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

Good day, everyone, and a warm welcome to all of you participating in the Triveni Engineering & Industries Limited Q3 and 9-month FY '20 earnings call. We have with us today Mr. Tarun Sawhney, Vice Chairman and Managing Director; Mr. Suresh Taneja, Group CFO; Mr. Sameer Sinha, President, Sugar, 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 sent to you 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 start this call with opening remarks from the management, followed by an interactive question-and-answer session. I will now request Mr. Tarun Sawhney to open the call. Over to you, sir.

Thank you, Rishabh, and good afternoon, everybody. Welcome to the Q3 and 9 months earnings call for Triveni Engineering & Industries Limited. I will spend the first portion of this call, just giving you some highlights of our performance for the quarter and 9 months, followed by a detailed analysis of our business segments and a brief review of the immediate outlook for all of our businesses. The quarter was a very successful quarter. And for the 9 months, the revenues in operations stands at INR 2,943 crores, which is a growth of 28% over the corresponding period of the previous fiscal year. In fact, the profitability, the profit after tax of INR 197.5 crore, which is a growth of 45% over the same 9-month period of the previous fiscal year. With reference to the sugar business, the country's production for season '19/'20 is now estimated at 26 million tonnes after considering the diversion of B-heavy molasses and sugarcane juice towards ethanol production. The operating performance in the sugar season '19/'20 is certainly for us in line with our estimates. We've contracted a sizable quantity of our export quota and exported about approximately 27% during the quarter. The ethanol production from B-heavy molasses is also underway at 3 of our units, 3 of our 7 units. The focus on optimizing working capital requirements through accelerated exports is another initiative that we successfully did over the last quarter. The business has performed well due to stable sugar prices and a higher volume of sales. I want to say that we booked an export subsidy on 10,000 tonnes of sugar and not on 38,654 tonnes, which was sold for the exports of the MAEQ 19-20 quota, due to pending conditions being fulfilled, including paperwork, et cetera, and we'll be in a position to be able to recognize it going forward, of course. In view of the revision of the power tariff for the cogeneration plants, on the -- with effect of the 1st of April 2019, the profitability of this business has definitely been impacted. On the positive note, the quantity of ethanol that we have sold in the quarter has included 33%, which has been produced by B-heavy molasses. And overall, for the current season, 53% of the ethanol that is produced will be from B-heavy molasses, and thereby accruing a higher rate per liter of ethanol. Turning to the engineering businesses, the Gears business maintained its good growth trend and the Water business continued to perform better, resulting in higher turnover and profitability. The outstanding order book combined of our engineering businesses was just under INR 1,300 crores. The debt of the company as a whole on the 31st of December stood at INR 1,544 crores at an average rate of about 6.5%, combined for short-term and long term. Turning to the businesses, in particular. The sugar business has done extremely well in this quarter and 9 months. Hence, for the 9-month period, we have included approximately INR 100 crores of subsidies pertaining to the previous year as compared to INR 42 crores in the previous 9 months. The sugar inventory as of the 31st of December 2019 was 47.6 lakh quintals and valued at INR 34.4 -- sorry, INR 30.4 per kilo. The cane crushed as on the 31st of December was 2.57 million tonnes, as in adjusted recovery of 11.26%. The adjustment is due through the raw sugar and to the B-heavy molasses being made, to normalize it in order for you to be able to compare it against other mills that are not undergoing any of these programs. We did produce raw sugar at 3 of our factories, the same 3 that we're producing B-heavy molasses as well. I can give you the numbers as of yesterday as well for our crush which stood at approximately 4.09 million tonnes at an adjusted recovery of a shade under 11.5%. So there's clearly substantial outperformance when we compare our performance in this quarter and this sugar season versus the previous corresponding quarter and previous sugar season. Our domestic realization was INR 33,550 per metric tonne. Current sugar prices are slightly lower than that, at approximately INR 33,000 per metric tonne. This vacillation has happened, we had a very aggressive quota, national -- countrywide quota in the month of January. The February quota, while it is a little bit lower at 2 million metric tonnes, it's still quite a handsome quota for the month of February. And therefore, I expect that prices will remain at this stable sort of level, INR 0.5 to INR 1 per kilo vacillation up or down, we're towards the lower end of the estimates. But -- so this is the kind of broad range that we will be in, that I foresee, at least, for the month of February and for March as well. So for the end of this up to the end of this fiscal year. Looking at the industry scenario, the closing balance at the end of the last sugar year 30th September '19, was approximately 14.6 million metric tonnes. And with the consumption of 25.5 million tonnes and exports of 3.8 million tonnes having taken place in the previous sugar year. Notable important points that I -- that one would like to mention include the fact that the FRP and the SAP were not increased for this sugar year by the Central Government and the State Government. And the government -- the Central Government also provided a lump sum export subsidy of INR 10,500 approximate per metric tonne for exports of up to 6 million tonnes from sugar mills under the MAEQ program, which is the Maximum Admissible Export Quantity program for sugar season '19/'20. Further, to this, the government has also announced a reallocation procedure for MAEQ for those mills that have not exported or do not wish to export sugar, and thereby offering potentially a little more quantity to those mills that have interest in exporting sugar. This is very encouraging news, because the 6 million metric tonne export target that the Central Government had in mind, is an ambitious target, and not everybody will be able to participate to achieve those numbers. And therefore, if we want to come close to those numbers and my personal forecast, if we do manage to reassign quotas and give it to those who do want to export, we as India may export up to 5 million metric tonnes. About 2 million metric tonnes have so far been contracted, which means that there's quite a lot of sugar that to reach 5 million metric tonnes, there's 3 more million that needs to be contracted and also evacuated in a fairly aggressive schedule. For this sugar year, the estimates are approximately for a production, as I mentioned, 26 million metric tonnes. This is after considering a diversion of 0.7 million to 0.8 million tonnes from B-heavy molasses and sugarcane juice towards ethanol. And this decline from 33 million production of the previous year is primarily due to a decline in the states of Maharashtra and Karnataka of sugarcane availability and therefore, sugar production. For '19/'20, on the ethanol front, the OMCs -- sorry, for '18/'19, the OMCs had invited a very large tender, however, in terms of what was supplied approximately, we achieved approximately 5% ethanol blending, which is really very low. And frankly speaking, there's a lot of effort that is required on all parts, especially the industry in terms of supplying ethanol to the OMCs to achieve higher levels. This year, the results have also not been very good. And for the marketing year '19/'20, against 511 crores liters of ethanol, which was in -- which was requested in the first run, only 163 crore liters was actually offered, of which the LOI is 156.5 crore liters. Furthermore, in January '20, the OMCs tendered another 253 crore liters, which are under bidding and finalization. I'm fairly hopeful that there will be some aggressive bidding at that point. We at Triveni are pretty much have our quotas for the remainder of the year for this molasses and ethanol year, and so we're fairly covered to the extent of 95% of our production. And we're very secured in terms of the destinations for the ethanol and other forms of alcohol that we will be manufacturing. A very important notification was issued by the Ministry of Environment, where it has decided to waive the green clearance requirement for distilleries, which are planning to produce up to 50% more ethanol in their capacity without increasing the pollution. Now this is extremely important and is indicative of the clear steps that the Central Government wants to take to facilitate the establishment of not just greenfield but also brownfield projects for ethanol. This is the trend that I foresee will continue quite substantially for the next couple of years. As you all know, we had the President of Brazil visit India and was the chief guest at our Republic Day, there were many discussions happening. Over the next few weeks, there will be other conferences held that will be focusing on India's ethanol program. And looking at more technologies and sustainable technologies in terms of propagating this brand-new industry, which does require substantial investment if we are to achieve the target of 10% and further of 20% by 2030 as has been mandated by the Central Government. Turning to the international front for sugar. The most significant point that I'd like to mention is that the deficit, the global deficit has, in fact, widened, which is why we've seen an increase in both white and raw sugar prices. We have projected a deficit of 6.5 million metric tonnes earlier, which has widened to almost 11 million metric tonnes for this sugar year. A consequence of that has been the shortfall in production in Thailand. And of course, no change -- no broad change in the mix between sugar and ethanol in Brazil. And then, of course, large drops in production in other parts of the world, including in India. And these have been, of course, very positive. So we've seen, on the 3rd of February, the white sugar futures in London were at $406, which was down slightly from a 2.5-year high, $416 per metric tonne. Very, very substantial. And raw sugars, on March had posted nearly a 2-year gain -- 2-year highs at $0.1461 per pound. Again, very, very good numbers. And therefore, I see that our target of achieving 5 million metric tonnes export from India is something that is certainly a reality. My personal view is that global markets have factored in Indian exports to that tune already. And therefore, there really won't be any drop in pricing just because India decides to contract and export. But there are other global factors that can impact it, but certainly not the Indian export scheme. Turning to other sugar businesses. Cogeneration business was impacted because of the downward revision of the tariff by UPPCL, which was announced on the 4th of September, but effective from the 1st of April of last year. Nevertheless, for the quarter under review, our PBIT stood at INR 17.2 crores which, of course, was a big decline from the previous year where we had a much [ BCA ] higher rate. Turning to the distillery business, for the quarter under review, our both distilleries were functioning at recent capacities, and we had a production of 25,500 kiloliters, which, again, was very much according to our targets, and an average realization of INR 46.8 per liter, leading to a PBIT of 23.2% for the quarter. And for the 9 months, it was 94.2%, which is slightly down from the year -- the previous year. However, this is to do with the price -- that the price of molasses, which is the transfer price has gone up when we consider the period of now and a year ago. The distilleries are offering -- are operating at very high levels of efficiency. And during the quarter under review, the company processed 41% of its production through B-heavy molasses, which is quite -- as per our expectations, but it also offers us great solace in terms of experience and managing any technical issues that could have cropped up -- of which there were none, which is, which is of course, very positive. Turning to our engineering businesses. Our Gears business had an excellent quarter and an excellent 9 months. Our revenues for 9 months were higher than INR 120 crores, and for the quarter was over INR 45 crores, with PBIT of INR 17.3 crores, which is a 52% change quarter-over-quarter. The order booking was also very healthy at INR 36 crores. The businesses saw excellent growth in terms of OEM sales and in terms of our refurbishment business and also our spares and service business. So this is -- there were growth across parameters, some growth domestically, a lot more growth internationally. And I think that is the kind of trend we will see over the next few quarters, where there'll be more push with respect to international and global sales and -- but there won't be -- it won't be muted domestically. The growth will be low, but it will certainly be there. The defense initiatives is also hopeful of concluding some several important orders over the coming quarters, and we're excited about adding that to the portfolio of our defense engineering business. So a very good news on that front and the immediate future looks very bright and positive. On the Water front as well, the results of -- revenues of INR 70.5 crores, and the PBIT of almost INR 6 crores are extremely positive. And a result of streamlined operations and, of course, the operations of our SPV, which is executing the Mathura Power project awarded by NMCG under the Namami Gange program. The outstanding order book on the 31st of December stood at INR 1,137 crores for this business, which included just under INR 500 crores towards O&M of contracts, which is over the slightly larger time. Turning to the outlook. The sugar business is certainly in a interesting scenario. We have the sugar price declared. We know pretty much how much sugar will be produced by the country, and we're anticipating a fairly large export program. With the rains that have occurred across the country, the water levels that exist in the dams in Karnataka and Maharashtra, the planting has been extremely good across the country. Planting in North India has just about started since the beginning of February. But my forecast is that it will be an excellent year for planting across the country, and we do have sufficient water levels, which is a positive for the sugarcane crop. Turning towards the engineering businesses, the outlook for the Gears business is very positive. As I mentioned, we are seeing growth avenues and growth markets, both in terms of geographically as well as in terms of product profile, that will certainly add and benefit this particular business. Within water, we see many projects that are coming up towards finalization finally. And so we expect these orders to be concluded very shortly. And the anticipation is that we will fare well in these orders. And we continue to leverage our existing strong relationships with industrial customers as well in our Water business. Thank you very much. I'd now like to open the floor for some questions.

[Operator Instructions] Take the first question from the line of Kirthi Jain from Sundaram Mutual Fund. [Technical Difficulty]

[indiscernible]

Sir, I'm so sorry to interrupt, requesting you to speak a bit louder. Sir, your questions are not audible.

Hello, is it better, ma'am?

Yes, thank you.

First of all, congratulations for good performance. And first of all, I want to understand the distillery throughput, we are expecting under C molasses and B-heavy for the current year. And how we expect the blended profitability for the distillery segment? Second is the planned CapEx for the current year and the next year? And thirdly, how we see the growth in the gears and water division or current year and next year? These are the 3 questions from my side.

All right. So I'll try and answer all of them. Firstly, thank you for your opening remarks. With respect to our distillery segment, in terms of the segmentation of B and C molasses, we expect an almost equitable share, maybe 55% of this year's dispatches will be from B-heavy molasses and the balance would be in C. We expect no appreciable decline from our rated capacities on production or dispatch. And therefore, those are simple arithmetic based on our capacities. We have 320 klp liters, distilleries which we'll operate for not 330 days, but the bulk of the 330 days as per what is allowed by law. And the difference between B and C would be 55% to 45% approximately. And that should sort of give you an idea of exactly what our dispatch schedule, et cetera, should be like. We have the contracts in place as well. So we have a fairly good comfort level that, if nothing quite extraordinary happens with respect to the operations, we should certainly be able to see that through during the course of this molasses year. Your next question was about CapEx for the company. As of now, we have no substantial CapEx requirements for any of our businesses. There is some minus incurring CapEx that is always in play for all the business segments, but there is no large facility or a factory being established in any of the verticals, be they engineering or sugar. And therefore, there is really nothing to report -- or a number to offer you as far as the CapExes are concerned. The CapExes last year were primarily due to the new distillery that came up at Sabitgarh and of course, the incineration boiler that came up at our distillery at Muzaffarnagar. And all of that has pretty much been -- not pretty much, it is totally completely. So that's over there. Now your third question was regarding the engineering businesses. And can you repeat that question, please?

So what is the sales and profitability we expect for the engineering businesses, sir?

Right. I'm afraid we don't give forward-looking -- we don't give any forecasts. What I can share with you is that we feel that both these segments are doing very well. We're happy with the growth in -- and growth and profitability in both our Water and our Gears business. They've done extremely well in the preceding quarter under review and in the 9 months under review, and we hope this will certainly continue going forward.

Okay. Sir, so in the ethanol segment, we should expect the business of 320 KLPD in 330 days. Correct, sir?

No. That is...

Throughput we are expecting in ethanol segment, right?

We will be close to it. That is the maximum that we could possibly do. Let's assume that you don't have 100% operational efficiency, nobody has 100% operational efficiency. So we should be fairly close.

Okay. So given that the government is giving lot of incentives and also you had highlighted no in terms of -- waiver in terms of clearances, are we thinking to put more distilleries in the coming time next year or a year down?

So that's a very good question. Let me say that based on C-heavy molasses capacity, we have sufficient distillery capacity to take care of all of our captive molasses and even buy some from the open market. However, when you migrate towards the B-heavy molasses, at that point in time, we have the scope of setting up more distilleries. We had applied for more permissions with the Central Government for which we have received some approvals. However, given the current pricing of B-heavy molasses and the current pricing of molasses from sugarcane juice, we see very limited opportunity for fresh capital investment, for greenfield projects at these pricing levels, given where sugar prices are. Because you have to look at, well, what is the price of ethanol compared to the alternate, the alternate being sugar price. So given the estimation of INR 33, INR 34 per kilo of sugar price, at these prices of ethanol, I see very limited numbers of new distilleries coming up. And I think this is something the government is aware of, and they will certainly review when the time comes.

Okay. Sir, about the next year, you had highlighted that the production will be bumper. So again, the inventory is also pending.

Actually, I never said -- I want to interrupt you, I never said that next year the production will be bumper. I just said that the planting could be very good. There is a big -- there's a long journey between good planting and a bumper crop. And let me tell you what is in store. Firstly, we're seeing very unreliable weather patterns that are happening across our country, okay? That is a huge, huge risk. I see disease as an ongoing risk for the sugarcane crop and something that people have to work hard to mitigate in their areas, like we do for our farmers, all the farmers that supply came to Triveni. In addition to that, just because there's plenty of water in the dams in Karnataka and in Maharashtra doesn't mean that it's going to get diverted towards the sugarcane farmers necessarily. Because there was, as you remember, drinking water paucity as well across both states. So we're going to see how that progresses. Then, of course, the biggest factor is the summer monsoon and how that plays out, and that has a huge impact on yield. So you may have a large tract of area that come under cane, but the other most important factor is your yield, which is contingent on weather disease during the summer months, and that, of course, is a huge imponderable. So it's very difficult to say what nature has in store. I would not venture to that. I've offered you a highlight on the first phase, which is what is happening on planting.

Next question is from the line of Kapil Jagasia from ICICI Securities.

This is Sanjay Manyal. Have a few questions. Specifically, on the ethanol side. So considering the fact that you have mentioned that there will be 50% of the production would happen through B-heavy, then would it be safe to assume that the sacrifice of sugar would be somewhere around 30,000 to 50,000 tonnes?

We can -- we're working it out for you as we speak.

Right. So I can probably go ahead with the next question if you...

It will be approximately 50,000.

Right. Right. And so you have contracted for 8.5 crore liters in the first tender. What would be the quantities you're looking to contract in second or third tender?

25,000.

At this point in time, we were pretty much covered up to 95% -- 90%. And the balance, of course, in supply through oil marketing -- private oil marketing companies as well, et cetera. So we don't really have any plans of offering anything else in subsequent tenders. Sorry, I want to give you a more accurate answer for your first question, it will be approximately 35,000 metric tonnes.

Okay. Perfect. Okay. So sir, just considering the fact that in the January and Feb, we have got somewhere around 90,000 tonnes monthly quota each, And probably, if I assume that March probably will be similar. And if we do the entire export, say, by Q4, then our volume figures should be somewhere around 4 lakh tonnes in Q4. In the sense, I'm only doing the number which are available, say January and February numbers are available now?

Yes.

So -- I mean, would it be safe to assume that the Q4 sugar volumes would be somewhere around 4 lakh tonnes?

You mean in terms of dispatch from [ factory ] -- see, March is very difficult to say. So you put any number for March. You're right about January and February of 9 lakh quintals or 90,000 tonnes for each month. March will probably, in all probability, be more than 2 million tonnes for the country. Maybe it's -- I don't want to guess, but it will probably be more than 2 million tonnes because it's a slightly longer month, there are 2 extra days, plus it's heating up for the summer demand. You have industrial demand that starts climbing rapidly at that point in time. But if we did assume a number of 90,000 tonnes, then yes, it won't be -- it's not going to be 40 lakhs, it'd to be close to it.

Because I'm considering over here that you have done 50,000 tonnes exports and almost 130...

The [ 13 ] left and you [ added ] to 27. So I'm saying it'll be close to that. That's what I'm saying. You're pretty much correct.

But you're sure about that 1.3 will go as export in Q4 itself?

Well, that is certainly our intention.

Okay. And sir, would it be possible if you can give -- at what price we have contracted the entire quantity, export quantity?

I would rather not, but thank you for the question.

Fine. And it is -- so additional sugar quota, you means you have mentioned that you -- so I'm sure you also would have asked for the additional sugar quota when the government is really contemplating that?

Well, it's something that we anticipate, and I've just spoke about it earlier in my opening remarks. There is a very positive move that's been taken by the Central Government. We too have asked for an additional quota, I can certainly share that. How and what happens, we will find out, hopefully before the 15th of this month.

Okay. And what is the quantity you have asked for?

Well, I think the quantity has absolutely no bearing on what we get. Because I think what is the total amount that is going to be divided up amongst everybody who has asked for it, it's going to be a mere fraction of what people have asked for.

Right, right, right. And sir, just one more about the subsidy part. So you have not really booked the subsidy. First, what really stops you to really book the subsidy in the quarter itself? Because I -- if I'm not wrong, most of the other companies are doing the same. And so what would be the scenario in Q4 if you are literally suppose -- means, if we suppose that you really export the entire quantity?

I thank you. I'm actually very happy you've asked this question. Our philosophy not just for this MAEQ but for the last MIEQ and for many, many previous incentives of the State and Central Government going back many years has been more traditional and conservative. And that is what we have followed through, and our auditors know that, that is exactly what we would want to do. And we recognize as do our auditors recognize that other companies have different types of accrual-based accounting treatment. As far as we're concerned, we only account for the subsidies once our entire paperwork has been completed and submitted with the Government of India or all the relevant authorities. And so without all the checks and balances and the dotting of the I's and crossing of the T's, it's so to speak, having been done, we will not account for it in our P&L.

Okay. Okay. So just in that respect only, suppose you are being able to do the entire export in Q4, will you be able to book a part of the subsidiary or the entire subsidiary in Q4?

Very tough to say because we need to get all the shipping dock. Whatever -- if we have complete documentation, that has also been filed, we will certainly -- to that portion, we will be able to recognize. I can't tell you what that amount will be, of course, as of now.

Okay. Perfect. Perfect. Sir, just one accounting thing. Your revenue from the cogeneration is flat, whereas the tariffs have been revised downwards. So -- and what I could see in the presentation that quantities are more or less same. It's not very different. So how the revenues are same and -- when there is a substantial decline in the power tariffs?

The factories started a little bit earlier, firstly. Basically, apart from the power export, we also account for the sale of power and steam to our sugar factory, and that's what's kept the revenue constant.

Okay. But this would have been...

[Operator Instructions] Next question is from the line of Ashok Patel from India SME Investment.

Sir, congratulations for good set of numbers. Regarding distillery segment, I wanted to understand that for half year FY '20, our sales increased from INR 96 crores for half year FY '19 compared to INR 191 crores.

I'm sorry, you are not audible on your instrument. Can you just ask that question again, please?

Am I audible right now?

Yes.

Sir, I wanted to understand that for half year FY '20, our sales from ethanol was around INR 191 crores. And for similar period previous year, the sales were INR 96 crores. So what led to the rise in ethanol top line?

We have a brand-new distillery.

Okay. And what is the size of it?

So we've doubled -- we doubled our capacity. We have 2 distilleries now of 160 KLPD each.

Okay. Sir, what is the size which you mentioned?

The total capacity is 320 KLPD of 2 distilleries of 160 KLPD each.

And new distillery's upgrade contributed to the -- first time for the June quarter, right, this year?

Correct. Correct.

Okay. And -- but, sir, simultaneously, the margins also dropped from -- if you compare FY '19, the distillery margin was at 58%, which is right now at 37%.

Yes. So the margins are dependent on the price of the raw material, which is molasses. We price our molasses raw material based on market pricing. And therefore, if the market pricing of molasses goes up, and it has, because the total quantum of sugarcane in the country has come down, so the price of molasses has gone up. Therefore, the -- so to speak, the profitability remains in sugar rather going into -- going to the distillery business.

Okay. Okay. Got it. Then next question is -- but our realizations are same on that front, right, in terms of ethanol production, which are fixed by the government and the OMCs offers us the same realizations?

Yes, broadly speaking. I mean there is some quantity of alcohol that is ENA or industrial alcohol that is sold at different prices, but the bulk of it is all ENA -- sorry, ethanol. I'm sorry, ethanol, yes.

And regarding sugar segment, FY '19, the entire year average realizations would be?

For fiscal '19, the previous year?

Pardon me?

You're talking about 1 year ago?

Yes, yes, yes. FY '19.

INR 31.46 per quintal.

Okay. And what is it, right now, we are sending it for this quarter?

INR 33.5 approximately.

INR 33.5, sure. So sir, I just wanted to understand that if you have currently 320 KLPD distillery, at full utilization, how much ethanol offtake can it give?

That's a respite of calculation. At 100% capacity, it can run for 3 weeks.