Startup Mantra: Scripting success with green energy
Ashvin Patil, one of the many entrepreneurs, watched enthusiastically as Prime Minister Narendra Modi announced the “Global Biofuels Alliance” on the sidelines of the G20 Summit held recently. After all, the announcement has reportedly opened a market opportunity of ₹4,153 billion for Indian biofuel companies, including the startup Biofuels Junction, co-founded by Ashvin and his close friend Chaitanya Korgaonkar in 2016-17.
Biofuels Junction started as an aggregation business but transformed into a full-service provider in the value chain of solid biofuels, ranging from collection of agriculture, forestry materials to managing the steam contracts and utilities for clients.
Back to roots
Hailing from Amravati district in Vidarbha region of Maharashtra, with the family into farming for generations, Ashvin did his production engineering from Veermata Jijabai Technological Institute (VJTI), Mumbai and worked in appliance industry near Pune and in Andhra Pradesh for a few years. He later got into investment banking after doing MBA and worked in equities for nearly 18 years. Chaitanya, a close family friend of Ashvin since 2000, had worked with several companies with specialisation in government banking, strategy and liaisoning.
Ashvin said, “I had seen agricultural practices at my hometown till my Class 12. Chaitanya and I wanted to do something of our own and related to agriculture. We thought that it would be scalable since India is an agrarian country. Busy with our jobs, we started looking for business opportunities in 2016-17. We used to scout for different business ideas over weekends, do primary research and groundwork and validate the idea.
“While I was travelling to my hometown, I came across a briquette made from soya husk, an agricultural residue. I had seen several products before which were related to post-harvest, but felt curious about this product which came from agricultural residue. However, since it was a commodity in nature, we were sceptical about its success. To validate the idea, we took this product to test with two different industrial users – one from Nagpur and other from Sinnar — and surprised that they were satisfied users of such briquettes since 2012. We did an internal survey and received a promising response across industry.”
Sunrise sector
According to Ashvin and Chaitanya, biofuels is a sunrise sector for various reasons. “While researching on biofuels, we realised that there was no large or pan-India player. Also, there was a gap in demand and supply due to three major reasons – quality, supply consistency, and compliances of products. Quality of the product varied depending on location and manufacturer, supply consistency was lacking since the product needs to be stored for a longer period, and compliance was lacking as norms were not followed. Hence, we felt that this could be our value proposition to large users, and we can build a business if we fill these gaps,” said Chaitanya.
While the entrepreneur duo decided to enter this industry, Chaitanya also thought about disrupting the sector with a platform-based solution. Since Chaitanya had earlier developed an auction platform for government buying, he floated an idea of developing a platform to get biofuel products on an e-platform.
Ashvin said, “We had tie-up with some companies and started e-procurement of biofuel products. Soon we realised that since it was B2B sales, there was no trade settlement possible because of longer gestation period of delivery and longer credit period. We tried our hands in manufacturing, forward integration, logistics aggregator, and other aspects of a typical industry model. We understood that this specific industry is scattered due to sourcing the raw material, to make solid biofuels like briquettes and pellets, being localised. Taking cue from that, Biofuels Junction came into being and, from 2018, we have put all the processes and a scalable business model in place.”
Learnings
Biofuels business, if done traditionally, is not scalable, claims Ashvin and Chaitanya. And that is the reason why they decided to launch an e-platform. But before that, they had their share of learnings for not going the traditional way.
Ashvin said, “Solid biofuels are made by densification of any type of agricultural residue where the moisture content is less than 15 per cent. This agri-residue when put into a domestically available machine, using high pressure and impact, converts the loose biomass into cylindrical blocks called briquettes. No water or chemicals are consumed in this process. But biomass being light in weight, turns out to be unfeasible to transport or procure large quantum from longer distance. The freight cost exceeds the original raw material cost and hence biofuels manufacturing capacities across India are not scalable beyond a certain point. Hence, corporate-style large manufacturing facilities are not feasible to construct, and biofuel product manufacturing is always done in proximity to source of raw material.”
“Hence, we developed standard operating procedures (SOP) for sourcing raw materials, ensure quality and have a large supply base either through our own manufacturing, franchise, or joint-venture-based manufacturing units. We had to build a skilled team for compliance purpose. Our on-ground talented team, coupled with automation and country-wide network of suppliers has helped us achieve phenomenal growth in just a couple of years,” Ashvin said.
Chaitanya said, “Hiring employees and building a team for an unconventional industry was a tough task. We had to visit nearly 200 briquette plants to understand the supplier issues and visited 100 industries to know their problems related to biofuel supply chain. These learnings had to be passed on to employees, especially those on field. We had to train the new hires and take care of their compensation.”
Cloud-based platform
Biofuels Junction is a one-of-its-kind e-platform for trade settlement, claims Ashvin. “We have incorporated all our learnings in the online platform. It is now scalable beyond briquettes and pellets. The platform enables large quantum of procurement from compressed biogas (CBG), second-generation (2G) ethanol or raw use of biomass at certain places. We are the first company to build an online platform for trade settlement critical to survive in this industry and business. Our efforts were noticed as we received a significant (undisclosed) amount in our first external funding round recently.”
Ashvin said, “Biofuels Junction has 450 registered supply locations vis-à-vis 120 clients as of now. That translates to about four manufacturing locations for every onboarded buyer. When we register a supply location, our ground staff visits the manufacturing plant, understands the infrastructure present, its constraints, usage pattern and whether they are inclined to follow our SOPs. This gives us confidence to enter a contract with the supplier and ensure scalable growth. We provide extensive handholding for supply partners. Their concerns about timely payment, investment in machinery is all taken care by us either through a franchise or joint-venture model or our own manufacturing units.”
“Some OEMs advice their clients (user industry of biofuels) and put certain conditions for certain type of material. The OEM may not be aware of the raw material availability in the manufacturing unit’s vicinity. Users who do not understand these details are not onboarded. We optimise our working capital management in order to ensure that suppliers are paid in time,” Ashvin said.
Ashvin said, “Logistics cost determine the profitability for rural manufacturers and us too. Hence, large supplier base tends to reduce the logistics cost and our platform works to lower the cost. Although we are profitable and not burning cash, our margins are not huge, but we have operational efficiencies. Scalability will improve our margins further. We are also noticing a huge shift to biofuels in the SME industry and government is also encouraging this. There are strong tailwinds for the industry and organised players like us will benefit the most. We are gearing up for large opportunities which will come out of the global biofuel alliance push. We have raised the funding round for scaling up our operations.”
Expansion plans
Ashvin said, “We will be focussing on South India as it is a large market for us. We will also explore the government sector where we expect the demand for biofuels to rise. To scale further, we will be going for another funding round in about eight months.”
