Cemtrex, Inc. (OTC BB: CTEI) CEO Interview

cemtrex _logo
Arun Govil

Cemtrex, Inc.
(OTC BB: CTEI)
Arun Govil, President & CEO

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Cemtrex Inc. is a worldwide market leader in manufacturing and selling the most advanced instruments for emission monitoring of particulate, opacity, mercury, sulfur dioxide, nitrogen oxides, etc. and filtration products for the industry. Cemtrex also markets Green DCV, a innovative energy efficiency solution for high-quality green building applications, through optimizing HVAC control systems. Cemtrex provides turnkey services for carbon creation projects from abatement of greenhouse gases pursuant to the Kyoto Protocol and assists project owners in the selling of carbon credits globally. The Company’s products are sold to power plants, refineries, chemical plants, cement plants and other industries, including federal and state governmental agencies.


INTERVIEW TRANSCRIPT

WSR: Arun, can just tell us about the Cemtrex emission monitoring technology, what is it and how it works?

ARUN GOVIL: Let me just start by giving you overall view of what Cemtrex is and what it does for your investors or listeners. Cemtrex, as you said earlier, is a OTC BB listed company (OTC BB: CTEI), and we are a leading technology company. We provide a broad array of solutions that allow companies to meet their environmental challenges. And we have three separate businesses. Of course, they are all interconnected.

And our first business which is our original business how we got started is the MIP division which is Monitoring Instruments Products division. And there we manufacture, sell, and service the most advanced instruments, and software, and systems for monitoring emissions of greenhouse gases, hazardous gases, and particulate from industries and power plants.

There we measure gases like sulfur dioxide, carbon dioxide, oxygen, mercury, opacity, hydrocarbon, then all this is required because of the EPA regulations, EPA mandates. They need to have an inventory of what is going out into the atmosphere from all the stacks. And if the companies don’t do that, then they are fined. And they have to have online real-time measurements.

So, we have a – we have lot of installations at various power plants, cement plants, refineries, already who have bought our instruments. Of course, then we have gotten in the last several years into new business areas, and one of the big areas that we are in is the Carbon Credit Services division. As you know, carbon credit is a new market which has emerged due to the Kyoto Protocol. Because of the global warming, greenhouse gases, there is a global push to reduce the greenhouse gas emissions, and that’s what creates this market and this division for us, because we have several technologies that we have developed which help control the greenhouse gas emissions and we also provide services to customers who want to generate carbon credits in this space.

WSR: Now how does that work, or how do you help your customers generate the carbon credits, and how does everybody make money from this?

ARUN GOVIL: Well, that’s a very good question. See, what happens is every time you capture one ton of carbon dioxide that quantifies as one credit. And through United Nations framework you can like register and it all – and it gets credit to your account and you can start trading it just like you trade any shares in a stock market exchange. And how do you – you know many gasses besides the carbon dioxide like methane, and nitrogen oxides, certain gasses which create lot of global warming that trap the heat of the sun in the lower atmosphere are classified as greenhouse gasses.

So, if you control emissions of methane – for example, methane is released from coal mines in very small quantities, in very low concentrations. And if you capture one ton of methane it is like capturing 21 tons of carbon dioxide. So, you get 21 times the credits. Okay. So, lot of companies are interesting, because it’s like creating a new currency for them. So, coal mine owners are interested in someone coming up with a technology to take care of this methane in the air that goes out of the coal mines. When miners are in the coal mines, we have to blow air, so they can breathe easily, and that air has lot of methane, very small quantities and that just goes to atmosphere. It’s waste.

WSR: And Cemtrex is able to reduce these emissions and help your clients or your customers actually get the carbon credits?

ARUN GOVIL: Absolutely. In last two years we have developed a brand new technology, because nobody had a solution out there to reduce large quantities of methane. You can just burn it in the flares out there in refineries. But small quantities, there is no technology out there. We have developed a new technology and our full size machine which is an MCDR reactor sells for about $3 million. Now, if you go to take care of all the coal mines in United States, that would require approximately 48,000 of our units.

Now, because of the current administration and their stands on these regulations, the climate is bright and we’re talking to lot of coal mines into buying these units from us because it will just put lot of additional cash into their pockets, which they didn’t have already. And they will also be controlling the greenhouse gas emissions, plus making money, and they can trade those credits. So, this is something that’s very unique. Yes.

WSR:Let’s talk about the real market opportunity here. Let’s talk about your current business lines, what is the company generating in terms of revenue right now from the different lines of business?

ARUN GOVIL: Okay. We started about – 2004 with about $0.5 million sales when we acquired the MIP division, it was a very small division of a big company. And we’ve grown since then to about seven million. Now, during this period the administration which was in Whitehouse was really not very pro-environmental, and this business is driven by rules and regulations. And now with the Obama administration, the climate is right. They are setting up new legislation. There is a Cap and Trade regulation, which just passed in the House on Friday and it’s going to be going to be senate. And what that Cap and Trade – yeah.

WSR: So, you’re – currently, you’re generating about seven million in revenues?

ARUN GOVIL: Yes, we are. We are. Yes, yes.

WSR: What about like some of the – what are the earnings like right now?

ARUN GOVIL: Well, we have positive (earnings). We did about $250,000 in bottom line, and we have just started. The market has just become right for some of these ventilation air methane products line that I told you that sells for three million, we have not sold one yet. So, we are looking to make some sales in the coming months and years. And we are hoping to have some explosive growth. That is just one of our product lines.

The next product line that we have is the Energy Efficiency Product line, which is called Green DCV, which is you can up to 40% energy savings in commercial buildings. Our technology is applicable to almost 10 billion square feet in United States alone in commercial buildings, because right now everything is just measured, controlled by thermostats. What we have come up with is a way to control HVAC by the number of people in the building.

You look at theaters, malls, churches, conference halls, everywhere, where the level of people fluctuates, you don’t need to maintain thermostat, because more people more carbon dioxide, less people, less carbon dioxide. So, if you measure the amount of carbon dioxide in the building, you can optimize your HVAC system. And you need a very, very fine monitors to do that.

Since we are already in the emission monitoring business, we have developed this new technology which can save building owners, all these commercial buildings owners lot of money.

WSR: Is anybody else in this space?

ARUN GOVIL: No, there is nobody else. There is only one company, which has caught on to it and is doing that. We had a first ones, and we are going after like our – entire US commercial building is our market. And we have already had success in restaurants, schools. The new administration, even New York State Governor Paterson talked about improving energy efficiency in their hospitals, building, schools, universities, and all state and local government and federal government has set up some plan and some target to reduce their energy consumption and increase energy efficiency.

So, the climate is just right for us from the government point of view, because they are encouraging, providing incentives to them to buy such kind of products. Plus, these technologies will pay them for themselves in three to four years anyway.

WSR: So, let me get this clear. So, your technology essentially allows for a building to regulate the temperature based on the actual number of people in the building rather than the temperature.

ARUN GOVIL: Yes, absolutely.

WSR: And what is this – what would this – and this can be retrofitted to any – I guess, any unit that uses a thermostat.

ARUN GOVIL: Absolutely, you can retrofit it in any type building.

WSR: And how much would this cost?

ARUN GOVIL: And obviously, bigger the building, bigger the savings. Yes.

WSR: How much would this cost?

ARUN GOVIL: Okay. For example, a building of about 300,000 square feet, if they were to install our system, it will cost them about $0.5 million to install that system. And the energy savings a building of that size would generate would be close to maybe $100,000 a year or something like that, or $150,000 a year.

WSR: Are you saying that the payback typically for your – for installing your system is about five years on average?

ARUN GOVIL: Well, it’s three to four years.

WSR: Because the current Obama administration, as you already mentioned, is very, pro-energy savings, pro-environmental….what are some of the legislations, are there any grants, of any kind of, whether from the government or individual state to help pay for these systems?

ARUN GOVIL: Absolutely, yes. The government is providing – this is just your savings from a business point of view, but the government owners who install that can get some credits and tax savings for their investment, and the government provides incentives for them. Even – if they are saving energy, they may even generate carbon credits, because any time you save energy, you are generating carbon credits. So, not only will they save, they will also bank some credits which, if you work with them – right now, the carbon credit sell for, let’s say, $20 per credit, but estimates show that these – it’s like a stock market, these credits could trade as high as $80 per credit 10, 15 years from now.

So, I mean this carbon credits market is going to grow up to like a $1 trillion by year 2013. Okay. I mean, the numbers are just mind boggling. Just to give you an idea that carbon credit emissions trading is – I would say, in the year 2007 was only 12 billion. Then in 2008, it’s gone up to like 70 billion, and they are saying it’s growing exponentially. It’s going to grow up to 700 billion by 2013.

WSR: Do you think that you would be able to actually maybe either give away or subsidize this system in exchange for a piece of the carbon credits that your customers are able to get, and that way if you will be getting recurring revenues?

ARUN GOVIL: Absolutely, we are also working with customers ,whereby part of the purchase price we can take in terms of carbon credits. So we are also like to build as we grow our portfolio of carbon credits from various customers as we are growing. So not only we expect to get revenue from selling this thing, but also develop an asset of portfolios of carbon credits from various projects that we do.

WSR: Green DCV. When do you start – did you start marketing that or when do you start actually scaling up revenues in that area?

ARUN GOVIL: Well, we started marketing it. We developed it about eight months above we have been marketing it. As I speak, our sales team is in a tradeshow in Baltimore [ph] and we have received initial orders also. These are not large orders. These are small building orders. They run anywhere from like $40,000, $50,000 range, individual order. But at least it validates our technology that people are buying it, and we expect this to take off tremendously.

Yes, we’ve already gotten some orders. Actually, we are – Dunkin’ Donuts has bought some systems. It’s a restaurant chain, so we are talking to their corporate level to put it in all the Dunkin’ Donuts around the country. So, I mean this could really leapfrog tremendously. Yes.

WSR: Let’s talk about sort of the market opportunity for – because you have – again, you have three different business areas, what is in dollars terms be sale potential for the Green DCV?

ARUN GOVIL: Well, the Green DCV, we are looking at projects, single projects right now, on-the-table proposals. We have outstanding anywhere from 100,000 up to a $1 million project, okay. And as we go, we could easily get substantial sales in few coming years, close to 30, 40, $50 million in sales, okay. And we also expect to generate some carbon credits from that.

Now from the earlier ventilation air methane for coal mines, that is a much larger potential for us. Each unit sells for $3 million. Even, we are working with some coal mines right now and we expect to close some sales soon. And depending on the how many units we sell, I mean that could go into hundreds of millions of dollar.

We have monitoring business, which is – does all types of ES [ph] monitors. Mercury monitor is another area which is we expect tremendous growth, each monitor sells for $100,000. That is our original business and we expect that to grow tremendously. We also have Environmental Control Product division, where we had done an acquisition of Griffin Filters last – two years ago. And there we sell technologies for controlling environmental emissions. And that currently contributes about 2.5 million in sales out of seven million, and we expect that business to grow also, because of the growth in legislation of environmental regulations.

So, we have several areas. It’s not just one product company and they are all interrelated. They help each other. So, we expect to – that we could easily be a large size company just through organic growth without doing any acquisitions.

WSR: Who else is in the same space? I would assume companies like Carrier or United Technologies would be –?

ARUN GOVIL: Yes. Yes, they are, but they – absolutely, they are, but they are not in this type (of niche). They do HVAC systems and controls. So, we are working with their suppliers and installers to implement our technology in their new buildings. See, we do emission monitors. There we compete against big companies like Thermo, General Electric. They have small divisions who just have a monitors, but they are not in the carbon credits business.

And then in Carbon Credit Services business, ventilation air methane is a brand new market. Nobody else is in there. You know that this is a – carbon credit itself is like a two, three old market. So, it’s not like a long-established market. So, there are a lot of individual companies who are just in that space only. So, we have very unique company who has multi-prong approach in this environmental market, greenhouse gas energy efficiency market.

WSR: Can you share with us the background – your background and management team’s background?

ARUN GOVIL: Yes, I have been in the industry, in the environmental industry for more than 25 years. And I have worked in many companies in the management and the executive positions in this field. I am a chemical engineer with an M.B.A. okay. We have several our Vice Presidents. Ravi Narayan, he is expert in the monitoring business. He has over 25 years. We have another Vice President, Metodi Filipov, who is also a veteran in the industry. He has worked in engineering and project management positions. He is a very, very strong background in technology and growing new businesses and increasing the size of businesses.

Plus, we have right now about, I would say, including the Griffin employees, there may be about 31 or 32 employees total, and most of our employees are engineers. And so, we feel we have a strong team in place and lot of our growth has come from internally. We have developed our own technologies through the people we have and the vision we have.

WSR: Where do you see the company in the next three years? Obviously, you’re in a good place where you have a lot of momentum is in your favor with the Obama administration, the UN legislations….. where, do you see your company in the next 3-5 years in terms of revenues and earnings, if you can make that projection?

ARUN GOVIL: Well, my projection should be that we – I expect us right now, as we sit in 2009, we are only doing seven million in sales. But now that the climate is right and our technologies are there and the economies are recovering, the financing is also – the banking industry is also getting well, I expect us to be way over in the 100 to $200 million in sales range, even higher than that, if we do some acquisitions. So by, I would say, 2011, which would be two years or 12, yeah, we should have – we should be about 200 million in sales.

WSR: And this would be from all – from this three different business lines that you currently have?

ARUN GOVIL: Yes. Yes, yes, because the growth we are not only doing United States, we have already set up our subsidiary in India right now. Okay. We did that about five months ago. And that company in India is adjusting in the Asian market, and the Kyoto Protocol countries encourage the development of this technology for greenhouse gas control in third world countries. So, it’s cheaper to do that and then the developing countries can buy those credits from there. It’s a global protocol, you know, and U.S. may join that.

So, we already got a head start. So, our Cemtrex Indian operation may also actually secure some orders. So, globally depending on how things go, so I’m very confident in our growth potential.

WSR: Well, that sounds great. Well, thank you, Arun, for sharing that story with us, and we look forward to hearing more about your progress over the next months ahead.

ARUN GOVIL: Thank you very much for having me and look forward to speaking to you again in the future.




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