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

Ladies and gentlemen, good day and welcome to Triveni Engineering & Industries Limited Q4 and FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, Mr. Barar.

Thank you. Good day, everyone, and a warm welcome to all of you participating in the Triveni Engineering & Industries Limited's Q4 and FY '20 Earnings Call. We have with us today, Mr. Tarun Sawhney, Vice Chairman and Managing Director; Mr. Suresh Taneja, Group CFO; 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 would now request Mr. Tarun Sawhney to open the call. Over to you, sir.

Thank you, Rishab. Good afternoon, everybody, and welcome to the Q4 Fiscal '20 Earnings Conference Call for Triveni Engineering & Industries Limited. The company has delivered excellent results for the year under review. We've achieved our highest revenue from operations at just about INR 4,400 crores with a growth of 41% in revenues. Our profit before tax has grown by 66% versus the previous fiscal year and stands at INR 445.6 crores with a profit after tax of INR 325.1 crores, which shows a 55% increase from the previous year. I'm going to take you through some brief highlights on the Sugar engineering and as well as the financial highlights of the company before turning to the operations of each of the individual businesses. With respect to the Sugar business, we've had record crush and record sugar production. 8.75 million tonnes of sugar has been crushed for this sugar season, sugar season '19-'20, and Triveni has produced over 1 million tonnes of sugar for the first time in its history. Our sugar mill at Khatauli has achieved the highest sugarcane crush and the highest sugarcane -- sugar production in the country for any given factory in its -- in the history of the Indian sugar industry. Quite a remarkable achievement. And we shut this factory just a few days ago. The Sugar, Power and Alcohol businesses have operated uninterruptively during the lockdown. During this period, we have also managed to export a substantial amount of sugar under the MAEQ allocation. The total allocation that Triveni has received is up 27.32 lakh quintals. As of today, only 2 lakh quintals are pending dispatch. The remainder has been dispatched, and a substantial portion of it has also been exported. Despite the higher production, we have managed our sugar inventories extremely well through the aforementioned aggressive export policy as well as the production of ethanol from B-heavy molasses, which, in turn, has led to a higher domestic quota. And our sugar inventories were 15% lower year-on-year as on the 31st of March of this year and stood at 57.1 lakh quintals on the 31st of March 2020 versus 61.6 lakh quintals at the end of the previous fiscal year. The Sugar business has also performed well because of the stability of sugar prices and, of course, the higher volumes. In respect, to the sale to merchant exporters, the export subsidy of INR 57.66 crores is yet to be recognized at the end of this fiscal year as the sugar is yet to be exported. Also notable is the revision of the power tariff as of the 1st of April, 2019, and therefore, the profitability of our co-gen business has been impacted negatively by this reduction in the power tariff. With respect to the ethanol and distillery business, 33.7% of our ethanol production is from B-heavy molasses for the financial year '20. So we have really taken this program that has been offered by the Central Government to heart. We have managed to ensure that the factories produce sufficient quantities of B-heavy molasses to meet our distillery capacities at the key units. Turning to the Engineering businesses. Both the Engineering businesses were impacted due to the Q4 pandemic, and there is uncertainty that still remains in the businesses despite our operations having come back to normal. The Gears business over in the fiscal year maintained its growth trend and registered higher profitability and higher turnover. The turnover was higher by 16% and the profit margin almost 27% for the year, a very substantial improvement on both metrics, and it really showed the type of development and the type of new businesses that the Gears business was approaching, especially internationally. The Water business has continued to perform extremely well and has resulted in higher turnover and in profitability. The outstanding order book for the Engineering businesses as a whole was approximately INR 1,150 crores. Turning to the financial highlights. The total debt of the company as of the 31st of March 2020, is INR 1,558 crores versus INR 1,726 crores at the end of the previous fiscal year, and this comprises of INR 614 crores of term loans and soft loans of INR 610 crores. Of course, all of this carrying into subvention and subsidized interest rates. Our average cost of funds was 6.34% for both combined -- the combination of term loans and working capital. And we are working continuously to ensure that we get the best possible rates and continuous improvement in our cost of funds. I want to spend a minute or 2 talking about the impact of the COVID-19 crisis. The Engineering businesses, as I had mentioned, were closed for these periods during the lock down, and they have resumed operations in a phased manner. But they are -- there are some constraints to the supply chain that exists even today. However, one is hopeful. And as of today, I can say that we have seen a lot of our supply chain partners opening up and offer us a greater degree of comfort that within the course of this month and certainly by next month, we will have things under more normal conditions. During the lockdown period, sugar consumption was certainly affected, and there was massive reductions in institutional demand, which also led to domestic consumption falling. And I would estimate that approximately 1 million tonnes of sugar consumption has been allayed because of the COVID crisis. It could be fractionally higher, and we would see that as quotas for the month of July, August and September come back to a system of normalcy. And we hopefully do not have any more quota extensions. And so therefore, the government would be able to estimate or rather give out quotas based on their estimates of what the consumption will be. But I -- it is our opinion that about 1 million tonnes of sugar has been taken out of the system. This will not return to the system, I'm afraid, because as far as institutional customers are concerned, we're in the peak summer months and so, therefore, the ice cream, soft drinks, et cetera, that needed to be made, there was a cushion period where because the factories were shut and because the demand from customers was not there, that, that demand will certainly not come back. However, it doesn't mean that in the following year, our sugar season, 2021, we will not see a return to normal demand numbers. Fuel consumption also plummeted during the lockdown period, which had an impact on ethanol. However, there were arrangements the companies made and especially Triveni made excellent arrangements with the oil marketing companies to ensure that the ethanol was delivered to other debtors and that our productions -- and our production in our distilleries did not suffer at any point. Some more data with respect to the performance review. PBT margins have also remained extremely healthy. Our PBT for the year -- for the quarter was around INR 164 crores versus INR 89 crores for the corresponding quarter in the previous year, totaling to INR 445 crores of PBT for this year versus INR 267 crores for the previous year. Our EPS showed a substantial increase as well. For the fiscal year, it stood at INR 13.32 per share, which is a significant rise from the previous year when it was INR 8.39. Now turning to the operating portion of this call, I'd like to discuss our Sugar business as well as our Engineering businesses. So as far as next year is concerned, we are anticipating production in excess of 32 million tonnes of sugar. And therefore, the industry will certainly need the assistance of the government to continue exports. And my personal view or the view of the company is that there needs to be another substantial export scheme, call it MAEQ, MIEQ, we will find the name for it, but -- but there will be a substantial exports in to evacuate the sugar, and that sugar can be absorbed by the global markets for next year. But with respect to our performance for this year, our recovery for sugar season '19-'20 stood at 11.55%. Now this, when we adjust for B-heavy molasses and for raw sugar, the corresponding value is 11.97%. And that is 0.18% higher than the average recovery of the previous year, which is 11.79%. So from a recovery perspective, we performed substantially better, and it's a very marked improvement year-on-year. We did, of course, as I mentioned, produced substantially more sugar, and that stood at 1.01 million metric tons of sugar versus 0.94 million metric tons for the previous year. Our realization for Q4 stood at INR 32,707 per metric ton, which is substantially higher than the previous corresponding quarter of INR 31,692. And for the year as a whole, our domestic realization was higher at INR 33,184 over the previous year of INR 31,456. And all of these factors, of course, contribute to the higher profitability of the company. So the growth in domestic prices year-on-year has been approximately 5.5%. Looking forward, I can see there is -- there are clear indications if one is to look at the media as well as the [indiscernible] that the industry organizations have done in terms of pushing the agenda with the government that an increase in the MSP of sugar is essential, and it is my belief that, that will happen sooner later than later. The quantum cost is still uncertain, but all of that is essential for the overall health of the Indian sugar industry. Global sugar prices have clearly -- before I come to global sugar prices, the current sugar prices as of today are approximately INR 33.5 per kilo for white crystal sugar, that's plantation white sugar, and about INR 0.75 higher at INR 34.25 per kilo for refined sugar. So we have seen an increase over the last 3 weeks in sugar prices. A lot of this is because the market clearly expects an increase in the MSP of sugar. International super prices have also rebounded to $0.1219 per pound for raw sugar as of yesterday and $392 per tonne for white [ at ] the oldest contract. And again, I think that's a very promising buildup, and the increase has been almost 30%, 35% in prices from the lows that were touched in early April. And that was because of multiple things. Of course, the COVID crisis, the collapse of financial markets internationally, and, of course, oil played a very important factor in driving down sugar prices to decade lows. But we have seen an immediate and resurgent pullback from those levels. And that is positive, not just for the remainder of this year's MAEQ export program, but also for next year's export program as and when that comes about. Looking at the industry scenario, there has been -- the government has announced reallocation of the MAEQ on 2 occasions, and we estimate that the government will announce another revision of the MAEQ at the end of this month before or at the same time of the quota for the next one. This will ensure that we at least maximize the amount of sugar that can be evacuated from our present stocks. As per the latest estimates, the Indian sugar companies have contracted 4.2 million metric tons of sugar exports in -- by May. We, at Triveni, estimate that this number can go up about 5 million tonnes, provided there is a further reallocation that happens and a little push by the industry. And this, of course, would certainly be quite positive. While there will be a reduction in the closing stocks for the country, unfortunately, because of the lost demand over the initial few weeks, initial 6 to 8 weeks of the lockdown period, the 1 million metric tons that has been lost will be added to the domestic stockpile, and we estimate that approximately 12 million metric tons will be the carryforward stock as we go into the next sugar year, and that's fairly substantial. And given the fact that we have another very aggressive sugar year in front of us, it means that there needs to be a lot of work that needs to be done to evacuate the stocks. And of course, the assistance of the government is essential in ensuring stability of sugar pricing, whatever the MSP level may be in the future. The UP government, notably, has increased over -- in the course of the year, the reservation of molasses from 16% to 18% and has extended this reservation for all molasses. And this was something that a condition that was not precedent over the previous year. Turning to the EOIs from the OMC. The third round of the expression of interest has been invited and approximately 99 crore liters of ethanol for supplies have been contracted for July in the November period. Now, very honestly speaking, I think we have seen as the lockdown has opened up return to somewhat normalcy, we're seeing dispatches to the oil marketing companies come back as per what has been planned. And so therefore, the small pickup that had occurred in the beginning of the lockdown and through the first few weeks of the lockdown is something that has been abated, and we will have a condition of normalcy. Looking at the international scenario from a sugar perspective, it's important to note that the Brazilian real had traded at all-time lows. And this, combined with oil prices led to a very -- a unique scenario where Brazilian sugar, despite the fall in sugar prices, was fairly competitive the world over. Of course, the real has strengthened. Since then as oil prices have come back, but it led to a very interesting scenario as far as the -- as Brazilian sugar was concerned. And according to recent industry events, Brazilian sugar reproduction is expected to surge to 41 million tonnes for 2021 from 31 million tonnes. And this is, of course, due to crude prices and the Brazilian real. In Thailand, as a counterbalance, sugar production declined to 8.4 million tonnes from 14.7 million tonnes, and this was primarily due to the massive drought that occurred. And as I've said in previous calls, weather patterns and changes in weather patterns are going to create increasing havoc not just in India, but also internationally, with respect to the production of sugarcane around the world. The forecast for Thailand into the next year is also not that promising. And therefore, it gives a great advantage to Indian sugar exports into the world and the ability for the world market to be able to absorb these exports, not of just this year, but also going forward into next year. And that is a significant positive for any scheme that comes up for next year's exports. Looking at our Power business, as I mentioned, we -- the performance under review was impacted by the downward revision of the tariff by the Uttar Pradesh Electricity Regulatory Commission, and this was as for the rate that was announced as of the first of April 2019. Having said that, our operations function at the highest possible levels. We did what is notable, and I would like to mention there was a noticeable reduction in the bagasse percent cane in our 238 sugarcane variety. And of course, this means that the quantum of bagasse that is left for co-generation reduces. And this is a unique and peculiar condition that happened this year. In addition, there was a substantial amount of unseasonal rainfall that happened, especially in the West and Central Uttar Pradesh joint sugar season. And this type of rainfall does lead to variances in terms of the efficiencies of the cogen business. In addition, as far as Triveni is concerned, we have really maximized our crush heads across our 7 sugar units. And in maximizing it, of course, there is an additional demand with respect to more steam for the sugar manufacturing process. So 3 notable things as far as the co-gen business is concerned. But nevertheless, the operating conditions of the factories were still at the very optimal levels. Those have not been reduced, and they function at the best-in-class, not just in the Indian industry, but also globally. Turning to the ethanol business. The Sabitgarh distillery was commissioned last year, and the performance that lies in front of you includes the performance of the Sabitgarh distillery. Both distilleries functioning at very high levels of efficiency. The Sabitgarh distillery was stabilized in Q2 of fiscal '20. And during the year under review, as I had mentioned, 33.7% of production was from B-heavy molasses, while the sales of ethanol was 28% from B-heavy molasses. The company has participated in tenders issued by OMCs and will be utilizing both -- and will be fully utilizing the facilities of the distilleries in order to meet our supplies to the OMC. We have received contracts of 10.07 crore liters of ethanol during the current marketing year. The sugar -- the distillery unit at Muzaffarnagar has started manufacturing hand sanitizer as well during the COVID crisis, and we expect very interesting things from this part of the business. Turning to the Engineering business. I would like to mention that the high-speed and gears and gearboxes business has actually had an excellent year under review. The revenues for Q4 were INR 34 crores, which is lower than the Q4 revenues of the previous year. So there was an impact of the COVID crisis. We were not -- typically, the last 2 weeks, the last fortnight of March is very, very heavy dispatches. And because of the lockdown, those dispatches were -- we were unable to make them. Nevertheless, the revenues of the business rose up significantly from INR 133 crores to INR 155 crores, and the PBT rose even better from INR 38 crores to INR 48.5 crores. The order book for the business stood -- for the year under review stood at INR 156.8 crores, and the order booking at the end of March stood at INR 152 crores, including long duration orders of just under INR 66 crores. We are seeing, and I would like to mention, a lot of interest from our international customers. On the domestic side, I think things are coming back as expected to -- and demand is coming back. They're at a muted pace. But internationally, we are seeing very aggressive orders, aggressive time lines and new orders coming into place. So we are hopeful that as we progress into Q2, Q3 and Q4 of this fiscal year, we will have more positive news to be able to share. The Water business also had an excellent year under review with revenues of INR 305.9 crores, a substantial increase from INR 250 crores in the previous year. And the PBIT of the business stood at INR 24 crores, which was a very big increase from the INR 7 crores PBIT for the previous year. The total order booking in this year has been low at just under INR 40 crores, and this is primarily due to a reduction in the number of projects that were allocated and the tenders that actually happened. However, having said that, the reviews that we have taken today were looking, as a substantial number of new projects that will come to a stage of conclusion during this fiscal year. The business has spent a considerable amount of time looking at its cost reduction programs. And this is because of limited order booking last year, and we've been very successful in that. And therefore, the increase in the profitability of the business is a direct consequence of the good work that has been done at the business unit level. I'd like to spend just 1 minute on the outlook of the business, both businesses. As far as sugar is concerned, we're anticipating a production season of over 32 million tonnes as Maharashtra and Karnataka makes resurgence in terms of sugar cane cultivation for the next year. And therefore, we're going to see sugar stocks in the country, certainly burgeon, and we hope that we have a very successful program for B-heavy and juice or rather the diversion of sugarcane towards the ethanol, EBP, program. And I think this is something that the government is looking at very seriously. And then, of course, the most important will be the export program for the next sugar year. The good thing, of course, as I mentioned, is that the global markets are willing and have and are indicating the capacity to be able to absorb at least this amount of sugar, the 5, 6 million tonnes. And of course, the Indian industry will have to step-up in order to make it happen. But this year versus last year, I would like to share the MIEQ program for the previous year, which was successful, is not nearly as successful as the MAEQ program for this year has been. And therefore, the learnings that's not just the industry, but the government has gained through this process is something that I hope we will benefit from on the next program for exports. As far as the Engineering businesses are concerned, there has been some deferment of orders from one quarter to another quarter, but it is very positive to say that there has been no cancellation, which is actually really excellent. And therefore, one can say with some level of hope that this year will continue to be a good year for the business from revenues as well as from profitability, and the other segments that the -- our units in MISO is looking at, including defense, hold a lot of hope as far as growth -- for other growth areas for the company. As far as the Water business is concerned, as I mentioned, we participated in a large number of tenders which are at various stages of finalization. And it has come to our notice that these are expected to close in the next couple of quarters, or large portions of them are expected to close in the last couple of quarters, and we are hopefully well-positioned to win some of these orders. Thank you very much. And with this, I'd like to open up the floor to questions.

[Operator Instructions] We take the first question from the line of Sanjay Manyal from ICICIdirect.

Sir, congratulation on good set of numbers. Just a few questions. On the domestic volume side now, we have more than 1 year of monthly quota. So now we would have a fair idea about the annual volumes or annual quota we are getting. Will it remain same of FY '20? Or you think there will be some change or there will be some increase because the -- so this recent part of the year of FY '21 would be where the Maharashtra and Karnataka inventory levels would be lower?

I'm sorry, you were not perfectly audible. Can you just repeat the first portion of your question?

So what -- basically, I'm just trying to understand that what would be the annual domestic monthly quota you expect for FY '21, considering the fact that the Maharashtra and Karnataka inventory levels would be lower?

Right. So with the monthly quota, is it impossible to predict what the quotas are going to be for the next 3 months, which we'll see go up till the end of the sugar year. But I anticipate that with large quantums of stock available in Uttar Pradesh, there will be a lot more emphasis given on evacuation of those stocks in Uttar Pradesh. So as far as Triveni is concerned, in particular, I was talking about that, my first comment was for the state. But for Triveni, because we have exported almost 300,000 tonnes of sugar under the MAEQ program, and we've converted large quantums of ethanol through B-heavy molasses, we anticipate that our quotas are certainly going to be fairly healthy going forward because these are 2 factors that are considered by the sugar directed from the determination of quotas. Now with respect to overall demand, I anticipate that the last -- that 2 months, we had quota extensions that happened, and therefore, lower quotas that announced, lower monthly quotes that were announced by the sugar directed for the quota for July onwards, I anticipate that there would be no extension of quota. And therefore, we will go back to a state of normalcy, and I expect that we will have normal quotas going forward. But really, as I mentioned, we have a reduction in the consumption in the country, so about 1 million metric tons of sugar approximately will be reduced from the total consumption number for the country. Okay.

And similarly, for the exports. So we have done 2.74 lakh tonnes in FY '20, and you have participated in the reallocation process. So if the export subsidy continues, can we expect this similar number for next year as well?

Actually, the answer to that is no. I mean, one is hopeful that we will have an aggressive export program. But right now, we do not know the [ quantums ] of that program. This current MAEQ program expires on the 30th of September of this calendar year. So for next sugar year, that program is not announced as yet. There will be multiple factors that one will have to consider in terms of predicting the success of that program. Firstly, of course, I believe that, that program has to happen because we will have massive stocks in the country and the world market can absorb that quantum of sugar. Now it depends on what is the type of the systems or the form of subsidy that the government provides. And that will, of course, be linked to any increase in MSP that actually happens and the delta that exists between the MSP prevalent in the country versus international sugar prices. The good thing on that front is that international sugar prices have also played ball. And over the last few weeks, they have increased by 30%, 35% from the lows of April. So the data suggests that we can have a very aggressive program. My hope is that we have a minimum target of 6 million metric tons of export for the country. If that is to happen, then we anticipate that Triveni would certainly participate in a very aggressive manner. How much reallocation happens next year is a big question mark and it depends in the performance of other people in the industry.

Right, sir. And domestic raw prices for the entire quarter have been somewhere around INR 31, INR 31.5, but your realization has been INR 32.7, I believe it's more because of the refined -- higher proportion of refined sugar. But if prices for the rest of the year remains above INR 33, as we can see that current prices in the last 1 or 2 weeks have gone up in that similar fashion, what would be the realization for Triveni in that scenario?

You mean if the realization for the country as an average is INR 33?

Well, if that is?

Yes. If -- so we have the advantage of being -- of having the bulk of our sugar mills in Western Uttar Pradesh and the western part of central Uttar Pradesh which are -- and the access to markets gives us a slight premium. In addition to that, over 40% of our sugar is refined sugar. We also have small portions of pharmaceutical-grade sugar. So all of that gives a certain -- an increase in realization. The present increase is 75 paisa per kilo on refined sugar. But over a longer period of time, it easily balances out at approximately INR 1 per kilo. So that, coupled with the fact that we have a better positioning, better access to markets, we should typically be about -- the same differential should be held going forward as well in terms of Triveni's performance versus the average for the nation.

Right, Sir. A question on the distillery front that you have done 8.5 crore liters this year on the distillery wise, whereas your capacity is 10.5 liters. What is the expectation in FY '21, whether we reached our maximum capacity of 10.5 liters or somewhere around that? And your realization this quarter has been INR 53, is where I understand the B-heavy realization itself is 50 -- somewhere around INR 53. So have you just done with B-heavy this quarter? So how this realization is so high specifically in this quarter?

That's right. Yes. The answer to your second question is you are absolutely correct. The answer to your first question is we were impacted from a dispatch perspective, and we recognize revenues on dispatch because of the COVID crisis. So the dispatch numbers that you're looking at are certainly due to that. Looking forward to the next year, yes, our intention is to run at 100% capacity. The distilleries have run at their big peak capacities or near peak capacities. We are also looking at higher number of operational days because our pollution clearances will now be -- as we had applied, be expanded as well, to give us operations for up to 350 days. And the 350 is an enormous amount to be want to able to operate totally for 350, but certainly the jump from 330 upwards is something that can be anticipated. So for the next year, the intention and the planning is certainly to operate at peak capacity levels. Dispatch and the acceptance by the OMCs is another factor. But what we can do from our side in terms of working with the OMCs to find new depots, increase existing depots are filled -- are full, and are not accepting new quantums of ethanol. That is what we are continuing to do, the industry association is continue to do. So from Triveni's perspective, we're very hopeful that we will come up to our peak capacity levels.

Right, sir. Sir, you mentioned about the B-heavy. What kind of sacrifice of sugar we have done towards B-heavy this season? And what is the expectation next season?

For next season, it's impossible to say because we don't know what the -- since the molasses pricing is done on an annual basis, we don't know what the molasses price -- or I'm sorry, the ethanol price is done on an annual basis. We don't know what the government's intention is for the next supply. And until we know that, we cannot do our planning because that is a strategic planning based on where the company makes the most amount of profit and how it suits the operations of the company. So that's a bit of a black box. But given the fact that we are having a huge excess year, my prediction is that we're going to have a lot of emphasis given by the central government towards this diversion of B-heavy in juice. And if that is the case, Triveni would certainly participate to these kinds of levels, if not more. But that all depends on what gets announced by the Central Government. As far as this year is concerned, as I mentioned, 33% of all the ethanol that was produced was from B-heavy molasses.

And what would be the sugar sacrificed due to that?

Sameer?

Can you hear me?

Yes.

That's 37,000 metric tons.

37. Okay. Okay. And sir, you mentioned that INR 6.3 crore is -- [ 6.3] percentage is the average cost of funds. You mentioned about the long-term debt? Or is it the overall debt for us?

6.34 is total debt, total cost of funds, long-term and working capital.

[Operator Instructions] We take the next question from the line of [ Varun Dhawan ] from [ Systematix ] Shares.

Congratulation for the commendable performance. I have a couple of questions. First, sir, in this Q1 FY '20, how many bags set we have been sold between from April to June?

I'm sorry, this conference call is -- we've sold according to our quota, but we don't discuss this quarter's numbers at this point in time.

All right. And so probably, sir, just want to know the average realization price on these -- actually, it's similar to INR 23 or INR 32.5, something?

I'm afraid we can't discuss this quarter's numbers, it's not been audited.

All right, sir. And one more question, sir, like our distillery is running at very high capacity, so do we have any plan for fresh expansion on this capacity? Or like what's your thought on that?

So the distilleries, we have no further capital expansion plans at the distillery levels. We made that a few more days because our solution commission has been increased at our Sabitgarh distillery and Muzaffarnagar is expected to be notified also over the next few days, and that will allow us to operate for more than 330 days. The permission will be for 350 days, giving us a further enhancement in terms of ethanol production capacity at the existing units. But the 320 KLPD combined capacity that we have, at this point in time, we are not -- we have no expansion plans on that as yet.

All right, sir. Just one more last question, sir. This export subsidy of INR 57 crores, when this will be booked, sir?

Again, it was carried forward. It will be booked as per when the sugar is exported.

We take the next question from the line of [indiscernible] from Global Investment.

Sir, would you be able to share with us what was the reallocation of this MAEQ quota on 30th of April for Triveni?

Certainly. Suresh?

Sorry, I could not get the question. Can you please repeat it?

Yes, sir. Sir, my question is this reallocation of MAEQ quota on 30th of April, what was the share of Triveni?

Let me just tell you, our initial quota was 100 and -- approximately 17.95 lakh quintals. And thereafter, we got approximately about 6.5 lakh quintals more as the second tranche. So that would be the position as of 30th of April.

Okay. So that makes 23 [ lakh quintals ]. So probably we've got 3 [ lakh quintals ] more in -- on April, 17 [ lakh quintals ] plus that 5 lakh quintals.

23...

Totaling 27.32 [ lakh quintals ].

Okay. Sir, my second follow-up question on the same is how is our booking for the foreign exchange? Do we book it at the time of the order? Or is our position open?

In our case, most of the transaction -- export transactions that have taken place, they have taken place through a merchant exporter, so we did not have any direct exposure to foreign exchange.

We take the next question from the line of Resham Jain from DSP Investments.

Congratulations for a good set of numbers. So my question is on the new distillery capacities. So obviously, this year, including you, a lot of other players have put up the capacities. But the kind of vision the government had on new distilleries, which are supposed to come, I think that's not happening at the same pace. Now with the success which the existing players are seeing, do you expect that more distilleries are going to get -- come up in the next 1 or 2 years?

Okay. This is an excellent question. The quick answer is no. I don't expect it to happen if policy remains unchanged. And the reason for that is fairly simple. The policies that came up were to utilize captive molasses. And if you've seen all the companies that have set up capacities, they have the captive molasses in order to be able to supply that to their distilleries. Now to take care of the other quantum of molasses that exists [Technical Difficulty].

Excuse me, sir, sorry to interrupt. Your audio is not very audible.

[Technical Difficulty]

Sir, we are unable to hear you. Hello, could you please repeat yourself, sir? We are unable to hear you.

Can you hear me now?

Well, ladies and gentlemen, requesting you all to please stay online. We are just trying to reconnect the chairperson back to the conference as there was disturbance from the line. Requesting you all to please stay online. Requesting all the participants to please stay connected. We are just trying to reconnect the chairperson back. Sir, you're reconnected to the conference. Yes, and we have the question on line from Mr. Resham Jain from DSP Investment. You may please go ahead.

Yes. Mr. Jain, my apologies for that disconnection. Let me just simply say that, no, I don't see more capacities for ethanol coming up unless there is a change in policy. Now the industry as well as Triveni has been advocating for a long-term policy on the ethanol vending program. And that is yet to materialize. What I mean by that is that the pricing structure needs to be a multiyear structure because no distillery is set up with just 1 year's visibility. Given that molasses prices are now at their regular, at their normal averages, you see last year and the year before, molasses prices were near 0, they were almost free. And therefore, it made sense to set up a distillate capacity because you would make that payback very, very quickly, as you've seen even with our numbers. Now going forward, because molasses prices have come back to their normal levels, the EBP program needs to be one of a longer-term duration. Pricing needs to be determined over a longer duration of time. The loans are available from the Central Government, that's good, that's very important as well. But the pricing visibility needs to be multi-year. And the last, but most important factor is that the prices -- if you -- if one is expecting that B-heavy molasses and sugarcane juice be diverted for the manufacture of ethanol, which is what it will take, if we had to meet the PM's vision of E20 in -- by 2030. If we were to move in that direction, then we have to look at juice and B-heavy molasses as the solution to those numbers. At a price point of INR 59 for juice and INR 54 for B-heavy molasses per liter of ethanol, that is not sufficient. The payback doesn't quite work out, and we need an upward revision in those prices to make it exciting for entrepreneurs to invest in new ethanol capacity.

Right. Understood. And sir, my second question is, given the minimum quantum of molasses, which need to be sold, a lot of other industry players are thinking about putting up own bottling plant. Any thoughts from our side?

Yes, absolutely. So we have applied for permission, set to establish a bottling plant at our distillery in Muzaffarnagar, and we are very close to getting the formalized approval by the Uttar Pradesh government. And once that happens, then our PD2 license gets changed to reflect the bottling capacity. That has not happened as yet. As and when that happens, we will then get into that business or manufacture of country liquor, which will hopefully be at some point in Q2 of this year.

Okay. Okay. And sir, one final -- one last question on the financial side. Out of the total debt of INR 1,538 crore, how much debt pertains to, let's say, or rather actually the buffer stock, which we are keeping because on which we might be getting cost of carry, right?

Yes, of course. But we're getting that buffer stock subsidy from the government. But our debt for that would be -- Suresh, what is the quantum? The total quantum...

About INR 325 crores would be the debt on buffer stock.

Okay. So INR 325 crore is the amount of buffer stock. Right?

Yes.

We take the next question from the line of Dr. N.K. Arora from Arora Diagnostics.

Sir, recently, Defense Minister has announced a lot of changes in the defense policy, like negative list of items, INR 200 crores, only domestic tenders, no international tenders and then the budget -- separate budget for domestic sourcing. So how would it affect our company, sir?

So I think these announcements are very positive for Indian business, and that it would affect Triveni positively as and when there are more tenders that fit our product profile that come up for conclusion. I hope to see Triveni being considered even more in better light by the MoD.

Secondly, sir, in the defense expo in the UP, there were some negotiations going on for a piece of land in Aligarh. So any progress on that front, sir?

No, nothing. Of note, there's no progress on our side. We had -- and we have not applied for anything as of now formally.

We take the next question from the line of [ Nikhil Sahoo ] from SKP Securities.

Sir, it's more of a bookkeeping question. Sir, can you share the accounting treatment for export subsidy for current year?

Suresh?

Yes. I think it's very simple. It's clear in the investor brief. To the extent we have already exported the sugar [Audio Gap] export subsidy and to the extent the export has not taken place at the year-end, on that quantity we have not booked the export subsidy.

Okay. And sir, is the accounting policy consistent with the last year?

It is absolutely inconsistent with last year, and it is completely consistent with the company's standards on government grants.

Okay. And sir, can you throw some -- like share some feedback or your views on the dividend and the buyback policy going forward?

So these are decisions that are taken by the Board. We have a dividend policy that is on our website, you're free to access and read that. But these are changing times. There have been a lot of changes that have happened from the Ministry of Finance with respect to taxation, and that leads to many questions that the Board needs to take. At this point in time, no dividend or buyback was discussed by the Board at its last meeting. So I have nothing to share with you presently. But as far as our long-term dividend policy is concerned, that is available for you to read on our website.

We take the next question from the line of [ Sanjay Agarwal ] from Littlemore Investment.

My question is on the sanitizer division. What is the current production capacity? And at what rate are we selling in the market?

Sameer?

Am I audible?

Yes, sir, you are. Will you please go ahead?

Yes. So we have applied for a license to enhance our sanitizer production capacity, which is under consideration of the UP government. At the moment, we are producing at the rate of about 10,000 liters per day. And we are able -- we are getting very encouraging results from the market in terms of offtake. And you cannot maybe comment on the pricing per se because we have multiple SKUs ranging from 5 liters down to 100 ml. And per liter, the cost and the selling price would be different for each SKU.

We take the next question from the line of [ Sandeep Gupta ], individual investor.

Sir, what is the processing cost of ethanol per liter, excluding the cost of molasses for us, sir?

Sameer, do you have that?

No. I have that. But I thought Mr. Taneja would just probably do that. Would that be better?

[indiscernible] if you can -- why don't you contact us offline, we'll be happy to provide that number to you? We don't have that number.

Otherwise, it's about -- it's in the range of INR 10 per liter.

No, we'll give a precise number. We'll give a precise number to you, but you can contact us offline.

Yes. Sir, the other thing is that you said that in Sabitgarh, we just got some permissions to operate for 350 days. So have you got the same permission for the other distillery as well?

No. As I mentioned, we are close to getting it. We've applied for Muzaffarnagar and as and -- at the moment, it is notified to us formally, we will certainly let you know.

Sir, currently, it's at 330?

Correct.

And sir, sir, how many days can we realistically operate in a year? Like...

330.

Even if we get the permission?

So that's a big question. We don't know, it will be the first year. So our hope is that it will be significantly higher than 330. And we are in the process of estimating what is the absolute maximum. But 350 seems like a bit of a reach. But you do need to have some maintenance, you do need to have some shutdowns that need to happen. You also have to realize that you have -- while these are completely 0 LD facilities, you still have rainfall, et cetera, that happens that does have an impact on your operations. Thus, there are changes that you do when you're consuming B-heavy molasses and then you're consuming C-heavy molasses, you have changed over from one to the other. All of those things take time. So we will certainly try and operate for more than 330, and therefore, produce more alcohol, be it ethanol, EnA or the like. But the physical number as of now, I don't have a number to share with you.

Okay, sir. And sir, one more thing. Sir, are the OMCs still taking at the far away depot? Or sir, has it regularized to the near depots?

It has reqularized. To a large extent, it has regularized.

And sir, are they sharing the costs for the far away depots in case we have to do it?

No.

Like the transportation cost?

No.

What they are doing is that the cost and the payment is as per the OMC trade slags that they have already indicated in the tender.

Next question is from the line of [ Varun G ] from Nippon India.

Yes, actually, most of my questions have been answered related to our buyback plan on inventory or ethanol related. But just a couple of clarifications. What would be our inventory costs, sir, average inventory costs?

As of the 31st of March, our inventory cost is INR 29.2 per kilo.

Okay. That's great. And what do you think would be an IRR ballpark at the current ethanol rate and molasses rate or the cost of capital that is available in terms of debt that the government is giving?

What would be the IRR of an ethanol project? I'm sorry, I didn't follow the question.

Yes. Yes. That's right. That's right.

Again, that is -- that your business model would get impacted by the substantial increase in molasses prices that have happened over the last 12 months because that is your input cost. Your input cost was near free about 12 months ago. Today, it's at INR 4,500 or INR 5,000 per tonne of molasses.

So any ballpark estimate of at current molasses rate, what would be a payback period or IRR for an ethanol project?

I can't give you an IRR because that depends on many other factors, but effectively you would have a -- your breakeven would be somewhere to the tune of 4 and 4.5 years.

Okay. Which is also excellent, right, in some ways, I mean, compared to -- so what I'm trying to understand is, sir, what are the key determinants, do you think, the government is considering? And this has been in talks for so long, a long-term ethanol policy. On one side, they are giving an MSP and our export subsidy, but they're not being a long-term ethanol policy. Sir, Is it to do with oil price situation? Or any other factor do you think?

So I think the ethanol/sugar industry is the -- I think it's the smallest in the larger equation, wherein you have the petrochemical companies, the oil marketing companies and you have the government, et cetera, that really hold sway over this. The benefits of the EDP are very clear, I think. And the impact that a program like that has on the environment is something that cannot be converted into simple financial terms and saving of foreign currency, et cetera. Those are benefits that are immeasurable, in my opinion. Now the reason why we have not been able to come up with a multiyear policy is because of the stakeholders in the industry. As far as the sugar and the ethanol industry is concerned, they want visibility on pricing. As far as the ethanol or the OMCs are concerned, they want visibility on supply. But the supply is contingent on a material that is agricultural in nature and can vary because of the monsoon or because of a variety of other factors. Do you see what I mean? You have 2 conflicting points of view that are working in the same direction. Everybody believes that you should have a long-term policy. The constituents of that long-term policy are yet to be determined. So we need the role of a great arbiter, like the government, to intervene and to look at that from a -- first, from a deployment perspective to encourage entrepreneurs to deploy capital. And then next, from a planning and a regulation perspective. I think that this will happen sooner rather than later. But you need to first find the solution of pricing versus supply. That's the inherent dilemma that exists today.

[Operator Instructions] We take the next question from the line of Lalit [indiscernible] from Global Investment.

Sir, my question is, last year, there were rumors about this red rot test in east Uttar Pradesh. Is there any such news going on for this year?

So it's very early to tell. The planting has just happened. And I assume you said red rot, correct?

Yes, yes, sir.

Yes. So that is a -- we and Uttar Pradesh have known about this. There was a wonder variety that existed 20 years ago. It came from Punjab called CoJ 64. And it was eradicated because of mass red rot, which is a water-borne disease, that really eats out the flesh of the cane. Now there have been incidences in Bihar and in eastern Uttar Pradesh. They were limited to a few, let's say, a few hundred acres on the maximum. As far as our factory was concerned, we had some incidences, not very significant, but we were able, because of timely intervention, to combat it and assist the farmers in their planning going forward. Now will this -- does this show some weakness in the variety? Well, every variety has a life span. And the 238 wonder variety have -- will also, in its own respect, have its own lifespan. But there is so much work that has happened on new variety development that, that replacement varieties are now available is plentiful. That's one. The second thing is that this year, before the monsoons, it is impossible to give you an estimate of what impact there has been of red rot. Will there be? Yes, I'm sure there will be some, but it will be contained. For Triveni, we have taken significant preventative measures in the pre-monsoon period of all the dissemination of pesticides and fungicide and other chemical material that will help eradicate red rot and other diseases from our areas or the areas where we procure cane from. So we stand, I think, in a very good position because we have taken preventative measures in a timely manner.

Next question is from the line of Sanjay Manyal from ICICIdirect.

Sir, just one last one, I left earlier, was about the bookkeeping one on the tax rate. What is the expected tax rate on FY '21 and '22?

Can I take this question, Tarun?

Please.

Yes. We have opted for the old tax regime is wherein the tax rate would be 30% plus surcharges, et cetera, simply because of the fact we are enjoying ETIA rebate, and we have very substantial MAT credit also available to us. However, our tax outgo would not be more than 17%, 18%, which is pertaining to MAT.

Okay. So on our P&L business, it will be 30% plus, but on a cash flow basis, would be 17%, 18%?

Yes. I'm not saying 30%. 30% less ETIA rebates.

We take the next question from the line of [ Vijay Gupta ], individual investor.

And my question is on the export of sugar. My question is are we exporting white sugar also? And the second question is, at what price have we valued the export sugar in the last financial year?

Okay. Yes, we have exported -- the bulk of the sugar that we've exported is raw sugar, but we have exported some plantation white sugar. And in all probability, that sugar has been sold as raw sugar to whoever the customers are, but I'm not -- I can't be certain of that. But we have sold some portion of plantation white sugar. The additional amounts that we have received in terms of new quotas, the 2 -- the 2 times that happened, the bulk of that quantity was white sugar that was exported. It included some wet sugar as well. So it was a great opportunity for us to be able to evacuate that sugar [indiscernible]. Otherwise, it would have to been sold at a discount in the domestic market. Our export realization for fiscal '20 was INR 19,716 per metric ton.

Okay. And would you like to throw some light on the export, probably export sugar scenario for the current year? For the year?

For the current year, we've mentioned earlier, 4.2 million metric tons of sugar has already been contracted. We forecast that a maximum of 5 million metric tons of sugar will actually be exported by the country. So that's the very, very maximum. The -- any increase in FRP will dampen this season's export because the subsidy element is already fixed, and therefore, the differential between export price and domestic price will widen further, impacting -- negatively impacting exports. As far as next year is concerned, it's a fresh policy, and I'm very hopeful that we can return to these sets of numbers at least. And we will certainly need to do that because we have a massive bumper year ahead of us going forward.

Next question is from the line of [ Varun ] from Nippon India.

Yes. Actually, I got cut off early. You said, sir, that at current rate, we -- our ethanol project can have a payback of around 4 years.

No, I said 4.5 years at these prices. But at the start of the season, when molasses prices were over INR 5,000 per metric ton, that payback was over 5 years. And so when you have variances of between 4 to 5, maybe 5.5 years, in terms of your payback, because all of that is a function of your molasses price, you then have a greater degree of uncertainty. The other uncertainty comes from the reservation of molasses. So the quantum of molasses that is sold free sale versus what is reserved for country liquor, if the country liquor proportion, like Uttar Pradesh, the percentage goes up, that is reserved, therefore, less is available, which means the free sale prices will continue to go up even further. And therefore, the viability of an ethanol plant distillery gets pushed out even further. So my point is that while you have -- even 5 years can be considered fairly reasonable for an industrial investment. I would argue that it is fairly reasonable. But you don't have policies that are set for more than 1 year. And until you have the joining of hands, where policy is set for multi years, like it is done for compressed biogas. I mean even the compressed biogas policy is set for 3 years, it should actually be for 4 or 5 years. And if it is, we would see that industry really coming into its own form. If -- for the EBP program, which is leagues ahead in terms of its development in India, we need to have a multiyear policy, and that will then provide some kind of support to further investment in capacity.

Right. I'm absolutely clear now. So thanks for the -- a very well-put explanation. Any other downstream projects or opportunities that we look at or we consider?

Yes. Certainly. So on a BOO basis from our distilleries, we're looking at -- they're not operational as of yet, they will be very soon, we're looking at the capture of carbon dioxide. And we're also looking at granular fertilizer, which is from the boiler ash at the distillery. So these are small businesses. We are also looking at -- in terms of a larger business, we're looking at the country liquor industry. As I had mentioned, we have applied for licenses, and we expect that soon. We expect production from that to happen at the end of the second quarter. So that, again, is a downstream business that one would look at. An opportunity, which we are not looking at right now, and I mentioned because you only have a 3-year visibility, but it is still something that holds a great deal of promise, provided we can get some better numbers in terms of realizations, is compressed biogas. And that is based on press mud, which comes from the sugar part of the business. Now that would be extremely useful because the environmental structures that have been placed across North India have led to the demise of the brick kiln industry in large parts because of the pollution emitting -- emitted from brick kiln. Now brick kilns were using press mud, which is the mud that is captured from the sugar manufacturing process as their fuel. Now as that industry declines, this mud, which is also somewhat of a fertilizer, has only limited opportunity with respect to distribution to farmers. And therefore, its opportunity or the value addition opportunity for CBG, provided again you have all the boxes ticked off, number of years, prices, et cetera, is one that is very substantial. The challenge, of course, over there is these are small units, and there is a whole distribution angle that will have to come in place. So it's early days, but the start of a small industry over there is also quite promising.

Right. Right. Any -- would you be able to quantify any of these projects, the amount of investment that we're doing? And what is the outcome over the next 2, 3 years? Some direction, sir? Like the press mud project or the bio ash fertilizer, I have seen it in some of the peers, so I know it's very, very yielding, if you could help us understand.

You can certainly contact us offline. We're happy to share you with all that information. I don't have that with me right now.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Ladies and gentlemen, thank you very much for joining us for the Q4 FY '21 (sic) [ FY '20 ] earnings conference call for Triveni & Engineering Industries limited. I think we're emerging from a period of deep crisis due to the COVID virus across the nation. Our agricultural businesses have continued. And I have to say that the work and effort that has been put in by the teams is highly commendable. The support that we have received from the state government and the Central Government cannot be denied. It has been essential in our continued performance over this period of crisis. And going forward as well from a policy perspective, one is hopeful that we will have very positive policymaking and decisions, and one is cautiously optimistic on that front. As far as Engineering is concerned, our Water business is anticipating a renewed interest in closure of tenders, and we hopefully will benefit from those. And the Gears business, again, is moving along at a good pace, and we're hopeful that the domestic demand will certainly come back to a stage of normalcy and that the impact of Q1 of this year will be then -- we will be able to catch up on that in the remaining quarters of the year ahead. Thank you very much, and I look forward to speaking to you in a few months.

Thank you. On behalf of Triveni Engineering & Industries Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.