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Triveni Engineering and Industries Ltd>
  • CMP : 394.3 Chg : 2.65 (0.68%)
  • Target : 370.0 (35.04%)
  • Target Period : 12-18 Month

27 May 2023

Uptick in sugar prices to offset lower sugar recovery…

About The Stock

Triveni Engineering (TEL) is one of the largest sugar companies in India with sugar crushing capacity of 61,000 TCD, distillery capacity of 660 KLD & co-generation power of 104.5 MW. It also has power transmission & waste water management business contributing 10% to revenues.

  • The company is increasing its distillery capacity from the current 22 crore litre per annum to 32 crore litre per annum by FY25 to utilise B-heavy, grain & sugarcane juice route to produce ethanol
Q4FY23 Results

Posted 47.8% sales growth led by strong sugar, ethanol sales.

  • Sales were up 47.8% YoY with 108.6% growth in distillery sales
  • EBITDA was at ₹ 263.3 crore, up 50.7% YoY, with margins at 16.6%
  • PAT was at ₹ 190.3 crore, up 74.3% YoY aided by lower interest costs
What should Investors do?

TEL’s share price has gone up 6.3x in the last five years (from ₹ 44 in May 2018 to ₹ 274 in May 2023).

  • We expect 33.2% CAGR in distillery sales to boost earnings CAGR of 24.5% during FY23-25E
  • We maintain our BUY rating on the stock
Target Price and Valuation

We roll over our valuation to FY25E and change the valuation method to SOTP valuing the engineering business at 14x EV/EBITDA and sugar business at 12x PE to arrive at a target price of ₹ 370/share.

Key Triggers for future price performance
  • TEL is increasing its ethanol capacity from current 660 KLD to 1100 KLD. This would take ethanol volume from 18 crore litre in FY23 to 31 crore litre in FY25. Distillery sales to contribute 31% to total revenues by FY25
  • Domestic sugar prices have moved up by ₹ 2/kg to ₹ 37/ kg. Given, country level sugar inventories are lowest in last five year & there is a possibility of El Nino occurrence, domestic sugar prices are likely to remain firm in FY24E
  • The company is expected to generate ₹ 1082 crore of operating cash flow in the next two years, which would be utilised for ~₹ 670 crore capex, debt reduction, buybacks & dividends
Alternate Stock Idea

We also like Dalmia Bharat Sugar in our sugar coverage.

  • DBS is expanding its distillery capacity from current 710 KLD (22 crore litre pa) to 1100 KLD (32 crore litre pa) by September 2024 by adding grain-based ethanol capacities. Distillery segment to contribute 45% to revenue by FY25
  • We value the stock at ₹ 490, ascribing a multiple of 10x FY25 earnings

Key Financial Summary

Key Financials FY20 FY21 FY22 FY23 5 Year CAGR (FY18 to FY23) FY24E FY25E CAGR (FY23-25E)
Total Operating Income 4,436.6 4,674.2 4,291.0 5,616.8 0.1 6,001.6 6,571.6 0.1
EBITDA 543.2 558.2 634.4 615.9 0.2 802.4 968.6 0.3
EBITDA Margin % 12.2 11.9 14.8 11.0 - 13.4 14.7 -
Adjusted Net Profit 265.8 294.2 429.1 390.6 0.3 486.8 605.3 0.2
Adjusted EPS (|) 10.7 12.2 17.7 17.8 0.3 22.2 27.6 0.2
P/E 25.6 22.5 15.4 15.4 - 12.3 9.9 -
RoNW % 19.9 18.9 22.4 14.7 - 16.6 18.5 -
RoCE (%) 17.6 19.4 15.8 16.1 - 16.7 19.8 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter

Q4      Y23 Results: Higher sugarcane crushing, uptick in sugar prices & ethanol capacity addition key positive; lower sugar recovery to impact margins temporarily

  • TEL reported consolidated sales growth of 47.9% to | 1582.6 crore led by 38.3% growth in sugar segment sales & 108.6% growth in distillery segment sales. Engineering business also aided growth with 11.8% growth in Q4

 

  • Sugar segment sales growth of 38.3% was aided by 36.6% volume growth & 3.9% sugar realisation growth. The company sold               2.67 lakh tonnes (lt) of sugar at an average sugar realisation of | 36.3/kg. Sugar volume includes 0.55 lt of exports, which was contracted at ~| 40/kg

 

  • During 2022-23 season, the company crushed 10.8% higher sugarcane to 93.3 lt. However, gross recovery was down 23 bps to 11.47%. The company produced 9.5 lt of sugar during the season. The company is holding 4.6 lt of sugar valued at | 33.7/kg against 5.2 lt valued at | 32.7/kg last year

 

  • Distillery sales growth of 108.6% driven by 98.4% growth in ethanol volumes driven by distillery capacity addition in July 2022. The company sold 5.31 crore litre of ethanol at an average realisation of | 56.9/litre (flat YoY). IMIL volumes grew 111.4% to 11.5 lakh cases during the quarter

 

  • Engineering business sales growth of 11.8% in Q4FY23 was led by 13.1% growth in water business to | 114.8 crore & 9.9% growth in gear business to | 73.2 crore

 

  • Sugar sales grew 25.6% to | 3473.8 crore in FY23 led by 21.2% growth in sugar volumes (10.23 lt) & 4.2% growth in sugar realisation (| 36/kg). Sugar sales were aided by higher domestic sale quota, sugar exports & improved export realisation. Co-generation sales were up 2% to | 63.8 crore in FY23

 

  • The company sold 18.04 crore litre of ethanol in FY23, which constitutes 75% of ethanol produced from B-heavy molasses (small ethanol quantity produced from sugarcane juice) & 25% of ethanol produced from grain. Overall distillery sales (including IMIL net of excise) grew 75.4% to | 1172.3 crore in FY23

 

  • Engineering business sales witnessed growth 26.9% to | 577.4 crore in FY23. This includes gear business sales of | 225.3 crore (22% growth) &
    | 352.2 crore (19.1% growth) of water. Gear business continued to command strong margin of 33.9% while water business margin was at 6.9% (vs. 11.5% in FY22)

 

  • Outstanding order book for gear business was at | 260.4 crore including long duration orders of | 127 crore. The company added 18 new customers in the OEM segment. The growth in the gear business would be driven by high capex in oil & gas, sugar & distillery, steel & cement industry

 

  • The company is also setting up a dedicated multi-nodal facility for defence products to gain confidence of key customers and expand its service offerings

 

  • Water business order book was at | 1393.4 crore including | 917 crore of orders towards O&M. The company is expanding its overseas activity in markets such as Serbia, Croatia, Egypt, Nepal and several African countries after getting success in Maldives and Bangladesh

 

  • Operating profit growth of 50.7% was led by higher sugar exports as well as higher ethanol volumes during the quarter. Interest costs dipped 32.9% mainly on account of lower utilisation of working capital debt requirement given the company has utilised excess cash generated from stake sale in Triveni Turbine earlier during the year. Led by higher operating profit & lower interest costs, net profit grew 74.3% to | 190.3 crore during the quarter

 

  • Total debt for the company declined from | 1568 crore to | 914 crore as on March 31, 2023. Average cost of debt was 5.1% in FY23. The company has utilised excess funds from Triveni Turbine stake sales towards working capital requirement

 

  • The company generated operating cash flow of | 397.4 crore in FY23. TEL is increasing its crushing capacity by 2000 tonnes crushed per day (TCD) in its Sabitgarh plant. This would take its overall crushing capacity to 63000 TCD

 

  • The company would continue to prefer B-heavy route to produce ethanol given PBT margin from B-heavy route is higher at | 14/litre. Further, it would produce ~30% of ethanol through grains (PBT margin of |9/litre) in future with secured grain availability through FCI & declining trend of damaged grain prices

 

  • Industry wise sugar inventories are expected to decline to 5 MT on September 30,2023. This would result in further uptick in sugar prices by | 1-2/kg in near future. However, the country would not need to import sugar given sufficient availability for domestic consumption

Disclaimer

RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research

pankaj.pandey@icicisecurities.com

 

 

ICICI Direct Research Desk,

ICICI Securities Limited,

Third Floor, Brillanto House,

Road No 13, MIDC,

Andheri (East)

Mumbai – 400 093

 

 

research@icicidirect.com

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