Triveni Engineering & Industries Limited (TRIVENI.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Triveni Engineering & Industries Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.

Thank you. Good day, everyone, and a warm welcome to all of you participating in the Triveni Engineering & Industries Q2 and H1 FY '26 Earnings Conference Call. We have with us today Mr. Tarun Sawhney, Vice Chairman and Managing Director; Mr. Suresh Taneja, Group CFO; Mr. Sameer Sinha, CEO of Sugar Business Group; Mr. Rajiv Rajpal, CEO, Power Transmission Business; as well as other members of the senior management team. Before we begin, I would like to mention that some statements made in today's discussion may be forward-looking in nature and a statement to this effect has been included in the invite, which was shared with everyone earlier. I would also like to emphasize that while this call is open to all invitees, it may not be broadcasted or reproduced in any form or manner. We will commence this call with opening remarks from the management following an interactive question-and-answer session. May I now hand it over to Mr. Tarun Sawhney. Over to you, sir.

Thank you very much, Rishab. Good afternoon, ladies and gentlemen, and welcome to the Q2 H1 Fiscal '26 Earnings Conference Call for Triveni Engineering & Industries Limited. The key numbers for this half year are the revenues from operations increased by about 18.4% to just over INR 3,300 crores. The PBT stood at INR 32 crores versus INR 11.5 crores for the same period for the last half year. And the PAT stood at INR 23.5 crores against INR 18.6 crores for the previous corresponding period. We have quite a lot to discuss on this call and there have been lots of important announcements and movements in the markets affecting all of our businesses and I hope to be able to cover all of that over the next 60 minutes or so. The net turnover for H1 increased, as I mentioned, by 18%, supported by a 21% increase in sugar and its allied businesses and an 8% increase in the engineering businesses of the company. In Q2, the net turnover increased by 14%, which was supported by a healthy double digit growth across both business segments. There's a healthy increase in profitability in H1 and Q2 fiscal '26, supported mainly by improvements in the distillery operations, which is something that we discussed on the last earnings conference call, which we've set right and managed to really emerge quite well as far as our distillery performance is concerned. And also encouraging performances from our engineering business. The Power Transmission business secured another successful healthy quarter. The sugar business profitability remained a little subdued, however, in this quarter in view of the major period of the half year off-season and no manufacturing happening during the quarter under review. The gross debt of the company as on the 30th of September '25 increased to INR 505 crores compared to INR 383 crores a year ago. Standalone debt for the period under review [ compromises ] of term loans of INR 310 crores, out of which approximately INR 160 crores are with interest subvention. On a consolidated debt basis, our numbers are INR 753 crores of gross debt compared to INR 536 crores on the 30th of September '24. And our overall cost of funds stands at 6.4% in Q2 fiscal '26, which is about 30 basis points lower than the 6.7% in the previous corresponding period. So that's quite a positive movement. Turning to the business-wise review. In the sugar business, the revenues for H1 increased by 22%, supported by a 14% increase in sugar dispatches and a 4% increase in realizations. For Q2, the revenue increase was 27%, supported by 15% volume growth and 5% in realizations. Both, of course, were very important for the performance of the sugar part of our business. The substantial period of H1 '26 and the entire Q2 fiscal '26 represents the off-season period and no manufacturing operations takes place during Q2 fiscal '26. And therefore, all expenses relating to that have been expensed out. The results also include income of INR 16.81 crores in the sugar business arising from the upward revision of the power tariff announced by UPERC with effect from the 1st of April 2024. The increase in the cost of sugar sold could not be fully offset by higher sugar realization price and higher sales volume is the most notable point for the sugar business for this quarter under review. Our inventories on the 30th September stood at 16.9 lakh quintals, which was valued at INR 37.4 per kilo. Just to give you some data points, the previous quarter, 30th of June quarter, we had 44.55 lakh quintals valued also at INR 37.4 per kilo. And last year, on the 30th September '24, we had 20.6 lakh quintals valued at INR 35 approximately per kilo. The reduction in the inventory is in line with the reduction in the national inventory levels as well. So to give you that comparison, on the 30th of September, we had approximately 8 million tonnes. And this year, at the end of September, we have 6 million tonnes of stock. So about 25%. And for us, it's been slightly lower than 25%, which is good because October and -- sorry, yes, October and November, of course, have higher sugar prices. And all of our sugar from last year will certainly be liquidated by early January of this year. So everything in this particular quarter. Looking at the industry scenario, as I mentioned, we start this year with a 6 million tonnes opening stock and an anticipated domestic production of about 31 million tonnes. These are our numbers for Triveni estimates. Domestic sales, we still believe that we will see some stockpiling and some buildup across over the course of the year. And therefore, we assume sales of approximately 28 million tonnes, very similar to last year and a closing stock of about 7 million tonnes. So this considers diversion of 3.25 million tonnes of sugar into ethanol and about 2 million tonnes of exports. Broadly speaking, those are the numbers that we're looking at. So we're anticipating that over the next few weeks, DPSD and the government of India will announce an export program. As we're well aware, I will, of course, talk about global prices, et cetera, and the issues regarding Indian exports as we go forward. The UP government has recently raised the SAP by INR 30 for sugar season '25, '26. This, very frankly, puts pressure on the profitability of sugar producers in Uttar Pradesh and necessitates a review in our eyes of the MSP urgently by the government of India to bring it in line with input costs. So we believe that MSP revision is being contemplated by the government of India and could be -- there are greater chances that that will fructify over the next few weeks. And this was, of course, a very different position than we were in last year. There have been many representations by the State Millers Association as well as private millers to the government of Uttar Pradesh for subsidies with respect to the enhanced SAP, a record SAP that has been announced by the UP state government. One measure that we have already received is a reduction in the molasses reservation. On B, that is a reduction of 19% to 18%. On C, it works out a reduction from 26.18% to 24.84%, about a 1.34 percentage improvement and it's effectively just under INR 1 in terms of cane price impact. So not substantial, but something. We are also anticipating an increase in the transportation subs -- in the transportation allowances, possibly up to INR 3 is what has been requested, which will equate to between INR 1 and INR 1.5 on cane. We're also looking at an increase in the country liquor reserved price and that is something that is being contemplated over the next few months. And again, that will result in a few rupees on cane in terms of benefit. The industry has also asked for direct subsidy to help ensure that cane prices are paid duly and the farmers focus on plantation of sugarcane for the following season. I think this is something that the industry and the government of India are very much aligned that they want all the marginal lands that will be diverted to other crops including maize, frankly speaking, to be diverted back to sugarcane and work to be done very proactively in terms of enhancement of recovery and thereby impacting the farmer's take-home income, especially next year when we move in into the election period as far as the state of Uttar Pradesh is concerned. Looking briefly at the international scenario, the latest estimates point towards an over 4 million tonnes surplus. In fact, it's pointing to an even higher surplus than that. And that has had a massive impact on international sugar prices. If we look at the March contract, it's at $407 per tonne for whites and December is at $412. So these are multi, multiyear lows as far as the market is concerned. And at these prices, Indian sugar being exported would be a great challenge. However, the requests that have been made to the [ PFT ] are that the industry be given a much longer period to evacuate the 2 million tonnes assumption that one has taken for the export of sugar. And if that is granted and we do have the benefit of, let's say, 3 quarters to export that quantity, there is a very real likelihood that we will have an opportunity to be able to do it. Also, with an early announcement of exports, we may have factories in Maharashtra if they so choose to for cash flow reasons or others, export raw sugar if the market corrects ever so slightly from here. So these are very definitive possibilities, et cetera. And we do see this as a essential component to maintaining sugar prices as we go forward. So despite the large amount of sugar being produced, the smaller diversion to ethanol that had been anticipated and a challenging position to be able to export, I still believe that we will have moderate sugar prices over the coming years. So I don't necessarily see any cause of any alarm. And neither do I see any real reason for any massive increase in domestic prices. And they will, of course, vary if we do manage to secure the 2 million tonnes export and which means that we will have a 7 million tonnes opening stock on the 30th September 2026, I think that will bode well. And so we will perhaps be able to inch forward as we come towards the end of the next sugar year. So I think it's an interesting scenario. I don't necessarily think that there is -- I think all the bad news has been factored in. I think from this point onwards, we will certainly look at more positive news. Turning towards the alcohol business. The sales during the quarter were down by 6%. Consequently, the closing stock -- and this was because of the supply disruption due to an export fee notification. The closing stock of alcohol stood at 167 lakh liters at the end of September compared to 62 lakh liters last year. We rectified a lot of that and a lot of that closing stock has been evacuated over the last 5 weeks and, of course, a lot more to be able to return us to a position of normalcy. The average realization price during Q2 is lower due to an increase in the share of ethanol produced from FCI rice. The registered -- we have registered a significant improvement in the profitability on the back of correction of input prices, particularly maize and a much stronger focus on cost optimization. I'd like to give you just some comparison and some ballpark estimates. We started procuring maize from Bihar in May -- in April, May, and that was at a delivered factory gate average of approximately INR 22.5 at that particular point in time. The last few prices of UP maize, which rose, of course, we started procuring at a lower price than it rose, but the last price was at about INR 22.30 or INR 23.30 [indiscernible] delivered and as an average across all of our distilleries. And right now, we're getting Madhya Pradesh maize, which, of course, has a better starch content and significantly better quality than UP maize and we are receiving that at the factory gate at INR 20 per kilo. I do believe that with this 60-40 limits that have been placed by MoPNG in the ethanol tender, we will continue to see softness in maize prices. In fact, we are already at international maize parity. I'm not sure if the government will look at export of ethanol, but if maize prices go down, I think that could be a very real possibility and something that the government could look at in terms of alleviating the pressure on standalone distillers, especially processing maize. But I think that over the next few months, as the Madhya Pradesh crop looks very good with descending prices and as we move towards the Bihar crop, which is important for UP-based grain procurers like ourselves, that will also start with sufficient softness. So I think from a grain perspective, from an input cost perspective, I think we're looking pretty good. Ethanol constituted 92% of alcohol sales in Q2 compared to 93% in the previous corresponding quarter. The sale of ethanol ENA produced from sugarcane-based feedstocks constituted 46% of total alcohol sales in Q2, 44% in the previous corresponding quarter, while ethanol ENA produced from grain contributed to the balance 54%, which was obviously 56% in the previous corresponding quarter. Looking at the industry scenario for ESY '25, '26 in cycle 1, the OMCs have secured almost the entire amount, so 1,048 crore liters against 1,050 crore liters, which was the overall amount. We believe that cycle 2, 3 and 4 will have a minimum of another 200 crore liters, perhaps even more. Now you may be wondering what does that mean in terms of the overall blend estimate and it points to a higher blend than 20%. Yes, I think so. I think that we will, even without noticing it in certain parts of the country, probably have a blend that is higher than -- a little bit higher than 20%. However, the elephant in the room really is what happens afterwards because as you all know, there was a massive amount of 1,776 that was tendered for the OMCs against the 1,048. And that -- of course, that does not include the private parties, Nayara and Reliance. But that also means that we have a massive quantity. In fact, our estimates are that the country's production is north of 2,300 crore liters in terms of alcohol production. And that does not include distilleries, which are nearing finalization or operational readiness, which there are several across the country. So it's a positive number to that 2,300 crore liters. It means that we have to, of course, find a solution. The government is acutely aware of finding said solution. And I think it is a troublesome point. And it's difficult to ascertain where we're going to go, but certainly, the decisions have to be taken for this excess quantity that exists across the country. The procurement price for FCI ethanol in the last tender has been revised from INR 58.5 a liter to INR 60.32 in line with the increase of the administered price of FCI rice from INR 22.5 per kilo to INR 23.2 per kilo. The EOI for '25, '26 has stipulated a condition that vendors should offer a minimum 40% of the total grain offers based on FCI rice for Q1 to Q3 for this present ethanol supply year. And that is exactly why we have seen a great softness in maize prices, which will reflect in our profitability in this quarter and of course, and subsequent quarters as well. Looking very quickly at what it means for us. We have been very successful in our secured quantities, but that does not mean that we -- and we are projecting a higher supply of ethanol to the OMCs and private marketing companies and, of course, the ENA that we produce. The total quantum of alcohol produced by Triveni for this year is -- ethanol supply year is projected at higher than what we had last year. We do need to secure a certain -- a few crores of supplies in cycle 2, 3 and 4, which we anticipate, broadly speaking, equitably between molasses and grain, just north of about 4 crore liters. So it's not a huge amount, but it is a important amount that we need to secure and supply. And that will allow us to actually produce at the most efficient capacity, which is something that the units across the group are completely focused on and allow us actually to lower our cost of production and cost of conversion as well, which is something that, as I mentioned even in the last quarterly call that we are looking at with a very, very fine-tooth comb for Triveni. Turning quickly to the Power Transmission business and the first of our engineering businesses. The order book during the quarter under review was definitely a little subdued. But however, our visibility on inquiries has been quite remarkable. So I think this is a little bit of an anomaly. I'm very -- I believe that it is a anomaly in terms of the particular quarter under review. I think there was a lot of global factors that came to play, tariffs being one of them. Also events that were happening in West Asia, events that were happening in Eastern Europe, events that are happening in other parts of the world that led to a little bit of uncertainty as far as our global customers are concerned. However, our overall numbers for the year still remain unabated. We're certainly looking at achieving a very robust double digit growth in order booking, turnover and profitability for this particular -- this financial year. And so as I mentioned, despite the movement in this operating environment and after absorbing the incremental costs related to capacity increase, our PBT margins have improved by more than 400 basis points. And this is essentially due to 2 very important factors. Number one, a very good product mix. So the focus of the business in terms of really attuning our product mix in delivering the maximum profitability is something that has happened. And the second is a very strong focus on cost optimization. And when I talk about the future, I will talk about initiatives that have happened and that will happen in the future, which will allow continued improvement in both of these 2 levers and the emergence of other levers as well to ensure success of this business as we go forward. During the first half year of '26, I'm delighted to report that we have registered 9 new OEM customers in our product segments and some of them are marquee industry names globally. And this is very, very important to share because I've mentioned in previous calls that we're doing a lot of work in terms of qualification orders. This is the result of those qualification orders where we are now delivering those products and hoping that it will result in a significant increase as far as orders to new critical customers globally. With respect to the Water business, the results on the consolidated basis, including our SPVs of Mathura, both our SPVs showed an order booking of INR 1,520 crores, which includes INR 1,000 crores -- sorry, INR 1,092 crores towards O&M contracts over a longer period of time. The business actually has done reasonably during the quarter under review. Again, we focused very, very hard on reducing costs and ensuring the maximum amount of profitability of this business. [Audio Gap] Looking quickly at the outlook for the various businesses because I think this is where I'd like to focus some of my time. I'll start first with sugar and then move to the alcohol and then to the engineering businesses. With respect to sugar, the overall cane crop seems very healthy for the state of Uttar Pradesh for '25, '26. Last year, the state produced 9.27 million tonnes of sugar. This year, we're anticipating 9.6 million tonnes of sugar, an increase of 3.5%. Despite some flooding and water logging in the 2024 and 2025 Southwest monsoons were timely and well distributed this year, significantly producing the -- boosting the sugarcane planting and yields, especially in Uttar Pradesh, but we've seen similar improvements in yields as well as potential recoveries in Maharashtra and Karnataka. In Uttar Pradesh, as a whole, we've seen continual varietal replacement and a shift away from 238. At Triveni it has been -- the shift has been even more acute. And I think other varieties are delivering promising results, perhaps not as magnificent as 238 in its prime, but pretty close. And I think we're going to see a lot of change because there are so many varieties that are being considered right now and there's so much promise, frankly speaking. And I can say this for the first time. I've not said this before, but I'm very heartened to see the impact of some of the trial varieties, et cetera, and they will form a very important part of our development programs as we move to spring planting in February, March of '26. With Diwali in October, the UP crushing season has started pretty much on time, perhaps a little bit early. As of today, Maharashtra and Karnataka, of course, will start a little late because of the delayed withdrawal of the monsoon. I guess this is a positive for UP mills. Five of our sugar units have already started. That includes our subsidiary at Shamli. Last year, 4 units had started as of today. This year, it's 5 units. The balance 3 units will start in a matter of just a few days from now. Certainly, by next week, everything will have commenced operations. The recovery for the factories that started early is pointing towards a positive increase, but it's very challenging to give you any real data estimates at this particular point in time because the real bagging has started across all of the units. But the sentiment is certainly positive, but that data points towards a positive increase in recoveries certainly this year over last year. In terms of availability of cane, we are happy to report that we're looking at a significant increase in the quantum of cane that will be crushed across all 8 of our sugar factories. Each factory is looking at a substantial increase. Some of it is due to excellent reservations that we have secured from the cane department and the government of Uttar Pradesh. And a lot of it has to do with the amount of development work that has happened at the units. In fact, my second is the most important point. That, coupled with a projected increase in recovery, we're looking at a substantial increase in the total sugar this year versus last year. I'm hesitant to give a actual number in terms of the increase in sugar, but I would like to just share that it will be a very handsome amount in terms of overall sugar production. And that will be very good because it will be a relative lower cost of production and spreading out of our costs over a larger number of packs, et cetera. As far as the alcohol business is concerned, I've talked a little bit about the outlook already in terms of securing about 4 crore liters of orders through cycles 2 through 4 as well as through the private marketing companies as well. We're very confident we should be able to receive -- achieve all of that and have our distilleries run at peak capacities in this supply year. Turning quickly to the Power Transmission business. From an India perspective, we're looking at strong manufacturing and investment demand as of today. I think there's a broad feeling that on balance, we're seeing India Incorporated move forward quite steadily. The inquiry book is looking very encouraging. In fact, it is far more encouraging than it was 3 months ago. I think that bodes quite well. On a global basis, I think we're a very small fish as far as our Power Transmission business is concerned, but we're seeing massive inquiries that are coming from all parts of the world. Europe is particularly strong. We're seeing other parts of Asia, both West Asia and Central Asia inquiries that are ballooning. And we have started seeing very encouraging signs from North America as well. During the quarter, we continued to build our brand and participate in key exhibitions around the world. And I think these new marketing efforts pay massive dividends in terms of -- in terms of our perception, in terms of forging new contacts and managing to enhance our global footprint, et cetera. We are definitely recognized as a global competitor to other high-speed gear manufacturing firms. I had already talked about the very positive profitability performance in the quarter under review and that was primarily due to cost optimization as well as a optimal product mix. And I think that realization is a very important one and we're going to look at enhancing that, further improving that as quarters go by to ensure that we eke out our profitability levels very much in line with what I've been saying at these investor calls over the last few quarters and few years. Triveni Power Transmission Limited, a wholly owned subsidiary of the company, has acquired 100% stake in Triveni Power Transmission GmbH, a Swiss company. With the said acquisition, TPT GmbH becomes a subsidiary of TPTL, which is a step down -- effectively a step-down subsidiary of TPTL. So in -- as far as the outlook is concerned, what can I share with you that will -- as I mentioned, there were the 2 levers and there are several other levers that will play a very critical role. There is a concerted effort to focus on large gearboxes. We're receiving fantastic orders in the steam turbine segment. Gas turbines, of course, are reasonably large, but in the steam turbine segment and compressor segment are larger and larger units. Now this is where the technical competence, et cetera, of Triveni gets recognized by our customers. There is a concerted effort to focus beyond steam turbines and our focus on compressors, gas turbines and other high-speed gearboxes has been critical in terms of diversifying our product scope and supply. Design and development has taken on a new form. And I think there's been a huge amount of work that is being done right now, which -- where we expect impacts in the next financial year in terms of cost improvements and also reduction in terms of time at standardized models, the development of more standardized models to be able to further improve the manufacturing time of a lot of our gearboxes. From an IT perspective and this is absolutely crucial and this is also for all of Triveni, but I'll talk about a few extra things that are happening at Triveni Power Transmission. There's been a significant amount of developments in the last quarter. For the group as a whole, there's a massive migration in terms of our Enterprise Resource Planning solution that is happening, which will be over. It will allow us massive, in terms of our digital advocacy and migration initiatives, it will allow us to be able to use data in a very powerful form by Q4. It will start -- actually, the migration will end. And so our usefulness will start in Q4 of this financial year. However, in -- at PBT -- sorry, at PTB, we have 2 other important digital migration initiatives with respect to CRMs as well as a digital factory and the creation of digital twins that are underway, which will allow us really to be able to create enhanced levels of stickiness as far as our global customer base is concerned, allow us to be far, far more proactive in terms of responsiveness to our customers all the way from inquiry all the way to post installation and commissioning management, et cetera, and allow us to have complete control of the manufacturing process in a way that we've had pretty good control, but it allow us to continuously enhance that control over manufacturing at Mysore. Looking very quickly at our Water business. We are looking at new opportunities emerge in recycled, reuse and liquid -- Zero Liquid Discharge and on an EPC and HAM basis. So there are new projects that we are tendering for. And it is -- we're seeing more traction as far as water is concerned, more positive traction, intended towards conclusion. I think that bodes well because it's been a long time coming. It's quite exciting to see that the water market is turning quite exciting. We are evaluating international opportunities and intend on participating in several more tenders in water and wastewater treatment projects internationally. At an overall level, the company has implemented a series of strategic and well-considered initiatives to tackle the key challenges across all of our business segments. We expect -- we remain optimistic about delivering an improved performance in fiscal '26, given all the various situations that our various businesses are incurring. And lastly, I'd like to comment on the scheme of arrangement, the proposed amalgamation with SSEL and the demerger of the Power Transmission Business. The proposed scheme has been approved by the stock exchanges and the process is obtaining approval of NCLT. The meetings of stakeholders under the NCLT process has been scheduled for the end of November and early December for the 2 companies. And that means that we're very much on track as far as I had said, for this culmination in Q4 of this fiscal year. So with that, I would now like to pause my opening comments and open up the floor for questions.

[Operator Instructions] First question Is from Sanjay Manyal from DAM Capital.

I have a few questions. First is about the ethanol part. You have mentioned that maize ethanol margins have improved significantly. Firstly, in the first cycle, what is the amount of volumes will be -- means we have been allocated? And out of that, how much is from the maize? And also, if you can sort of specify if are we like making EBITDA -- INR 8 EBITDA per liter after the decline in the maize prices?

So Sanjay, I'm afraid we don't give a breakup of what we've got, maize versus rice versus ethanol. But in answer to your second question, yes, we're making a higher margin than what you're anticipating. I would say, 30%, 40%, 50% even higher.

Okay. Okay. Right. So my question was -- okay. So I mentioned INR 8. So what you are trying to say is that we are probably will be making anywhere between INR 11 or INR 12 a liter for maize.

That's right.

Okay. Perfect. So from my capacity perspective or rather from the allocation perspective, my question was regarding because you mentioned that the total capacity of ethanol is now 2,300 crore liters, if I'm not wrong. And given the fact that 20% ethanol would require not more than 1,200 crore liters and maybe another INR 200 crores, INR 250-odd crores from the ENA. So total demand will be 1,500 crores. So most of the industry level capacity utilization will not be more than 65%, 70%. That's what my understanding is. So can we like assume that your capacity is 26 crore liters, so in that sense, you will also be running at similar levels of utilization?

No. I think that's not correct. I think that we will be running at -- you see, the total capacity as far as Triveni is concerned depends on whether you use maize or don't use maize. So you have to factor that out. So it depends on the proportion of maize that we actually convert during the year because that has -- as you know, when you're using maize, it is 20% lower. Your capacities are 20% lower. So when you're looking at 26 crore liters, it is not with maize. However, whatever portion you use with maize reduces it. So we anticipate functioning at 100% capacity utilization. However, the margins in maize are actually very attractive. And therefore, we will, with the 60-40 rule, try and maximize what we can do with maize as well. Does that answer your question?

Yes, sir. That was pretty helpful. My second part is on the sugar recovery, although you mentioned it's an early time. It's just a week that you started your operations. But if you can get a sense from the fact that you have changed the sugarcane variety in the catchment area from Co-0238 to the other newer varieties. What is your sense or what is your understanding that what kind of an improvement we can see in sugar recovery? And also, you mentioned that there has been a reallocation of the command area. So what kind of an increase we can see in the sugarcane crushing in the current season?

Okay. So it's actually a combination of the 2 things. And without giving you a actual number, which I think you're alluding to a number, without giving you an actual number, I think, let me talk about recovery first. Recovery is impacted by 3 very important factors, okay? The first is rainfall and water, okay? The water is untimely rains and it is also flood water that impacts us in certain factories. As you know, and I've talked about this on previous calls. When we stand today, we've had a reasonably -- we've had a reasonably dry last 30 days, okay? That's been very good. The last 2 years, actually before the factories have started, we've had rains in the last 30 days before the season started, which has led to a lot of soil moisture and it led to a little bit of weaker [ poles ] as cane comes. By and large, the dryer start, I think it's been very good and this year has been relatively dryer. So that is a positive attribute. The second is with respect to disease. So last year, we had some amount of red rot at a certain number of our factories. I talked about 3 of our factories having been impacted more than others and the remainder having been relatively unscathed. And a lot of work has been done in terms of not just roguing, but replacement and taking out of these red rot clumps and clots and actually getting farmers to plant other crops in that area so that the soil received a break, which is technically the system. I mean, if you have red rot, you're actually not supposed to plant sugarcane, you're supposed to plant something else and then return to sugarcane a year or so later. So a lot of that has already happened, which means that the diseased cane that will be coming to the Triveni factories is a massive, massive reduction. We anticipate -- I'm not saying that we've gotten rid of all red rot because we do have 238. And the 238 is -- I forget the total percentage of 238 across...

Just under 40%.

So it's under 40%, but that's not necessarily a bad thing. Let me be very honest, especially as far as the high lying areas are concerned. It is giving great recovery and it is disease-free. And we will slowly replace that as well -- not slowly, steadily replace that as well. But the fact is that diseased cane is looking much, much lower, the possibility. Everything is looking well within our limits. So that is extremely positive right now, Sanjay. The third thing is pest. We had unseasonal broods of top borers and that impacted the crop last year. This year, in the early part of the growth season, we had some fly -- whitefly infestation in 1 or 2 factories in West UP, but that was treated with pesticides. And it was no longer -- after we recognized it, we actually did mass scale treatment, et cetera, through drones, through all sorts of different mechanisms and vehicles, et cetera. And we've not had that incidence across all 8 sugar units of borers or flies, et cetera. So a disease -- relatively disease-free, majority disease-free and a pest-free crop is what we're expecting this year. So from that perspective, the recovery looks pretty good. We need to get all the factories to start. We need to start getting sugar to be able to give you accurate estimates of what the recoveries are. By and large, they're looking pretty -- they're looking positive. So I'm very hopeful that ratoon will give a good recovery. I'm fairly certain that plant cane will be a much better recovery than it was last year. So that's very important. So when you look at recovery, you've got to look at both parts of it. You've got to look at ratoon. We've got a great ratoon crop. What does that mean? We're not going to start untimely crushing of plant cane, which is something that happened last year, negatively impacting recoveries, which is crushing immature cane early and that leads to a lower recovery as a season. So this year, enough cane means we have enough ratoon and we have enough plant. And the work that was done on plant means it's disease-free, it's pest-free so far. And I have to add that caveat. And that bodes very, very well. So that's very good. Season started pretty much on time and we're looking at a higher crush rate for the group, which will mean that we're not looking at essentially extending and dragging on the season into the very, very hot month, end of May, et cetera. And that, again, is another reason for better crush, better crushing, better cost of production and, of course, better recovery.

[Operator Instructions] The next question is from Shailesh Kanani from Centrum Broking.

A couple of questions. With respect to our deck where you have mentioned that broadly more than 3 million tonnes would [indiscernible] in light of this...

I'm so sorry. Shailesh, sorry to interrupt. You're not audible. Can you speak a little slower, please?

Better? Is the voice not audible?

Yes. Go ahead. Go ahead, please.

Yes. So my question was with respect to our deck assumption where we have mentioned that more than 3 million tonnes of sugar would be -- cane would be -- sugar would be diverted towards ethanol. So just wondering in terms of the SAP price increase. Does it make sense -- economic sense to do that, especially considering that the ethanol prices have not risen for sugarcane feedstock? So what's your view on that?

Okay. Good question. It's over 3 million -- 3.25 million is what we're looking at in terms of the diversion of sugar. SAP, as you are aware, is only for Uttar Pradesh. And the 3.25 million tonnes of sugar that gets diverted is nationwide. So it includes Karnataka, Maharashtra, other states, which don't pay UP SAP, they pay FRP, et cetera. Also, there are very strict penalties for noncompliance. And the OMCs actually exercise those penalties rigorously. So I see very little risk in this number going down. If anything, I see this number actually going up because based on the 200 crore liters of R3 to R4 tenders and the split between grain and sugary-based feedstock ethanol manufacturer, it could enhance that 3.25 million a little bit more for the season, perhaps take us up to about 3.4 million, 3.5 million tonnes. ISMA has 3.4 million, I think it could be as high as 3.5 million.

Sir, just to clarify, but there will be some portion of [ UV ] assumption as well in this 3.25 million-odd, right?

Correct. And I don't see any danger of that not happening because of very strict fines that are imposed by all marketing companies for non-delivery of ethanol.

So just to get it right. Economically, it will not make sense, but because we have entered into the contract, we will be doing that. That is what you're trying to say?

No, that is not what I'm saying. That's not what I'm saying at all. You see the -- because I don't know how people have quoted for juice as far as Uttar Pradesh is concerned, I can't comment on their financials. So therefore, I am not making any comment on anybody's viability. What I am saying is that the diversion of Uttar Pradesh of the 3.25 million is approximately 0.7 million tonnes in Uttar Pradesh done by a few groups in the state. I don't see them because they are also supplying C-heavy molasses, they are also supplying B-heavy molasses and ethanol made from other sugary feedstocks. I don't see them putting their ethanol programs at risk. Plus they have operating facilities. So to shut it down and not supply means you're still incurring a substantial fixed cost. So yes, rather than look at it from a profitability perspective, I'd rather look at it from a cost perspective. And this makes sense to them from a cost perspective and I don't see them -- and the significant penalties that will be imposed for this large quantum of 0.7 million tonnes is actually -- I mean, it is a disincentive to millers in terms of noncompliance.

Okay. Just to kind of close this loop on this. So in your estimates, what would be the EBITDA per liter the way you have mentioned about maize will be somewhere in the range of INR 11 to INR 12 per liter. If you can just give a ballpark assumption in terms of working back of the envelope, seeing the season and seeing the SAP prices right now, what would be the EBITDA in, say, juice, B-heavy and C-heavy?

So as far as juice is concerned, we're not making juice. So I can't offer you the EBITDA calculations for juice since we have not tendered for juice. Neither have we tendered for B-heavy. I imagine that B-heavy is going to give you something a little bit lower than maize right now, maybe INR 9 or INR 10. C-heavy molasses will give you north of INR 6.

Okay. Okay. That's useful. Yes, that's useful. That's useful. Sir, my second question is on the PTB division.

Yes.

Yes. Sir, there has been -- this is the second quarter where we have seen slight slowdown delayed in pickup activity. Can you throw some light further like what has happened? Because last time you had mentioned that there were some deferrals from the client side in terms of execution. Are we getting impacted because of any other reasons which you would like...

If you track the last 20 quarters of PTB because we've always given PBIT results for the Power Transmission Business. And if you track the last 20-odd quarters, you will always see that Q1 and Q2, Q1 more than Q2 is usually a little bit weak. So Q1, while it came as a little bit of a surprise, Q2 is actually better. It's not in line with what I would like to be delivering. And I recognize that straight off the -- at the very start of this call, but it is still better than the previous corresponding quarter. And from a profitability perspective, it's actually pretty good, to be absolutely honest. I see that with the orders that we have planned for Q3 and Q4, we're very much on track. I mentioned that during my opening remarks that I stand behind my internal estimates, while I've not shared it with you, my internal estimates for growth for this business, for this annual year. And I anticipate that Q3 is going to be pretty good and Q4 is going to be absolutely fantastic. And that is just the way that classically, every year, it follows that type of a cycle. I do think that when we have more export business, when it becomes a very meaningful portion, then Q3 will become even more substantial because the year-end for our global customers is typically the calendar year-end. And the more domestic business we have, the year-end is Q4, therefore, to capture depreciation, people want delivery of their gearboxes in Q4 of the Indian financial year, which is March. So you may see that dynamic over the next few years that will change. But I'm not concerned about the performance of the business.

Next question is from [ Tanuj Nangalia ] from SKP Securities.

So could you please provide a brief overview of the ethanol production in liters at Triveni through the B-heavy, C-heavy route derived from a kg of sugarcane?

I'm afraid we don't provide those details.

Next question is from Maulik Chaudhari from Monarch Networth Capital.

I have a few questions on our Power Transmission business. So particularly on the domestic side, over the last 2 to 3 quarters, our order inflows have been relatively subdued. So could you please provide some clarity on this? Second, given our H1 order inflows were subdued, but what kind of order inflow are you expecting in H2, both in domestic and export market? And third question is, could you share the breakup of current closing order book between short tenure and long tenure? And within long tenure, how much is attributed to defense?

Absolutely. So let me answer your first question. As far as -- you see, I think it's important to also note that our large domestic OEMs have -- at least the 2 large domestic OEMs in the steam turbine space have now converted their business to supply to the world from India. And as a result, what gets -- while there may have been some softness in Q1 and Q2 and there definitely was with respect to domestic order buildup, I think from a global perspective, things were moving along a little bit better. I don't see that the case -- we are almost halfway through Q3, I think there has been a real change in the last 5, 6 weeks in terms of domestic order inflows for domestic customers. For global customers, I think that is moving along reasonably well and rather swimmingly, frankly speaking. We don't give real breakups as far as this is concerned. And frankly speaking, we only find out whether the gearbox is going internationally or domestically a little bit late into the process. It's not right upfront. But I think that we're seeing a change in domestic demand, certainly. And yes, so we're seeing a change in demand domestically as well, of course, internationally, I've already spoken about. Your second question, could you remind me of your second question?

On defense -- breakup of closing order book between short tenure and long tenure?

Oh, that -- no. Yes. So that was your third question. In terms of the breakup of short tenure and long tenure, as of September 26, our short tenure is INR 210 crores and long is INR 185 crores. Total is about INR 395 crores. The previous corresponding year, the shorter was INR 239 crores, the longer was INR 106 crores, about INR 345 crores. So there's been an increase in the total order book of about 15% from quarter-to-quarter.

And sir, within long tenure, how much is attributed to defense?

So as far as the long tenure, as far as that is concerned, the vast majority of that is defense. And in the short tenure, there's very little defense. The exact numbers, you can perhaps contact us offline and we'll share it with you. It's just that I don't have it on hand with me right now.

Next question is from Sanjay Manyal from DAM Capital.

Yes, sir. Just one question I have on the PTB business. I think this quarter, you have seen almost 400 basis point plus kind of a margin improvement. And you have mentioned that this is because of the favorable product mix. But what could be the normative margin in this business, EBIT or EBITDA margin? And specifically from the defense part, you will be commencing your facility in December. So what can we expect from this defense facility, say, in FY '27? What kind of an order we have, with the bigger order if we have from the defense? And what can we expect in FY '27?

So for the half year, the Power Transmission Business has a EBITDA margin of about 36% -- PBIT margin, sorry. PBIT margin of 36%. I think we -- it's part of our results. It's given in terms of the segmental breakup. And as far -- does that answer your first question? Your second question, as far as defense is concerned, yes, a lot of the long-term order books that we have will get executed. The facility will be up and running in December of this year, which is exactly what I had mentioned 3 months ago when we spoke. I think in terms of what you can expect in the following year, while I don't give estimates in terms of production, I think it will go a long way to have a facility on the ground, showcasing not just to the Navy and to the armed forces, but also to partners around the world. And in our presentations and in our participation in global defense events and exhibitions, et cetera, we're seeing a lot of traction. So I think that the fact that the facility will be off the ground will be a massive sales point in terms of attracting partners to us. Now in terms of what does that mean for financial year '26, '27, I think that is very difficult, Sanjay. It's very difficult because defense orders now with the way the world is, some of it, you're seeing a little bit more urgency. You're seeing a little more advancement of orders. You're seeing a little more acceleration. So it's not necessarily everything long term. You're seeing a lot of short-term stuff that is also coming up. And -- but it's very difficult to ascertain. It's a business that because it's a younger business for us as well, these numbers can vary quite, quite dramatically. I'd be hesitant to give a number. But to have the facility off the ground is a very, very big step in terms of the credibility, in terms of the footprint and the manufacturing capability of our business.

Right, sir. Right, sir. No, understood this. So what I meant by this first question by a 400 basis point improvement, so we have seen a 41% kind of PBIT margin this year. So can -- we should not take this as a normal -- normalized should be 36%, 35%, 36%, as you have mentioned on the first half?

No, that's not what I mentioned. That's not what I'm saying at all. You're taking quarter and half year. Yes, the quarter was very good. We would like to deliver the best possible EBITDA margins. And I think we're very much on track. 41% is very, very high, okay? I think that is a tough ask to be brutally honest. But we can -- we don't necessarily have to reduce 500 basis points. I can't give you a number, but certainly not 500 basis points. I think that is the strength of what I've talked about, about Rajiv and his team in terms of looking at products and services and looking at what we're dispatching and looking at the types of orders that we're taking in and dispatching from quarter-to-quarter.

That was the last question in queue. I would now like to hand the conference over to the management team for closing comments.

Ladies and gentlemen, thank you very much for joining us for the H1 fiscal '26 earnings call for TEIL. I think the last few weeks have been very, very telling. We've had a bevy of news, some negative, some not negative, not positive. But I think that has been factored in by the business. We've hit the ground running. I think we have done a lot of work and we are more resilient today across our sugar, alcohol and engineering businesses than we've literally ever been. And I'm very confident that going forward, we will be able to deliver the best possible results given factors -- some factors are beyond our control. But given that, I think we are in the best possible position that we've been in years in order to be able to give exceptional results across all of our businesses. I look forward to discussing our Q3 results with you in about 3 months' time. Feel free to contact Himanshu in case you have questions that have not been answered in this call. Thank you very much, and have a great weekend.

Thank you very much. On behalf of Triveni Engineering Industries Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.