5 400 60000

Distillation/Dehydration 5 400 60000

Total Labor bill for 1 shift ( 3 shifts daily) 420000

Total Monthly Labor bill 1260000

Office Administration Monthly Salaries

Supervisors 10 20,000 200000

Admin Support staff 5 12,000 60000

Plant Manager 1 40,000 40000

Total Admin Cost 300000

Total Wage Bills for the month ( 3 shifts daily) 1560000

Planned monthly production for ethanol 1800000

Labor and Admin Cost / Liter 0.9 1 Assumed Energy Cost: Electricity required = 700Kw-hr. Rate = 3 Rs/Kw-hr 2 Assumed Wastage Disposal Cost = 10% of Labor cost

Exhibit 3: Estimated Capital Costs3 Capital Costs ( Rs. Million)

Land 6

Building and Civil Structure 35

Plant Machinery & Equipments

Pretreatment/Detoxification 80

Simultaneous Saccharification/Co-fermentation 40

Cellulose Production 50

Distillation 14

Solid/Syrup Separation 25

Boiler/Turbo generator 100

Total Capital Investment ( Rs. Million) 350 3 Investment figures arrived at using comparable figures from US and applying PPP12

20

Exhibit 4: Capital Structure

Capital Required ( Rs Million) 350

D/E1 0.8

Debt 156

Equity 194

1 D/E taken as the average of the largest three sugar companies in India

Exhibit 5: Pricing

Total Costs (Rs/)

Variable Cost1 8.29

Overhead Cost2 1.17

Depreciation3 0.6

Interest Cost4 1.30

Total Cost in producing 1 Liter of Ethanol 12.00

Markup 5.00

Final Price 17.00

1 From Exhibit 1 2 From Exhibit 2 3 Assuming straight line depreciation of capital investment over a life of 15 years 4 Interest rate assumed: 15%

21

Exhibit 6: Revenue Projections over the period 2007-11

2007 2008 2009 2010 2011

Installed Capacity (T/Year) 18,000 18,000 18,000 18,000 18,000

Capacity Utilization1 50% 60% 70% 80% 80%

Ethanol Produced (T/Year) 9000 10800 12600 14400 14400

Price ( Rs/)2 17 17 18 18 19

Revenue (Rs. Million) 153 184 227 259 274

1 We make the assumption that we reap learning curve benefits and increase capacity utilization 2 We assume a marginal rise in price due to inflation and the general demand-supply gap

Exhibit 7: Projected Income Statement over the period 2007-11

Years 2007 2008 2009 2010 2011

Revenue 153 184 227 259 274

Cost of Goods

Raw Material 68 81 95 109 109

Warehousing 5 6 8 9 9

Transportation 1 2 2 2 2

Gross Margin 78 94 122 140 154

Expenses

Direct Labor 15 15 17 17 18

Admin Costs 4 4 5 5 6

Energy Costs 2 2 2 3 3

Waste Disposal 1 1 1 1 1

EBIDT 57 72 97 114 126

Depreciation 10 10 10 10 10

Interest Expense 23 23 23 20 16

PBT 24 39 64 84 100

Tax @ 30% 7 12 19 25 30

PAT 17 27 45 58 70

ROE 9% 14% 23% 30% 36%

22

Exhibit 8: Free Cash Flow Projections to the equity holders over the period 2007-11

Year 2007 2008 2009 2010 2011

PAT 17 27 45 58 70

Add Depreciation 10 10 10 10 10

Capital Expenditure -350 0 0 0 0

Working Capital 7.65 9.18 11.34 12.96 13.68

Change in working capital 0 1.53 2.16 1.62 0.72

Repayment of Principal 0 0 0 20 30

Free Cash Flow to the share holders -323 36 53 47 50

Return on equity 9% 14% 23% 30% 36%

Exhibit 9: Net Present Value of the Project

Year 2007 2008 2009 2010 2011 2012 2013

EBIDT(1-t) 40.05 50.40 68.10 79.73 88.41 97.25 106.98

Add Depreciation 10 10 10 10 10 10 10

Capital Expenditure -350 0 0 0 0 0 0

Working Capital 7.65 9.18 11.34 12.96 13.68 16.2 16.2

Change in working capital 1.53 2.16 1.62 0.72 2.52 0

Free Cash Flow to the company -299.95 58.87 75.94 88.11 97.69 104.73 116.98

NPV 25.10 Rs Mn

IRR 18%

Exhibit 10: Debt repayment schedule

2007 2008 2009 2010 2011 2012 2013 2014

Repayment 0 0 0 20 30 30 36 40

Remaining Debt 156 156 156 136 106 76 40 0

Interest Cost @ 15% 23 23 23 20 16 11 6 0

23

References

1. http://www.ethanolindia.net/ethanol_govt.html

2. http://www.ethanolindia.net/ethanol_news.htm

3. http://www.ksgrains.com/ethanol/useth.html

4. http://www.thebusinessonline.com/Stories.aspx?Brazil%20switches%20from%20petr

ol%20to%20ethanol%20and%20saves%20billions%20as%20the%20US%20looks%

20on&StoryID=C409EABE-D8CF-48DC-B52C-

1A130EBB3FA2&SectionID=F3B76EF0-7991-4389-B72E-D07EB5AA1CEE

5. http://www.ethanolindia.net/ethanol_demand.htm

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24

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