Multi Layered Plastic Recycling: opportunities and challenges

Multi layered plastics (MLP) such as potato wafer packet, chocolate wrapper, wrappers for ready to eat foods and pharma products are criticised for their lack of recyclability, leading to littering of our cities and oceans. However, MLPs remain the cheapest and most viable option for packaging of food and pharma products and it may not be possible to completely replace them atleast in the near term. In this blog, we examine entrepreneurial opportunities available in MLP waste management and challenges faced by these businesses.

How big is the MLP waste problem?

India consumes close to 150001 tonnes of plastics per day, of which only 60% is recycled. Packaging plastics (MLPs and single use plastics such as light weight plastic bags, coffee cups, disposable utensils), contribute to majority of the non-recycled plastics. MLPs cannot be recycled economically, as these are made of two or more layers of plastics and separating the layers is not cost effective.

MLP waste can be broadly divided into two categories: industrial waste and post use waste. Industrial waste refers to the waste generated in the flexible packaging /converting units, this waste is relatively clean and can be converted into products such as plastic ropes/bags or fuel. Post use waste comprises waste generated from households and other consumption centres such as malls, commercial establishments. Such MLPs are contaminated and have high moisture content as they are mixed with the organic waste; it is this waste, which mostly finds its way to the landfill.

Is there a shortage of MLP waste processing capacity?

MLP waste can typically be converted into power or fuel, through a number of processes (see picture 1). Additionally, it can also be used a filler for laying roads.

Picture 1: Laminate waste treatment options
wastetreatment
Among above mentioned methods, co processing in cement plants has taken off to an extent. Currently around 542 cement plants all over the country have made investments in co processing facilities that allows them to use alternate fuel in the kiln. As per Cement Manufacturers Association (CMA), cement plants currently have a Thermal Substitution Rate (TSR) of 4%, indicating that they meet 4 per cent of their fuel requirements from alternate fuels including plastic waste. Cement industry has proposed to increase their TSR to 25% by 2025, which will allow them to consume up to 12 million tonnes of plastic waste. While cement plants can handle contaminated waste, it has to be moisture free as wet waste is difficult to process.

Waste To Energy (WTE) plants burn unsegregated waste to produce power. Currently there are around 7 operational WTE plant, 403 under different stages of construction. WTE plants are ideally meant for processing dry waste, as wet waste (largely organic in nature) has lower calorific value and therefore is ineffective. However, given the lack of availability of segregated waste, they use mixed waste. While these plants have faced issues related to their compliance with pollution control norms, they are still preferred by the municipalities around the country as they can handle large amounts of unsegregated waste.

Pyrolysis refers to the process of converting plastic to oil, which can be used as a fuel. This process also needs clean /moisture free waste. Pyrolysis is yet to take off, largely to due unavailability of clean waste and risks related to the pollution compliance of such units. However, these plans can work well in industrial estates where availability of 2-3 tonnes of clean waste per day is assured.

Plastic has been used to build roads in Chennai, Indore, Pune and Meghalaya. The challenges again are lack of availability of required amount of clean plastic waste.

As such, the key issue that hampers laminate waste management is lack of availability of clean laminates that are fit to be processed and not shortage of waste processing facilities as such. The existing capacity of the cement and waste to energy facilities is enough to meet the needs of the industry.

Where are the opportunities for new businesses?

On the one hand, there is huge amount of MLP and plastic waste which needs recycling and on the other hand waste treatment providers such as cement kilns, WTE and pyrolysis plants don’t get desired quality of waste. Thus, there is a large opportunity to set up businesses that can incentivise households to segregate dry and wet waste, collect the segregated waste and channelize it to recyclers. Given the potential opportunity, a number of companies (see Table 1) have started aggregating household waste and supplying it to recyclers.

Table 1: Waste Management companies
CompanyLocationRemarks
Lets recycleAhmedabadWaste management, waste handling and reporting services for corporates, also owns recycling facilities, funded by impact investors such as Aavishkaar and Asha impact
Waste venturesHyderabadWaste collection, segregation and channelization , has been funded by Vilcap investments
Karo SambhavGurugram, HaryanaE waste PRO, funded by IFC, clients includes HP, Apple Del and Xiaomi
GEM enviroDelhiPlastic waste PRO, counts Bislery, Pepsi, Coco Cola among its clients
Raddi ConnectMumbaiWaste collection and channelization
Thekabadiwala.comBhopalDoorstep waste collection and channelizing the waste,  recently raised angel funding of Rs. 3 crores
Saahas zero wasteBangaloreWaste management, EPR and consulting services, has raised funds from India Angels network
Rudra Environmental SolutionsPuneCollects plastic waste and converts it to fuel in their own pyrolysis plant. Has been acquired by Blue Planet environmental solutions Pte limited, Singapore
Source: FineTrain research

Further, changing regulatory landscape in plastic waste management sector has boosted the viability of this sector. The regulations on plastic waste management are evolving and EPR (extended producer responsibility) was introduced in 2016. EPR makes producers, importers and brand owners responsible for processing of end of life plastic waste generated by their products. These companies can also take services of a Producer Responsibility Organisation (PRO) to manage their waste. Although, EPR for plastic waste is still in its early days, some FMCG companies have started warming up to this idea. For example, Indian Pollution Control Association (IPCA), a Delhi based PRO is implementing a project called “We Care” on behalf of FMCG companies such as PepsiCo , Nestle, Dabur and other to collect MLPS and channelize them to the recyclers. Recognition and acceptance of a PRO in plastic waste management provides a sustainable source of revenue for waste management companies and therefore makes their operations more viable.

Regulation is also slowly making an impact on waste segregation mindset of Indians. For example, in Mumbai and /Bangalore in situ (on site) composting is mandatory for bulk generators who generate more than 100 kg of waste every day as the municipality does not collect wet waste from such bulk generators.

Increasing awareness about consequences of informal recycling on the health of workers and environment is also bringing about a change in the mindset of people to own up their waste and sell it only to authorised recyclers. This in turn is likely to lead to an increase in demand for PROs in the long term.

What are the key challenges?

While the opportunity is large, the waste management companies face challenges related to lack of adequate clean waste and funding.

  1. Competition from informal sector: Almost all companies in formal waste recycling sector including e waste, bio-waste and plastic waste do not get adequate waste. For example more than 90 per cent of4 e waste is handled by informal sector and 50 per cent5of plastic recycling is done by informal sector, resulting in less than adequate availability of waste to the formal recyclers. The informal sector is able to offer higher prices for the waste vis a vis formal recyclers as they their processing costs are lower due to lower operational/manpower costs/capex costs. For example, a formal plastic recycling units needs to invest at at-least Rs. 1 cr in a recycling unit including the processing machinery and pollution control equipment for treating dust and waste water. However, the cost for informal sector are negligible as most of the work is done manually, and without any compliance to pollution control.
  2. Access to funding: The waste related business are working capital intensive, as they need to pay for the waste upfront, while they get paid only after sizable quantity of each type waste is collected, sorted and sent to the recycler. Additionally, they need large godown for waste storage and employ a number of people in sorting the waste. Further, they require funds for conducting awareness campaigns and marketing. Since these businesses do not have large physical assets, traditional channels such as bank are not able to meet their requirements. Similarly, such businesses also find it difficult to attract equity capital, as it is difficult to scale up operations across geographies.
    However, emergence of impact investors and green funds has improved the funding prospects of these businesses. As can be seen in the Table 1, a number of investors including IFC, Aavishkaar, Asha impact and angle investors have invested in waste related businesses.

How can we help?

We are an advisory firm for small and medium enterprises in green industries. We can help you assess viability of your proposed plastic waste related venture including availability of waste, technology selection and market for recycled products. If you already have a waste related business, we can support you in raising capital for your growth plans and also in acquiring green businesses.

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Loans to MSME in 59 minutes — A radical reform or just an eyewash?

One of the biggest announcements for MSME sector in 2018, was the 59 minute loan scheme, which promises loans of up to INR 1 crore to MSMEs from public sector banks (PSBs) through a seamless online lending market place called PSBLOANIN59MINUTES. This web portal approves a loan in 59 minutes and connects the borrower to the bank branch for sanction and disbursal.

The process is as follows: on submission of the information online, the portal does an analysis of the data and approves or rejects a loan. For loans that are approved in-principle, the portal provides information on banks that offer required product, loan amount, rate of Interest etc. The applicant has to choose the branch of the bank through which the loan shall be processed and disbursed and make payment of a convenience fee of INR 1000. The “in-principle” approval is valid for a period of 15 days from the date of approval. The Bank receives a preliminary report from the portal, where a set of 22 parameters are checked along with profile of the promoters, business activity, analysis of past financial statements, risk scoring, assessment of limits, fraud analysis and verification from GSTIN and MCA. Then, the applicant has to approach the bank branch along with the system generated approval letter and list of indicative documents. The bank would do required due diligence and sanction/disburse the loan.

As per MSME PULSE , the size of loans to MSME (under INR 25 crore) is estimated to be around INR 25 lakh crore, of which the share of public sector banks is large (around 48%). While the share of PSBs in MSME lending has been declining, they still retain a dominant share of over 75% for loans under Rs. 10 lakh, highlighting their critical role in financial inclusion. The biggest advantage of a PSB loan is its low cost, which could be 5-7 % lower than that of NBFCs and fintech portals. For a small borrower looking to borrow a collateral free loan under INR 1 crore, PSB loans are the most accessible loans, as both private banks and NBFCs mostly lend against a security. PSB loans are also an important source of funding for the manufacturing sectors such as food processing, textile, chemicals, and auto components.

As such, this policy measure may be a sincere attempt to reduce the time and effort required to secure credit from PSBs, thus easing the life of an entrepreneur. The demand for such a portal is validated by both the large number of applications (around 1.31 lakh) received within 2 months of its launch, and their total loan value. To substantiate, assuming an average loan size of INR 30 lakhs, these applications translate into loan requirement of INR 40,000 crore, which is almost 5% of the total MSME credit for loans below INR 1 crore . However, unless these applications translate into loan disbursals, the portal would remain just another channel for the PSBs to generate qualified leads

Advantages of the portal

The difficulties in getting a loan from PSBs stems from unwillingness of the ground level staff to even acknowledge/accept the loan application. Even after a loan is approved, the high turnaround around time for the disbursal of the loan remains a challenge. Therefore, the portal is a good first step to ateast reduce the number of branches to be visited. In addition, the MIS behind the portal would make it easier for the banks to closely monitor reasons for rejection of a loan.

Performance

While the intent of the scheme is good, its success depends on the ability of PSBs to quickly disburse the loans that have been approved by the portal. According to official data, the portal received 1.31 lakh applications during the first 50 days of its launch, of which around 1.12 lakh applications were approved, with a strike rate of 85%. However of these 1.12 lakh applications, sanctions were accorded for just 40,669 cases, which translates into a loan sanction ratio of around 36%. This loan sanction ratio could actually be overstated as the applications through the portal may include those for loan renewals from existing clients of banks, which are likely to have higher approval to disbursal ratio vis-a-vis that of a new client. Even if we assume that these applications are all new, the conversion ratio does seem low, as just over a third of the approved loans seem to have been sanctioned. The above performance indicates the following gaps:
1) High approval ratio of the portal suggests one of two things: either most of SMEs that are applying through the portal have good credit quality or the portal’s credit sanction norms are relaxed. Low loan sanction ratio suggests that there are differences in the credit assessment methods of banks vis-a-vis that of the portal;
2) Takeover of loans among banks is not easy, and banks are finding it difficult to extend loans under multiple banking arrangements
3) Lack of resources at bank branches to follow up with the SME and carry out due diligence
4) Unwillingness at branch level staff to lend under CGTMSE

Suggestions

To address the above issues, some of the following steps may be needed to improve the credit evaluation process of the portal along with related policy measures to facilitate loans by banks and improve their loan disbursals:

Process improvements that may be needed to improve loan disbursal

systems to increase the likelihood of the sanction of approved loans. Specific areas that require attention are:

  • The portal should be able to capture the existing liabilities of the borrower correctly so that rejection from the banker does not take place on account of inaccurate information on the existing debt levels. Moreover, the risk rating parameters of the portal have to be similar to that of the banks so that there are no disputes in the quantum of credit sanction.
  • For borrowers seeking term loans for a new asset, the portal needs to assess viability of new projects and the availability of other resources such as required land/technology with the entrepreneur.
Policy measures to support easy lending
  • Relaxation of takeover norms would be required to facilitate easy takeover of loans among lenders. For example, for borrowers who already have a secured loan, a new lender may not be willing to provide a collateral free loan and may want to take over the existing loans as well. Similarly obtaining any enhancement on working capital loan from a different lender would be difficult, as banks would not be inclined to share security on pari passu basis for such small exposures.
  • Since MSME sector credit seekers also require assistance in filing the application, consultants enrolled with SIDBI could be incentivised to take up the work related to filling application forms
  • Many small enterprises do not have GST registration and may not want to obtain the same as the threshold turnover for GST registration has been revised. The portal may want to waive GST registration as a mandatory requirement for companies with turnover of INR 40 lakhs. The credit assessment parameter for such companies could be based on bank account statements and alternate data points such as profile of their customers, industry profitability, and track record of the utility bill payments.

In the absence of the above measures, this web portal would just be a superfluous channel for generating qualified leads for the PSBs alongside their websites and tie ups with online e-commerce platforms; what would be really enterprising is converting these leads into qualified loans for disbursal.

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Bio-CNG: Should you consider entering this business?

Though Biogas has been around for nearly three decades, it has been a small industry, dominated by family size plants used for providing cooking fuel and power. Prospects for Biogas plants are improving slowly but significantly, largely driven by the government policies that have allowed use of Bio-CNG (purified Biogas, also known as Compressed Bio Gas or CBG) in commercial vehicles and availability of subsidy for large scale plants. In September 2018, government of India (GOI) announced a policy on Sustainable Alternative Towards Affordable Transportation (SATAT), which proposes to set up 5,000 new Bio-CNG units across the country by 2025 and generate 15 million tonnes of Bio-CNG.

India is the third largest energy consumer in the world with fossil fuels accounting for over 90 per cent of the energy mix. Renewable fuels such as Bio-CNG present a huge opportunity as they not only reduce our dependence on imports but also offer a solution to tackle the growing amount of organic waste and pollution arising out of crop burning.

No wonder then that Bio-CNG industry is suddenly attracting several entrepreneurs, including existing Biogas facilities that are looking to upgrade to Bio-CNG. Profitability of Bio-CNG businesses depends on a host of factors including macro issues that influence demand for cleaner fuels and local elements such as availability of feedstock, capital requirements and ability of entrepreneurs to market their products. This article analyses four key factors that affect viability of Bio-CNG ventures.

1. Demand for cleaner fuels

Natural gas contributes to around 23% 1of primary energy mix (see Figure 1) in India, with a consumption of around 164 MMSCMD2 (equivalent to 45 million tonnes per annum), growing at around 4 per cent per annum. Power, Fertiliser and City Gas Distribution (CGD) are key consuming sectors (see Figure 2). Since the domestic production of gas has not increased significantly, consumption of imported gas (LNG) has been rising (see Figure 3).

Bio-Chart

Consumption of gas is constrained by the limited availability of infrastructure related to its supply and distribution. Gas distribution network pipelines are available only in 96 districts in Northern and Western parts of country. Similarly, there are only 1424 CNG dispensing stations, 82% of which are located in Maharashtra and Gujarat3. Petroleum and Natural Gas Regulatory Board (PNRB) is expanding City Gas Distribution (CGD) network significantly so as to cover 400 districts and set up additional 9000 CNG pumping stations. The CGD network will be used to supply Bio-CNG also, therefore boosting its demand.

2. Cost competitiveness of Bio-CNG vis-a-vis other fuels

For large scale adoption, Bio-CNG would need to be cost competitive with LNG, commercial LPG and fuel oil that are used by the transport and industrial sectors. As per SATAT, the introductory price (ex- factory) of Bio-CNG is likely to be Rs. 46/kg and retail price could be around Rs. 52-55 per kg ($14–$15 per MBTU).

The prices of LNG have been decreasing of late, and landed prices of LNG in the near term are expected to be around $ 13 per MBTU, thus translating into a price of Rs. 48 per kg. Over the long term, significant decrease in LNG prices, would put pressure on Bio-CNG prices also.


Note: landed prices of LNG have been calculated by adding $5 to the cost of contracted LNG, to account for cost of regasification and distribution

With regard to Bio-CNG’s cost competitiveness with industrial fuels such as LPG and fuel oil, according to CRISIL4 , at an average crude price of $64 per barrel, landed cost of fuel oil and LPG would be $12.1 per MMBtu and $16.9 per MMBtu respectively, as against Bio-CNG’s expected prices of $14-15 per MMBtu. Therefore any significant decline in crude prices from current levels could also put pressure on Bio-CNG prices.

The key question that needs to be analyzed is whether a Bio-CNG plant will be profitable at a price of Rs. 46 /kg (ex-plant). Important components of Bio-CNG cost include feedstock, power, and manpower and capital costs, with feedstock cost accounting up to 40% per cent. Therefore feedstock cost (including transport) and its biogas yield play a critical role in determining viability of Bio-CNG unit. For example, a feedstock such as cow dung has a poorer biogas yield vis-a-vis other sources, resulting in lower Biogas output and higher capital costs. However it may be available free of cost, thus reducing the operating cost and making the operations viable.

Table 1: Bio-CNG cost (Rs/Tonne)
Raw Material 16,931.22
Direct Labour 4,162.26
Power 5,333.33
P
Others
3,153.54
Operating costs 29,580.35
Interest and depreciation 12,195.66
Total cost 41,776.01

An indicative cost structure for a press mud based BIO-CNG unit is provided in Table 1. It has been assumed that the capacity of the plant is 10 TPD of Bio-CNG and its capital cost is Rs. 34 crores, with a subsidy of Rs. 8 crores. The plant procures press mud at a price of Rs. 800 per tonne and press mud yields about 105 cubic meter of Bio gas per tonne.

As can be seen from the Table 2, the cost of Bio-CNG increases from Rs. 39,000 per tonne to Rs. 52,000 per tonne due to an increase in the feedstock cost from Rs. 600 per tonne to Rs. 1100 per tonne.

table-second

As such, to be competitive, the Bio-CNG unit must get feedstock almost free; therefore units with captive access to the feedstocks are more likely to succeed.

3. Capital cost

As a thumb rule, cost of a project that handles around 200 tonnes of waste per day (produces 10 tonnes of Bio-CNG per day) is likely to be around Rs. 30-35 crores. The fixed cost (interest and depreciation) contributes to as much as 30 per cent of the total cost of production and this can vary depending on the cost of land and machinery and timely receipt of subsidy, as described below.

  • Land cost: Around 4 acres of land is required to set up a plant that can handle 200 tonnes of waste per day. The cost can vary hugely depending on the location and whether the land is agricultural or industrial, land cost is typically funded by the entrepreneur.
  • Machinery and civil work: These together contribute to almost 70 % of the cost of a Bio-CNG plant. The machinery comprises biogas holder, scrubber, upgradation unit, plant automation equipment and piping/electricals and its cost can vary a lot across vendors depending on whether they are manufacturing it in house or procuring it from others. Civil work is typically executed through local contractors and its costs may not differ across vendors.
  • Timely receipt of regulatory approvals: A Bio-CNG unit requires a number of permissions including a license from Petroleum and Explosives Safety Organisation (PESO), fire safety certifications and a certification from MNRE (Ministry of New & Renewable Energy). Ability of the company to secure these licenses on time can minimize delays in commissioning of the plant and result in cost savings. Additionally, receipt of subsidy is also subject to project completion and commencement of commercial production and any delay in project commissioning would also delay the subsidy, therefore increasing the interest cost.

Since purity/quality and specifications to standards is of topmost priority for a Bio-CNG unit, quality of machinery/upgradation technology should not be compromised. Significant cost savings can be realised by working directly with OEMs who can provide both biogas fabrication and CBG upgradation technology, instead of engaging with contractors who would outsource critical plant components.

4. Market

While the offtake for Bio CNG from OMC is assured to an extent, it would be important to develop alternate set of customers such as industries/hotels, who can perhaps provide better pricing/payment terms and provide cushion when the demand from OMC declines. Also, the potential for sale of organic fertiliser would need to be assessed. Fertilisers/compost are typically sold through dealer network and require large sales force that can educate farmers on benefits of organic fertilisers. Alternatively, the option of bulk sale to fertiliser companies needs to be explored.

Our view

The need for cleaner fuels is evident given that by 2030, under the Paris Climate Change Agreement, India has committed to meeting 40% of its electricity con from renewable energy sources. While macro environment remains positive, the key risk to a Bio-CNG plant viability is lack of any linkage between the feedstock and final product price and lack of clarity on the price revision mechanism under SATAT. Since Bio-CNG would compete with fossil fuels, its pricing would depend on the price of CNG/LPG, whereas the price of its feedstock may move very differently. This is already the case with biogas based power plants/waste to energy plants that are not able to compete with decreasing tariffs of solar/wind power plants. Therefore, feedstock analysis, availability and long term agreements for purchase of feedstock are critical to the viability of Bio-CNG plants. Industries such as sugar mills, distilleries, and poultry farms that have captive access to feedstock would be most favourably disposed to take advantage of this opportunity.

How can we help?

We can help you assess viability of your proposed Bio-CNG venture and support you in raising capital for the same. If you are looking to purchase/sell an existing Biogas/waste management company, we can identify prospective buyer/ seller and support you throughout the transaction.

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Write to us: bchhatre@finetrain.com , admin@finetrain.com
Call us: 800 888 4932

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Change in MSME definition: Does it help the sector?

The union cabinet recently approved a change in the definition (see Table 1) of Micro, Small and Medium enterprises (MSME), to base it on their turnover as against investment in fixed assets. The Micro, Small and Medium Enterprises Development Act, 2006 will be amended accordingly to reflect the new definition. A change in definition of MSME assumes significance as it is used to provide a number of incentives such as capital, interest and technology/market promotion subsidy by the central and state governments.

Table 1: MSME definition
EnterpriseEarlier definitionNew definition
MicroManufacturing enterprises: Investment in plant and machinery< INR 25 lakhs
Service enterprises: Investment in equipment/machinery<INR 10 lakh
Annual Turnover< INR 5 crore
SmallManufacturing enterprises:Investment in plant and machinery between INR 25 lakhs and INR 5 crore
Service enterprises:Investment in equipment between INR10 lakhs and INR 2 crore
Annual turnover between INR 5 crore and INR75 crore
MediumManufacturing enterprise: investment in plant and machinery between INR 5 crores and 10 crore
Service enterprises: investment in equipment between INR  2 crores and 5 crores
Annual Turnover between INR 75 croreand 250 crore
Note: Turnover of enterprises is likely to be calculated based on GST returns

The new classification may result in many medium enterprises being classified as small enterprises (or small getting classified as micro) based on their turnover. Such reclassification would be positive for enterprises in sectors such as engineering, machine fabrication, apparel, construction contractors etc, where a large number of MSMEs are vendors to public sector enterprises (PSUs). These PSUs reserve 20 per cent of their procurement requirements for micro and small enterprises.

Further, a turnover based definition coupled with incentives for filing GST will encourage MSMEs to file taxes and transact through bank accounts, resulting in improved information availability on the sector for the policy makers. The GST filings of 2017-18, already show an increase of almost 50 per cent in the number of unique indirect tax payers.

The most significant impact though would be on state governments who would now have to revise their industrial policies that currently offer incentives to new enterprises based on their investment in plant and machinery. These policies could broadly be divided into two categories:

  • Capital investment subsidies (subsidies on machinery, building); and
  • Interest related subsidies where loans given to micro and small enterprises attract lower interest rates.

For example Government of Telangana offers Interest subsidy under Pavala vaddi on the term loan taken for fixed asset by new micro and small enterprises. The amount of loan is currently governed by the investment guidelines as defined by the MSME Development Act, 2006. This scheme may have to beredesigned to reflect the new MSME definition. Similarly, central government schemes such as PMEGP (Prime Minister Employment Generation Programme) that provide subsidy to micro and small enterprises will also have to be revised accordingly.

As such, the change to a more transparent mechanism based on turnover is a welcome step as it would make it easier for MSMEs to grow and transition from micro to small and medium enterprises. Further, unlike earlier definition which incentivised enterprises to remain small (as the incentive decreased with the increase in fixed assets), the new definition would likelystimulate investment in the sector.

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Precast Concrete – Growing Business Opportunity

Precast Building elements refer to building parts such as walls, columns, beams, slabs that are made in the factory and transported to the construction site, as against conventional method of onsite construction. These can be used for all types of construction including high rise residential buildings, commercial projects, villas etc. Precast walls can be used for factories, warehouses and also as fences, partition walls etc. Since precast concrete elements are made in a factory, construction is faster and more precise as compared to onsite construction.

Precast is not new in India, it has been well adopted in civil structures such as tunnels, bridges, flyovers and underpasses. Usage of Precast concrete products for commercial & residential construction has started getting acceptance over the past 5 years, mostly in IT offices, factories and hospitals.

Precast technology requires considerable initial capital expenditure (for the factory and equipment) and is most suitable/viable for projects where a large amount of quality construction has to be delivered quickly. Potential for use of precast elements on a large scale seems to be emerging from the growth of affordable housing[1], which is attracting a number of real estate developers as well as financial institutions that are looking to lend to affordable home buyers. The sector has got an impetus from Pradhan Mantri Avas Yojana, which was launched in November 2015 and aims to build 2 crore houses by 2022. The GOI has provided several incentives including the status of infrastructure sector for easy access to funding, 100% tax deduction on profits on affordable housing projects for the developer and credit linked subsidies for the home buyers.

Who are the key players?

The players in the precast market are of two types – builders who have invested in this technology for their captive usage and construction contractors who provide turnkey solutions. Some of the real estate developers who have set up their own precast plants include Supertech, Amrapali, and Sobha Developers etc. The contractors that provide precast related turnkey solutions are PRECA solution, Teemage Precast, KEF Infra, VME Precast, L&T etc.

Markets such as Bangalore, Noida, and Chennai have seen early adoption of the precast technology. Hyderabad is also picking up and two new precast plants have been set up there by the local construction industry.

What is the manufacturing process?

The process starts with the preparation of concrete in the batching plant, followed by casting on the specially prepared bed, curing and transportation to the site. Manufacturing can be semi/fully automated depending upon the capital investment (See Figure 1).

Figure 1: Manufacturing process

The machinery required for the plant setup includes batching plant, pallet/bed, shuttering profiles, concrete distributor, oscillator (for compacting concrete), plotting & cleaning unit (can be done manually), concrete smoothening device, cranes, automation and miscellaneous equipment. The machinery is provided by a number of international companies such as Elematic (Finland), Sommer Precast, Weckenmann (both Germany) and Spiroll (UK) that have offices in India.

How much Capital is required and what will be the profitability?

The capital required for a production capacity of 600 sq.m/shift including investment in plant and machinery and working capital would be over Rs. 30 crores. The overall profitability & return on investment would be contingent on the entrepreneur’s ability to secure regular orders. In order to breakeven, the entrepreneur should be able to run the plant at 50% capacity or construct around 4-5 lakh sq.ft. per annum.

What are the key challenges?

Despite its merits, there are some challenges for entrepreneurs looking to enter the Precast industry.

  1. Given the large amount of capex required to set up a precast unit, it is viable when the construction volumes are large and hence the entrepreneur/construction contractor should be addressing a large market or have some anchor customers that would allow at least 50% utilisation of the capacity.
  2. Unlike other building materials such as light weight bricks, panels etc., precast material is not sold off the shelf. Therefore the company that is contemplating entering the precast market should also have design and construction expertise.

How can we help?

We can help you start a precast building elements manufacturing unit through a number of services including market research, techno economic feasibility assessment and assistance in raising funds. In case you are looking to acquire an existing precast/building material unit, we can assist you in identifying such a company and in the process of acquisition.

[1]Houses with 30 square meters carpet area in the four metro cities and 60 square meters carpet area in the rest of the country

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Green products: How to set up Compostable Plastic bags business?

Compostable plastic bags are plastic bags that decompose into natural components such as carbon, water and biomass upon their contact with soil. As per DS6400, the most widely recognised international standard for compostable plastics, such plastics should completely disintegrate into natural components within 180 days in composting environment.

India generates huge amount of plastic waste (nearly 15,000 tonnes per day). It is estimated that only around 60 per cent of this waste is recycled and remaining gets dumped in the landfills and other places. Prominent among non-recyclable plastics are poly bags made from Polyethylene (PE), which can take up to 100 years to disintegrate.

Plastic bags have been completely banned in Maharashtra[1] (except for milk packets and some specific applications). Further, 17 States and Union Territories in the country have imposed partial ban on these bags with restriction on the thickness of the bags to minimum 50 microns. Increasing awareness about environmentally sustainable products along with restrictions on the usage of plastic bags have improved the prospects of compostable bags.

What are compostable Plastics?

Compostable plastics can be made out of bio based or petroleum based compounds (Resins) as shown below.

Figure1: Types of compostable plastics

Currently, the market for compostable resins is small, at around 1 million tonnes[2] (less than 0.5% of world’s annual plastic consumption of 320 million tonnes). These resins are patented by large multinationals such as BASF, NOVAMONT and have to be purchased from them or their dealers, thus resulting in higher price and limited availability. However, their consumption is predicted to grow at a CAGR of 20% over the next five years[3], and with the rise in demand, the availability of such plastics is likely to increase and their prices would become competitive.

How do compostable bags compare with conventional bags?

Compostable resins’ tensile strength, printability and weight bearing capacities are similar to that of conventional polymers such as Polyethylene (PE). In fact, in some specific applications, compostable resin may offer higher density and tensile strength as compared to  PE, thus resulting in requirement of less tonnage of the resin vis-à-vis PE.

However, currently, the compostable plastic resin is 2-3 times costlier than the conventional resins. Further, the costs of processing these resins into products such as bags are also higher due to smaller size of the processing capacities. As a result, these bags are 3 times as costly as conventional bags. For example, a medium size compostable garbage bags is currently priced at Rs. 220 (for a pack of 30 bags) as compared to a price of Rs. 70-80 for similar conventional bags.

What are the international and domestic standards for compostable Plastics?

There are a number of standards for compostable plastics including ASM D6400 (USA) and EN 13432 (Europe) and ISO 17088.

An Indian manufacturer of compostable plastic bags has to obtain a certification from Central Pollution Control Board (CPCB) for selling compostable bags and related products. The certification process requires the product to be tested in a government authorised lab to check its compliance to ISO 17088.

Table 1. International Standards for compostable bags
S.NoStandardization BodyStandard
1ASTM – American Society for Testing and MaterialsASTM D6400
2European StandardsEN 13432, EN 14995
3ISO – International Organization for StandardizationISO 17088

Is manufacturing compostable bags complex?

No, the manufacturing is very simple and is a two-step process; first the resin is processed into a film through a blown film manufacturing machine, the film is then cut, printed and sliced as per the bag sizes. Currently most Indian manufacturers use conventional LDPE blown film machinery for sheet extrusion. The resin is either directly imported from the manufacturers (list of bioplastic resin manufacturers is available in Table.2), or their dealers.

Table 2. Bio Resin manufacturers
S.NoCompanyCountry
1BASFGermany
2Bio-FedGermany
3CarbioliceFrance
4FKuR KunststofGermany
5NatureWorksNetherland
6NovamontItaly

Is there a market for compostable bags?

The demand for compostable bags is rising driven by growing concern about the environment and changing regulatory landscape. The waste management regulations in India are getting more stringent about handling and disposal of all types of waste including plastic. Therefore, specific segment of the market such as trash bags, bags for nurseries are witnessing a lot of interest from supermarkets, retail chains etc.

Given the demand, a number of new manufacturers have entered the market in past two years. The number of CBCB registered manufacturers of compostable bags has increased to 12 from just 2/3 a couple of years back ( a list of CPCB approved vendors is available here ).

The usage of other biodegradable/environmentally sustainable products is also increasing. Recently McDonald’s India has proposed to replace its plastic cutlery with a combination of wooden and biodegradable plastic cutlery ( available in this link: McDonald’s India kicks out plastics )

How much capital is required and what will be the profitability?

The capital requirements would depend on the machinery and the scale of operations. For example, a blown film machine of a capacity of 15-20 tonnes a month available for around Rs. 30 lakhs. However a European machinery (smallest capacity of 400 kg per hour) specifically made to handle bioplastics can cost more than Rs. 3 crores.

The minimum capital requirement including working capital is likely to be over Rs. 60 lakhs. The overall profitability and return on investment would be contingent on the manufacturer’s ability to secure regular orders and keep processing costs under control.

What are the key challenges?

  • Most states do not have a policy on regulation of usage of compostable plastic bags currently. The guidelines on allowing such bags in retail market would be critical for the growth of the industry.
  • The processing machinery is designed for conventional plastic, which can withstand higher temperature as compared to compostable plastics. Therefore getting the right product requires a number of trials.
  • The certification process for compostable bags is time consuming and can take up to 6-8 months.

[1] As per the circular, dated 10th July 2018 of Maharashtra Environment department, the compostable plastic bags are allowed for horticulture, agriculture, and handling of solid waste.
[2] Source: Global production of bioplastics, a publication by European bioplastics
[3] Source: European-bioplastics.org

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Business Opportunity – Amla Processing

Amla or Aonla commonly known as Indian gooseberry, is known for its medicinal properties. It is used across a number of industries including Aurvedic medicines, Cosmetics and Food products.

The production of Amla was 9.89 lakh tonnes in FY 17, with majority of it coming from Uttar Pradesh (UP) and Madhya Pradesh (M.P).

Figure 1: Amla production and top producing states[1]

What are the key Amla based products and its manufacturing process?

Amla Candy: Amla candies are made by cutting the fruit and coating it with sugar syrup at different brix values. The fruit pieces are then dried to bring down the moisture content and coated with sugar powder, to prevent them from sticking to each other.

Amla Supari: The process is similar to that of the candy. Natural colouring agents, flavours such as mint & dry fruits are added for taste and appearance.

Amla Juice: Washed Amla fruits are transferred to shredder, Amla juice thus extracted, sterilized and packed in bottles.

Amla Powder: Amla powder is used in herbal & cosmetic industry. The fruit as a whole is dried, pulverised and packaged as per the requirements.

What is the machinery and capital required for Amla processing?

Amla processing doesn’t require large investment in machinery and infrastructure. The machinery and capital requirements are presented in Table.1

Table 1: Budget for Amla processing plant
ProductUsage/MarketMachineryTotal Budget
Amla CandyRetailAmla breaking machine, steam jacketed kettle, tray dryer and packaging machine.The budget including machinery for a capacity of 1 tonne per day and working capital would be ₹40 lakhs
Amla Supari
Amla JuiceRetail & CommercialAmla shredding machine, hydraulic press, storage tank with steam jacket and packaging machine.The budget including machinery for a capacity of 2 tonne per day and working capital would be ₹20 lakhs.
Amla PowderRetail & CommercialDryer, pulveriser and packaging machineryAmla powder making plant can be established within ₹ 10 lakhs

Why Amla Processing is an attractive opportunity?

Growing popularity of alternate medicines, health foods and herbal products are driving the demand for Amla based products. The potential for Amla extract as a food ingredient is increasing significantly, owing to the growing global nutraceuticals and functional food market.

As per a report by consumer data analytics firm Nielsen India, sales of personal care products made of natural, herbal and Ayurveda ingredients are growing 1.7 times as fast as the overall market. Given the shift towards natural products, large consumer goods companies such as Colgate, Hindustan Lever are also introducing natural variants of their products. Since Amla is a rich source of vitamin C, a very powerful antioxidant and anti-ageing vitamin, usage of Amla in cosmetics and food products will continue to grow, thus making Amla processing an attractive opportunity.

What are the challenges?

Amla is a highly perishable fruit with a short shelf life of 5-6 days. Hence, the plant runs only during the harvesting period i.e. from October to February. The plant can be used to process other products such as Fruit based bars (Guava, Mango, Pineapple, etc). One may need to invest in addional machinery such as peeler/ pulper/mixer depending on the fruit.

Other challenges for the new entrants is to create a market for their brand, which will have to compete with the well established players. Based on the product portfolio, retail network has to be established.

How can we help?

We can help you start an “Amla Processing Unit” through a number of services including viability assessment, market landscaping, technical consultation and project execution support.

[1] Horticultural Statistics at a Glance 2017 – National Horticulture Board

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Business Opportunity in Turmeric Processing

Business Opportunity in Turmeric Processing

Turmeric (botanical name-Curcuma Longa), one of the most important spice crops in India, is used to colour and flavour the food products.The yellow pigmented fraction of Turmeric (Curcumin,)is used as a colourant in food products and also as an anti-inflammatory agent in medicinal formulations.

India is the largest Turmeric producer in the world, with an annual production of nearly 10 lakh tonnes, accounting for nearly 80 per cent of world’s production. In India, Telangana is one of the largest producers of Turmeric, followed by Andhra Pradesh, Tamilnadu and Maharashtra (see picture 1).

In FY 17, India produced 10.51 Lakh tonnes[1] of Turmeric, of which nearly 1.1 lakh tonnes valued at Rs. 1200 crores was exported. Additionally, India exported Turmeric based oleo resins and Turmeric oil, valued at around Rs. 400 crores.

 

 

Turmeric processing technology

Turmeric can be processed into two products Turmeric powder and Turmeric extracts including oleo resins and Turmeric oils.Turmeric oleo resins/oils are extracted through solvent extraction of turmeric powder. The solvent extraction plant can process a variety of spices including Capsicum, Pepper, Amla, Marigold etc. A plant of a capacity of 500 kg per day requires land of 20,000 square ft. and power load of 60 HP.

Since the extracts (oleo resins) are used in food preparation/pharmaceuticals and largely cater to exports, the oleo resin extraction operations have to be compliant with the USFDA, and European food safety guidelines. The companies that manufacture extracts usually obtain certifications such as HCAAP, Kosher, and Halal.

Key Players

Turmeric powder

The Turmeric power manufacturing is mostly done by micro enterprises and there are a number of players in each region. Additionally, most large spice powder manufacturers such as MDH spices, Everest Spices, Aachi Masala also sell turmeric powder.

Turmeric oleoresins and oils

This segment has a number of large players as well as SMEs.  The large companies extract oils from a number of spices and their products are targeted at export market. (See table 1). These are mostly based in Kerala, due to easy availability of spices. In addition to these large players, there are a number of SMEs that are spread across spice growing states such as Tamilnadu, Andhra Pradesh, Karnataka, Gujarat etc.

Table 1: Spice Extract manufacturers in Kerala
S. No.Company NameProduct RangeLocation
1.SynthiteValue added spice extracts and natural spice powderKolenchery, Kerala
2.Universal OleoresinsSpice Oils, Spice Oleoresins, natural coloursKochi, Kerala
3.Arjuna Natural ExtractsFormulations based on spice extractsAluva, Kerala
4.VD flavoursEssential oils from spicesKochi, Kerala
5.Plant LipidsSpice oils and oleoresinsKochi, Kerala
6.Kancor IngredientsOleo Resins, Essential Oils & Isolates, Mint, Menthol & Isolates, Floral Extracts, Speciality Ingredients, Organic Ingredients.Ernakulam, Kerala,
7.Plant Lipids.Spices and other Essential Oils.Kochi, Kerala
Source : FineTrain research

Key consumers of oleoresins in the domestic market include FMCG companies such as Hindustan Lever, Godrej, Colgate Pamolive, herbal products manufacturers such as Ayur Herbals, Dabur, Himalayan Drug Company, cosmetics product manufacturers such as Garnier Laboratories and pharmaceutical companies such as Dr. Reddys, Cipla etc.

Profitability and return on investment

The capital investment required for a Turmeric powder unit would be under Rs. 50 lakhs for a capacity of up to 2 tonnes per day. Since there is limited value addition in the powder manufacturing process and the manufacturer has to pay large commissions to distributors and retailers, the operating margins of such manufacturers would be thin and profitability would depend on their ability to sell large volumes.

Capital investment in Turmeric extraction capacity of 500 kg per day could be up to Rs. 2 crores. The profitability would depend on the spread between the oleo resin and Turmeric price and the yield of the extraction process.  A tonne of turmeric can yield anywhere 4-5% of extracts. Assuming that a tonne of turmeric yields 40 kgs of Curcumin (95%) and 30 litres of oil, the gross margin calculation is as under

Table 2. Turmeric Oleoresin Processing: Profitability
kgsPrice (Rs/kg)Value (Rs.)
Turmeric10009393,000
Solvents46,500
Total Raw material cost1,39,500
Oleo Resin4044981,79,920
Oil301003,000
Total revenue1,82,920
Spread (Oleoresin-Turmeric)43,420
Spread (%)24

Note: The prices of Turmeric and its Oleo resin are based on export data of 2017 provided by DGFT

The overall profitability and return on investment would depend on the producer’s ability to secure regular orders. Further, any value addition to the products by developing formulations based on the extracts can improve revenues as well as profitability.

Why Turmeric processing may be an attractive opportunity

Demand for Turmeric extracts is growing rapidly in foreign and domestic market. For example, India’s Turmeric extract exports have tripled over the past three years from Rs. 150 crores in FY 15 to Rs. 500 crores[2] in FY 18.

The infrastructure availability (cold storage, common infrastructure for grading and sorting of agri products) for food processing industry is improving as government is providing incentives for development of food parks/spice parks etc.  Further, food processing units are also being given incentives in the form of capital subsidies to set up and expand their businesses.

[1] Source: report on state wise/spice wise production by Spice Board Of India

[2]  DGFT data base: http://commerce-app.gov.in/eidb/ecomq.asp

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Business Opportunity : Corrugated Boxes

1. Introduction

Corrugated box refers to the ubiquitous brown box that brings your online shopping home. Such boxes are also extensively used by manufacturers of consumer and industrial goods to transport their products to their dealers. These boxes keep the contents safe and also serve as a marketing medium for the brand manufacturers.

Corrugated boxes are made from Kraft paper –  several layers of Kraft paper are glued together to make the board.  The board is then cut, folded and stitched/glued to make boxes. The boxes are called three ply, five ply, seven ply etc, depending on the number of layers of Kraft paper.Since the corrugated box manufacturers convert the Kraft paper into a box, they are also called convertors.

The quality of a box is measured by a number of parameters including BF (Burst factor that measures tear resistance of the box), RCT (Ring Crush Test that measures ability to withstand load) and a COBB value (which is its ability to absorb moisture).Quality requirements differ across customers: For example, while a FMCG customer may require the box to have high RCT (the boxes are carried in a truck and a box should be able to withstand the load of boxes placed on it) and low COBB values, the Consumer Appliance industry would need a box with a high BF that can protect valuable electronic parts.

2. Market

The Indian corrugated box industry converts about 4.7[1] million tonnes of Kraft paper per annum and the industry has been growing at a rate of 8-10% annually, which is the fastest among various segments of the paper industry.  Key end users include FMCG, textile, beverages, glass, tobacco and lately e-commerce. Since corrugated boxes are bulky products, they are typically transported within 300 kilometers of the production center, thereby making the industry very local/regional in nature.

The industry is divided into two types of players: automatic plants with a capacity of 1000 tonnes per month and above, and semi-automatic plants with a capacity of under 1000 tonnes per month. At present, there are over 375 automatic plants in the country and more than 10,000 semi-automatic plants[2]. Automatic plants have almost 40% of the share in the corrugated box market. Some of the large corrugators that have operations across the country include Horizon Packs Private Limited, Khemka Containers Limited, TGI Packaging Limitedand MNMTriple Wall Containers. In addition, there are local players that have both automated and semi-automated plants in each state.

The corrugation customers broadly fall into two categories:large corporate consumers such as FMCG, distillery, textile companies and SMEs(fruits and marine products exporters, injection moulded component manufacturers, food processors and consumer products manufacturers). The large customers are gradually shifting their purchases to automatic plants as they require lower lead time and can provide a product with better finish as compared to semi-automated plants.

3. Production process

The corrugated box manufacturing process comprises two steps: board manufacturing and converting the board into the box (See Figure 1).

Figure 1. Corrugated box Manufacturing Process

The capacity of a corrugation plant is defined by the length/width of the machine and its speed and thickness of paper that can be handled by the machine. A 350 meters per minute plant can churn up to 4,000 tonnes of corrugated board per month, when run continuously (24 hours).

There are a number of machinery suppliers both from within India and abroad. Typically, automated corrugation plants use machinery from China or Europe. Some of the popular international machinery manufacturers include BHS(Germany) and Fobster Group(China) for corrugation board and Bobst(Switzerland) and Dongfang(China) for conversion machinery.

4. Capital requirements and profitability

The capital requirements would depend on the capacity and automation levels of the plant. A European plant of capacity of 4000per tonne per month would require an investment of INR 20 Crore in machinery alone. Further as much capital would be needed for meeting other requirements including working capital, factory building, ware house etc.

The corrugation is a volume driven business and profitability would depend on the company’s ability to find bulk/anchor consumers who can buy in large volumes. The pricing flexibility (ability to raise the price) of the corrugators is limited as their customers are large corporates who work with a number of vendors and therefore enjoy high bargaining power. Additionally, the end users/customers have dedicated purchase departments that keep track of Kraft paper prices and cost structure of corrugators thus leaving little room for corrugators for margin expansion.

In order to breakeven, a corrugator should be able to run its plant at more than 30-40% capacity, which can be easily achieved if it has some anchor customers who can provide assured volumes.

5. Why corrugation may be an attractive opportunity

  • Corrugated boxes are environment friendly and currently do not have many substitutes except for shrink films (which are not as environment friendly but cheaper), which are mostly used only in case of PET bottles.
  • The demand for corrugation products is growing at over 9 per cent per annum. The demand growth is expected to remain strong in the near future given the growth in end user industry including FMCG, electronics, e-commerce etc.
  • Customer preference is shifting to large automated plants as these are able to meet the quality requirements and need lower lead time to supply the products as compared to smaller plants, thus resulting in a demand for large corrugation units.

However, before starting a unit, it is critical to study the local demand for corrugated products, potential customers and performance of the existing corrugators. The location of the plant should be chosen carefully keeping in mind the current and potential customers.  Second tier industries cities (that have textile, edible oil, distilleries) seem more attractive as compared to large cities as these already have a number of automatic corrugation plants.

6. How can we help?

If you are interested in starting a corrugated box manufacturing unit, we can assist you in the following

  • Market research to understand local demand supply
  • Viability study for entering a particular market
  • Assistance in developing the project proposal for funding and land allotment
  • Connecting you to technical experts who can offer execution support

[1] Source: Print week and Indian Paper Manufacturers Association (IPMA)

[2] Source: Print week, article dated 14th Sep 2017

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Business opportunity : Natural gums and Resins

Introduction

Natural gums are plant products, formed by the disintegration of plant cellulose. These are typically extracted from seeds of plants like Guar, Tamarind, Cassia tora, etc. These are polysaccharides that increase the viscosity of solutions even when added in very small quantities. Natural gums are preferred over synthetic gums in food applications.

The natural resins, gums, gum-resins (NRG) and balsam’s global market are estimated to be about 1358.44 million USD. India is the second largest supplier of natural resins & gums in international market, with a share of 16.8%, next to France, which has a market share of 26%[1]. In India, the Guar gum has a lion’s share in total NRG production as well as in exports. Therefore, the focus of this blog is on guar gum.

Guar gum-Industry at a Glance

India enjoys monopoly in the Guar gum industry with a market share of over 80%, as it has the most suitable climate for Guar gum cultivation. The Guar industry is driven by the export market, as more than 70% of domestic production is exported. The major export destinations are USA, China, Canada, Germany & Russia. Rajasthan is the largest guar producing state followed by Gujarat, Haryana and Punjab. Rajasthan alone accounts for 70% of the total production in India.

Guar Seed Cross – section and Process flow

The guar seed has 3 parts – Germ (40-45% of the weight), Endosperm (38-45%) and Husk (14-16%), as shown in figure – 1. The gum powder is produced from endosperm in a two stage process. In the first stage, the guar splits are produced and the by-product is Guar Meal (67%) (Korma – 37% & Churi – 30%). The splits are then pulverized into gum powder, and the powder is further processed into various derivatives.

Figure 1: Guar gum seed break up

Derivatives of Guar Gum & Industry specific application

Guar gum has wide range of applications in Food Industry, Textiles, Oil well drilling, Cosmetics & Pharmaceuticals, Paper, Mining, Construction and Explosives. The derivatives of guar gum powder are grouped into Non-ionic, Anionic and Cationic.

Figure 2: Derivatives of Guar gum

The applications in various industries are listed in Table1.

Table 1: Applications of Guar Gum
IndustryUses
FoodThickening, gelling, emulsifying agent and stabilizer
TextileSizing & Finishing agent
Oil well drillingFluid loss controlling agent, additives in fracturing fluids. Fast Hydration Grade is used
Pharmaceuticalstablet binders, disintegrants, emulsifier, suspending agent, gelling agent, stabilizing agent, thickening agent, film forming agent, sustaining agent and coating agent
CosmeticsConditioner and viscosifier, thickener in toothpastes & shampoos
PaperTo get better finish, improved sheet formation, increased bursting & fold strength and denser surface for printing

Demand & Supply

Guar consumption was been around 22.7 lakh tonnes in the year 2016-17. The consumption is volatile and varies depending on the export market, which accounts for more than 70% of the domestic production. The graph depicts the trends in consumption of guar seed in the past decade.

Chart 1: Consumption of Guar seed in export and domestic markets from India

Globally, oil and gas industry is the biggest user and domestically food industry is the largest consumer of Guar gum. (See chart 2&3). The sector wise demand of guar gum powder in international & domestic market is shown below in Chart 2 & 3.

Chart 2 & 3: % application across industries in Domestic & International markets

On the supply side, there are more than 600 guar processing units in India with an installed capacity of around 10 lakh tonnes. The present capacity utilization of the industry is less than 50%, due to weak demand from the export markets. However, the demand is expected to increase due to increasing oil prices, which result in higher capital expenditure on oil exploration related activities.

Price Volatility of Guar Gum

The prices of guar gum powder is highly volatile (see chart 4) and are a function of factors such as crop cultivation, shale oil and gas exploration, availability and price of substitutes, etc. The users shift to the substitutes based on price competitiveness. But guar gum has its own advantages, for example: Guar gum is soluble in both hot and cold water as against Tamarind Kernel Powder (TKP), which is soluble only in hot water. The various substitutes to guar gum are discussed in Table 2,

Table 2: Substitutes to Guar gum
IndustryUses
TextileCMS (Carboxy Methyl Starch), CMTKP (Carboxy Methyl Tamarind Kernel Powder) and Sodium Alginate
PaperTKP, Potato Starch, etc
FoodXanthan Gum, Agar , CMC (Carboxy Methyl Cellouse)
CosmeticsTKP
Shale Oil& Gas ExplorationSynthetic Polymers

Chart No.4: Per kg [2] variation of Guar gum prices over a period of years

 

Guar Gum v/s TKP

Among natural gum, Guar gum faces competition from TKP. TKP is derived from the tamarind seed. It has excellent water absorption property and high viscosity as well. The application includes, thickening agent in sizing process of textile & printing industry and binding agent in pharmaceutical industry. The detailed comparison of Guar Gum & TKP is shown in Table No.3,

Investment

The minimum viable capacity is 6TPD (6 tonne per day) and the investment required to setup guar gum powder from Guar splits is INR 4 Cr, including the civil structure, machinery and working capital. The capital cost would increase by INR 2-3 Cr, if one is manufacturing the powder directly from the seed due to the additional investment in plant & machinery and working capital. The Breakeven period is more than 5 years.

Profitability & Governing factors

The profitability depends on the conversion margins, or the spread[3] between the guar gum and guar seed price. The spread has been volatile and has ranged between 1.4 times to 3 times over the past decade.  The profit margin can be increased by having control over the seed price, by engaging with farmers in contract farming. The profits/high returns can also be improved by making value added products for specific industry such as dairy/oil.

Why Guar Gum is an interesting opportunity?

The international demand for Guar Gum from oil and gas sector is likely to increase following higher oil prices.  The demand from food sector from both domestic and international markets is likely to remain strong.

Given the availability of idle domestic capacity, one could look at purchasing or leasing existing units, thereby reducing the initial capital investment. Instead, the investment could be made towards research and development to develop new derivatives for food and other applications.

How Can We Help?

If you are interested in starting up natural gum manufacturing unit, we can assist you in the following:

  • Identifying potential markets including domestic as well as international.
  • Detailed project report preparation – Financial analysis, Profit & Loss statements for a period of 7 years, calculation of ROI, etc.
  • Identifying existing units that are available for sale and in valuation of such units

[1]As per ICAR – Indian Institute of Natural Resins & Gums report

[2] In the year 2012-13, the price of guar gum hit all time high, this is due to the huge demand from the oil exploration companies.

[3] Spread is the ratio of guar gum to guar seed prices

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