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Triveni Engineering and Industries Ltd>
  • CMP : 238.8 Chg : 0.15 (0.06%)
  • Target : 350.0
  • Target Period : 12 Month

17 May 2022

Distillery capex completion to drive profits…

About the stock

Triveni Engineering (TEL) is one of the largest sugar companies in India with sugar crushing capacity of 60,000 TCD, distillery capacity of 520 KLD & co-generation power of 100 MW. It also has power transmission & waste water management business contributing 10% to revenues.

  • The company is increasing its distillery capacity from current 11 crore litre per annum to 22 crore litre per annum by FY24 to utilise B-heavy, grain & sugarcane juice route to produce ethanol
Q4-FY22 Results

TEL reported strong earnings growth led by higher distillery sales.

  • Sales were down 7.8% YoY as TEL has not exported sugar in current season
  • EBITDA was at Rs 174.7 crore, up 6.3% YoY, with margins at 16.3%
  • PAT was at Rs 109.2 crore, up 28.4% YoY, led by higher profit from associates & lower tax provisioning
What should Investors do?

TEL’s share price has gone up 2.8x in the last five years (from Rs 90 in May 2017 to Rs 251 in May 2022).

  • We expect 36% volume CAGR in distillery to boost earnings with CAGR of 19% during FY22-24E
  • We maintain our BUY rating on the stock
Target price valuation

We value the stock at Rs 350, valuing the business at 14x FY24 PE

Key Triggers for future price performance
  • With distillery capex, TEL would be able to increase its ethanol volumes 1.9x to 22 crore litre by FY24. Distillery sales to see 40.7% CAGR to Rs 1262.2 crore in FY22-24E, which would be 26% of total revenues
  • Sugar segment profitability would improve with better realisation and the company’s strategy of not exporting sugar due to benign domestic sugar prices. We estimate sugar realisation of Rs 36 /kg in FY23-FY24
  • The company is expected to generate Rs 1530 crore of operating cash flow in the next two years, which would be utilised for ~Rs 500 crore capex, debt reduction, buybacks & dividends
Alternate stock idea

We also like Dwarikesh Sugar in our sugar coverage.

  • The company is one of the most efficient with highest sugar recovery and abundant sugarcane availability. It is increasing its distillery capacity to 3x in the next three years
  • We value the stock at Rs 145/share with BUY recommendation

Key Financial Summary

Key Financials FY20 FY21 FY22 5 Year CAGR % (FY17-FY22) FY23E FY24E (Blank) CAGR % (FY22-24E)
Total Operating Income 4,436.6 4,674.2 4,291.0 8.7 4,927.3 5,221.5 - 10.3
EBITDA 543.2 558.2 634.4 4.0 747.3 904.3 - 19.4
EBITDA Margin % 12.2 11.9 14.8 - 15.2 17.3 - -
Net Profit 335.1 294.6 424.1 10.9 489.9 600.6 - 19.0
EPS (Rs) 13.5 12.2 17.5 12.3 20.3 24.8 - 19.0
P/E 19.9 22.1 15.4 - 13.3 10.9 - -
RoNW % 19.9 18.9 22.4 - 21.7 22.3 - -
RoCE (%) 17.6 19.4 15.8 - 18.2 22.1 - -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter

Q4 Y22 Results: Distillery volumes to grow ~1.9x by FY24
  • TEL saw a sales decline of 7.8% to Rs 1070 crore (net of excise) on the back of 14.7% de-growth in sugar segment sales. Sugar volumes were down 12.2% given the company chose not to export any sugar in current season as domestic sugar prices were remunerative for UP sugar millers
  • Sugar volumes dipped 12.2% to 1.98 lakh tonnes (lt) but sugar realisation was up 8.2% to Rs 34.99/kg. Sugar prices have been benign in last eight months as industry wide sugar inventories are coming down consistently
  • Distillery sales witnessed growth of 81.4% to Rs 283.7 crore on the back of higher ethanol volume & diversion towards B-heavy ethanol. Ethanol sales volume recorded growth of 23.8% to 2.7 crore litre. Distillery realisation was flat at Rs 56.8/litre. B-heavy ethanol contributed 93% of total ethanol produced during the quarter. IMIL sales volume grew 4.7x compared to corresponding quarter
  • Power transmission business & water business revenue saw growth of 26% & 25%, respectively, in Q4FY22. The outstanding order book for power transmission & water business was at Rs 221.3 crore & Rs 1512.8 crore, respectively, as on March 2022.
  • Operating profit saw growth of 6.3% to Rs 174.7 crore adversely impacted by lower sugar sales & increase in cost of production (due to hike in sugarcane prices & lower gross recoveries)
  • Interest cost increased 16.9% to Rs 14.6 crore given larger requirement of working capital as the company has not exported any sugar in the current season. Moreover, nearing completion of capacity expansion related to distillery led to increase in term debt as well
  • Profit after tax increased 28.4% to Rs 109.2 crore mainly on account of lower tax provisioning & higher profits from associates. The company declared a dividend of Rs 2/share
  • Sugarcane crushing is down 2% to 82 lakh tonnes (till May 13, 2022) with gross recoveries of 11.67%. Crushing is still continuing in three out of seven plants for TEL. The company expects similar crushing as last year & ~20-25 bps decline in sugar recovery the current season
  • The company is holding 5.15 lakh tonne of sugar valued at Rs 32.7/kg as on March 31, 2022. It expects to exhaust the current season sugar inventories by December-2022
  • Co-generation sale was down 9% to Rs 62.4 crore due to late start of crushing. Moreover, sugar millers are preferring to sell bagasse rather than producing saleable power
  • Ethanol sales volumes grew 23.8% to 2.7 crore litre in Q4. B-heavy ethanol constitutes 93% of the sales volume in Q4 as against 99% sales volume in corresponding quarter. However, on an annual basis, B-heavy ethanol constitutes 83% of the total volumes as against 55% last year
  • In a newly established IMIL business, sales volume was at 5.5 lakh cases. The company is utilising levy molasses quota for manufacturing of IMIL
  • TEL commissioned a 160 KLD multi-feed distillery at its Milak Natrayanpur Plant on April 4, 2022. It ran the new plant on sugarcane juice for 15 days in April. It has expanded its Sabitgarh distillery capacity by 40 KLD taking the company’s total distillery capacity to 520 KLD. Further expansion of 140 KLD capacity at different plants would commence by July 2022
  • The company has also announced capex of Rs 130 crore for the modernisation at three of its plants, which would enhance the existing crushing capacity by de-bottlenecking. With this capex, the company would be able to reduce the number of days of crushing from 2022-23 season onwards. Further, it has also announced Rs 80 crore capex for expansion of its power transmission business, which would be commissioned by March2023
  • Sugarcane area under cultivation is likely to increase 1.5% in the next season. However, sugarcane area for TEL is likely to increase by 5%. Moreover, it expects 8% increase in planting for the company. In its grain based distillery (60 KLD likely to get commissioned by July 2022), the company is likely to procure grain from FCI.
  • The total debt for the company has increased by Rs 560 crore on account of faster payment to the farmers, higher working capital requirement due to absence of exports & increase in term loan with capex nearing completion. Its total debt stands at Rs 1503.8 crore. With the significant increase in domestic quota, sugar inventories are likely to get liquidated in the next six to seven months, which would considerably reduce the debt for the company
  • The company has decided to divest 21.85% equity holding in Triveni Turbine for value unlocking & monetisation of non-core assets. The proceeds from the divestment would be utilised for expansion of business & shareholder pay-out

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