Triveni Engineering & Industries : EARNINGS CALL TRANSCRIPTQ4 FY 22

Triveni Engineering & Industries Ltd.

Q4 & FY 2022 Earnings Conference Call Transcript

May 16, 2022

Moderator:Ladies and gentlemen, good day and welcome to Triveni Engineering & Industries Limited Q4 and FY 22 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded.

I now hand the conference over to Mr. Rishab Barar from CDR

India. Thank you. And over to you, sir.

Rishab Barar: Good day everyone and a warm welcome to all of you participating in the Triveni Engineering & Industries Limited Q4 and FY22 earnings conference call. We have with us today on this call Mr. Tarun Sawhney, Vice Chairman and Managing Director, Mr. Sameer Sinha, CEO of Sugar Business Group 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, maybe forward-looking in nature. And the statement to this effect, it has been included in the invite which was sent to everybody earlier.

I would like to also 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, following an interactive question-and-answer session.

I will now request Mr. Tarun Sawhney to open the call. Over to you sir.

Tarun Sawhney: Rishab, thank you very much. Good afternoon, ladies, and gentlemen. And welcome to the Q4 and FY 22 earnings

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conference call for Triveni Engineering & Industries Limited. Delighted to be able to speak to you today, the Company has delivered extraordinary results at the end of the year. All the businesses have contributed significantly towards the profitability of the Company. Triveni registered the highest ever annual profitability with the Profit Before Tax (PBT) increasing by 24.8% year-on-year to ₹ 574 crore. Profit after tax grew a shade under 44% and stood at ₹ 424 crore. The Board in its meeting that ended on Saturday has declared a final dividend of

• 2 per equity share or 200% for FY 22.

If the final dividend is approved, this will take the total dividend for the year up to ₹ 3.25 per equity share. The net turnover for the Company however declined by approximately 8% in FY 22 and in the current quarter and this was driven by the Sugar segment where lower sales volumes of 23% and 29% was the main contributing factor in the aforesaid periods.

It is important to note that for the sugar year under review, sugar year 2022, the Company has not exported any sugar this year, whereas in the previous sugar year, we did we had record exports nearing about 182,000 tonnes, rather substantial amount of sugar was exported at that point in time. The other segments registered an increase in turnover in FY 22 in the current and as well as in the current quarter.

Turning to the Sugar business, I am happy to report that the crushing continues at three of the seven sugar units as we speak today. And the total crush, as on the 13th of May was 8.2 million tonnes with the gross recovery of 11.67%. The diversion of sugar to ethanol in sugar season 2021-22 is estimated at 93,000 tonnes against 75,000 tonnes in the previous season. The increase in net turnover and profitability of the alcohol business improved by 30% and 48% respectively, during FY 22 and were driven by increasing sales volumes and higher realizations as well as better efficiencies.

The PBIT for the aggregate for the alcohol and sugar segments grew by 13% and 14%, during the year and current quarter, respectively. Higher domestic sugar prices of 8% in the current quarter, and 7% for the entire year has helped improve sugar operations substantially. In respect to the distillery operations, both sales volumes and higher realization prices have contributed to the increased profitability.

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On the 4th of April 2022, just after the fiscal year ended, the Company commenced operations of its new multi-feed distillery at Milak Narayanpur which has a capacity of 160 kilo liters per day (KLPD). I am also happy to report that this facility operated for a few days, for a fortnight on juice, which was the first of the distilleries at Triveni to have utilized juice for the manufacture of ethanol. The Company has now achieved an overall capacity of 520 KLPD. As we speak today, with the enhancement of operations at the distillery at Sabitgarh, which has increased from 160 KLPD to 200 KLPD.

The highlights of the engineering business are equally impressive. In our opinion, the business, the engineering businesses reported a 12% increase in turnover, driven primarily by the power transmission business in a year that was fraught with challenges, and especially a six-to-eight-week shutdown because of COVID, the Delta variant as we remember in Q1 of the fiscal year under review.

Both the power transmission and the water business have registered a marked improvement in profitability. The engineering businesses at an aggregate level reported strong revenue growth increase of 16% and 25% and an increase in profitability of 41% and 2% during the year and the current quarter over corresponding periods. The power transmission was the key driver with the profitability increasing by 57% year- on-year, which is quite a substantial increase in profitability growth. The turnover of the transmission business also grew at about 40%. The outstanding order books as of the 31st of March 2022 stood at ₹ 1,734 crore for the combined engineering businesses, a robust improvement from ₹1,078 crore a year before.

On the 9th of May 2022, the Board of Directors have decided to divest the Company's entire shareholding in Triveni Turbine Limited aggregating to 21.85% of the equity share capital of Triveni Turbine Limited keeping in mind, the objectives of inter alia unlocking value for stakeholders, the timely monetization of non-core assets, unbundling of businesses and enabling the long-term succession planning and facilitation of focus management of the Company.

The proceeds from the divestment are equity shares of Triveni Turbines Limited are intended to be utilized for the growth and expansion for the businesses as well as for rewarding shareholders of the Company in compliance with applicable

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law, subject of course to receipt of any approvals that maybe relevant.

Turning to the financial position of the Company, the revenue for operations in the quarter under review Q4 improved year-on- year by 0.3% to ₹ 1,192 crore and the EBITDA margin also grew by 1.7% to ₹ 177.66 crore. The total debt of the Company as of the 31st of March is ₹ 1,503 against ₹ 944 crore as on March 31, 2021, the previous year, it comprises the term loans of ₹ 396 crore and almost all loans are with interest subvention or at heavily subsidized rates of interest. The total debt as on the 31st of March is higher than the previous corresponding year due to higher sugar inventory levels with the Company.

Having said that, as you all know, during the course of this fiscal year, the debt rating by ICRA has been improved and as a result, the overall cost of funds stood at 5% for FY 22 compared to 6.05% in the previous fiscal year.

I would like to now spend a few minutes talking to you about the agriculture - sugar, and distillery and separately the engineering business segments individual performance. Turning to the sugar business, for the sugar season and ending at 31st of March, the crush stood at 6.61 million tonnes versus 6.9 million tonnes in the previous year, so a shade lower. The recovery too was slightly lower at a gross level of 11.59%, which we believe is one of the highest in the State of Uttar Pradesh. It was 11.7% in the previous year, and therefore, this year's performance for the sugar crushing season was 11 basis points down.

Now, this was due to unseasonal rains that we experienced in October, which, as you will all recall, resulted in a late start to the sugar season, it was very unfortunate. We also had vast flooding at one of our sugar factories at Milak Narayanpur where water was released from the dams in the Himalayas. And therefore, this led to a delayed start to the season. However, the catch up in terms of recoveries has been extremely good. I am personally very proud of the achievements in performance that we have had across the seven sugar units. As you know, and we have mentioned in the investor statement, for the sugar season compared to the previous one, we expect approximately 20 basis points. In fact, we can even narrow it down to potentially 21 basis points, a decline year-on-year, which is very much the best in class and standard. And frankly speaking, given the massive heat wave that has occurred over North India, and in Uttar Pradesh starting off in March, and through

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the month of April, the performance is certainly much better than our expectations and a vast improvement on the state. So as of the 31st of March, while Triveni Engineering's performance year-on-year was down 11 basis points, the state's average was going down 60 basis points. So that just gives you a kind of favor in terms of the improvement in performance.

The lower sales volume that has happened over the course of Q4 FY 22 primarily due to lower monthly allocations. And it is also due to lower exports. Now the monthly lower sales allocations as you can understand were naturally going to be lower as it ensues from Maharashtra and Karnataka, as it crushed more, and produced more sugar and therefore on a proportional basis, we received a slightly lower quotas month- on-month.

The sugar inventory as of the 31st of March 2022 was 51.5 lakh quintals, of which 40% of the sugar that remained was refined, which of course attracts a significantly improved and higher realization. It was valued at ₹ 32.7 per kilo, whereas in the previous year, the stocks as on the 31st of March 2021 were

47.5 lakh quintals substantially lower, 4 lakh quintals lower and that was valued at approximately ₹ 30 per kilo.

The co-generation operations which include our incidental co- generation achieved external sales of ₹ 62.3 crore during FY 22, which is slightly lower than the ₹ 68.3 crore in FY 21 and primarily due to the lower operating days. And as I mentioned, we had a later start to the sugar season this year because of the rains.

Looking at the industry scenario during sugar season 2021-22, the sugarcane area has increased by 3% year-on-year, and this has been reported by the various agricultural departments. The major increase has been witnessed in Maharashtra and Karnataka with a slight increase in Andhra Pradesh and Telangana due to good rainfall in the Southwest Monsoon, the reservoirs are having ample water supply.

I would like to pause for a minute and tell you about very current feedback. This particular planting season, the reports that are coming in indicate that the increase in cane area for the country should be about 1.5%, however we have been very successful in our campaign which continues to date, and we hope that for Triveni, we will achieve an 8% higher planting which will equate to a 5% higher area under cane.

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