Small Talk: Global energy trends bode well for AIM newcomer Nandan Cleantec
Nandan develops varieties of Jatropha, an oilseed plant, to make biodiesel
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Monday 14 November 2011
The latest global outlook from the International Energy Agency (IEA) has reiterated the growing importance, and growing influence, of fast-growing countries like China and India. Published last week, its message was crystal clear: "The dynamics of energy markets are determined more and more by emerging economies."
On the IEA's projections, China will consume "nearly 70 per cent more energy than the United States" by 2035. "The rates of growth in energy consumption in India, Indonesia, Brazil and the Middle East are even faster than in China," it added.
The report came out on Wednesday, just as Nandan Cleantec began life as public company with its debut on London's junior market. The timing couldn't have been better for the India-focused biofuels producer, which has its sights set on the growing demand for alternative energy sources, both within and beyond the country.
The newly AIM-listed business develops hybrid varieties of Jatropha, an oilseed plant that is used as feedstock, to produce biodiesel. Jatropha can grow on marginal scrubland (and therefore doesn't compete with food crops) and has proved to be hardy, showing "wide environmental tolerance", according to the company.
"It is found in both the seasonally dry tropics as well as equatorial regions," Nandan said.
In recent years, Nandan, which also has a nutraceutical division, has invested in developing Jatropha hybrids and has come up with the somewhat unimaginatively named "Nandan 1", which yields 1.5 to two times more fruit (which results in more oil) than the standard Jatropha plant.
Looking ahead, the company said its next-generation hybrid, which yields "significantly more than Nandan 1" was in the process of being patented and ready to be rolled out across its estate.
Alongside developing plant varieties, Nandan is also pursuing ways to develop its land bank, not only in India, where it is in talks with state governments, but also beyond the subcontinent, with initial agreements in place to develop estates as far afield as Indonesia, Botswana and Rwanda.
Beyond this, the company owns an advanced biodiesel plant in India, which is in profit and which Nandan says "has significant scope to increase revenues through improved utilisation". "Admission to AIM is a logical next step for us," the company's executive chairman, Prasad Moturi, said last week. "We have a strong, profitable and proven business model and are excited about the opportunities open to us as the world looks to diversify its energy supply."
The City was welcoming, with Killik & Co analysts highlighting the benefits of the focus on the Jatropha plant. "In our view, the reliance on a non-food crop is crucial factor in the investment case, as it removes perhaps the two greatest barriers to investing in any biofuels producer, firstly the inherent volatility in margins that is associated with being exposed to food crops and, secondly, the powerful ethical and political debate of 'food versus fuel'," they told clients.
The higher yields developed by Nandan are also important, they said. "One of the key reasons for investing in Nandan is the superior yields the group can generate from its Jatropha crop. While Jatropha has many attractive qualities as a biofuel crop... wild Jatropha has historically not been able to generate the oil yields required to be economic across the value chain," Killik explained. "Nandan has spent more than 10 years developing hybrid variants... each of which has distinct and superior qualities over wild Jatropha."
The result is an attractive opportunity, according to the broker. "We view Nandan as an interesting play on the growth in demand for biofuels, driven by a combination of legislative change mandating reduced carbon emissions and continued concerns over energy security, against a backdrop of growing global demand for energy," it said.
The listing saw Nandan's broker and nomad, Arden Partners, place shares at 60p apiece, raising around £16.1m before expenses. That gave the business a market value on admission of around £166m, with the listing proceeds earmarked for the development of a large and sustainable supply of Jatropha to produce biodiesel. And if you're keeping score, the first couple of days have proved positive, with Nandan's shares ending the week at 72p, well above the listing price.
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