The green opportunity
• Green industries are businesses that produce, market or use technologies that cut down on ecological degradation
• Governments around the world are giving incentives to such industries
• Wind turbine energy is the largest green industry in the world in terms of revenues
• Bio-fuels which are now being mixed with automobile fuel is the next big thing
• Bio-fertilisers and bio-pesticides that are completely biodegradable also hold tremendous potential
• Green companies present a great opportunity to investors. But given the uncertainties in technology and policy, invest in small chunks
In solar photo voltaics, as in wind, energy efficiency is hitting new highs almost every week. New-generation thin film PV cells are getting into the high teens in energy efficiency percentages after some two decades of back-breaking research, thus reducing the effective cost per watt to an alltime low. The bad news: it’s still very costly and requires government subsidies (like forced purchase of roofbased solar electricity at high rates across Europe) to make economic sense. Sharp is the global leader in this space, while Indian challengers include XL Telecom, Webel SL and Moser Baer (the last named is investing Rs 2,000 crore in this sector!)
Almost all the three-dozen-odd listed sugar companies in India make and sell ethanol. It’s supposed to be blended 5% with petrol, but distribution controls and a poorly-priced blending plan have so far stymied government efforts in India. In sharp contrast, Brazil directly converts sugarcane juice to ethanol and most petrol vehicles in that country are compatible with 20% or even 30% ethanol blends. It’s going to take a while before ethanol spins super-normal profits for sugar companies.
Meanwhile, some six new biodiesel plants are at various stages of commissioning in different parts of India, including a pilot scale effort by the highly respected sodaash and fertiliser major Tata Chemicals. None of them, except the Hyderabad-based Southern Online Biotech, has commenced commercial production. Southern plans to add a seven times larger plant at Vizag at under four times the capital cost of its existing plant. I am an independent director of this company, and I believe that the biodiesel opportunity can be bigger than the ethanol story. Why?
Bio-diesel can be blended in almost any ratio with diesel, and can be produced from a variety of non-food sources such as jatropha, pongamia (a tree found commonly in south India), cotton seed, neem seed, inedible fish oil, palm oil refinery sludge, beef tallow and even from used cooking oil. Bio-diesel production yields several byproducts of significant value, and it is easier to blend than ethanol. Best of all, it doesn’t lower the mileage of diesel (a la ethanol-blended petrol).
In a bizarre but exciting development, researchers in the US are now developing special strains of algae that can be “fed” smokestack gas bubbles (rich in carbon dioxide) to grow into feedstock for producing raw vegetable oil (that can be refined) to produce bio-diesel. If this works, I guess all coal-based power plants could someday be surrounded with miles of algae farms and “fix” their carbon emissions into bio-diesel feedstock. The combination of carbon credit and biodiesel revenues might deliver big returns, going by the claims of advocates of this technology.
But something tells me that the most far-reaching development in the green movement is still in its infancy. Less than a dozen companies around the world are commercially manufacturing and selling small quantities of bio-pesticides and bio-fertilisers. Unlike popular fertilisers and pesticides in common use today, these products can be safely metabolised by most living creatures, and leave no residues in their bodies. They have no adverse effects on the soil, and are produced from biological sources rather than chemical synthesis.
A few days ago, I made a token personal investment in a small research-driven company in this space called Camson Biotechnologies. At under Rs 40 crore of estimated revenues in 2007-8, Camson hardly makes the serious investment grade that I’d push to my clients. But a long talk with the technocrat CEO Dhirendra Kumar followed by a visit to its R&D centre convinced me that this company was nurturing a business where the opportunity space was big enough for Camson to attempt doubling revenues (and profits) every year for perhaps a decade. A parallel presence in hybrid seeds gives Camson critical mass in distribution.
Will Camson make the cut? Frankly, I don’t understand the science and technology behind this company well enough. But I know that this is the kind of stuff that the world’s farmers are thirsting for, and if Camson does not do it, someone else will. Right now, it’s the only listed company in India that seems to be getting a grip on this difficult (but promising) business.
The way to invest in the green opportunity is to recognise that the technological and regulatory uncertainties (and the opportunities) are unpredictable as of now. So make a small bouquet of investments and raise your exposure at least two times a year to the companies that deliver even moderate success. And, most importantly, stay closely tuned in to the facts as they pan out. Make emotionless exits when things don’t go your way!
Dipen Sheth is head of research, Wealth Management Advisory Services.
He can be reached at firstname.lastname@example.org