Triveni Engineering & Industries : EARNINGS CALL TRANSCRIPTQ1 FY 24

Triveni Engineering & Industries Limited

Q1 FY 24 Earnings Conference Call Transcript

July 26, 2023

Operator:Ladies and gentlemen, good day, and welcome to Q1 FY 24 Earnings Conference Call of Triveni Engineering & Industries Limited. 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.

Rishab Barar: Thank you. Good day, everyone, and a warm welcome to all of you participating in the Triveni Engineering & Industries Q1 FY 24 Earnings Conference Call. We have with us today Mr. Tarun Sawhney, Vice Chairman and Managing Director; Mr. Suresh Taneja, Group CFO; Mr. Sameer Sinha, CEO 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 may be forward-looking in nature and a statement to this effect has been included in the invite, which has been shared with everyone earlier. I would like also to emphasize that while this call is open to all invitees, it may not be broadcasted or reproduced in any form or manner. We will commence the call with opening remarks from the management following an interactive question-and- answer session. May I now hand it over to Mr. Tarun Sawhney. Over to you, sir.

Tarun Sawhney: Good afternoon, ladies and gentlemen, and welcome to the Q1 FY 24 Earnings Conference Call for Triveni Engineering & Industries Limited. We are pleased with the performance of the Company during the quarter ended June 30, 2023. While there have been general low trends recovery in the just concluded Sugar Season 2022-23, the Company has however outperformed the State of Uttar Pradesh during that same period with a decline of only 23 basis points from a C-heavy basis recovery, which bodes rather well when we compare ourselves to our peers.

Our Engineering businesses during the same period continued to perform well with healthy order books and enquiry pipelines. We continue to diversify our revenue base with Alcohol and Engineering contributing to 60% of our total segment results.

Looking at some of the highlights. In Sugar and the Alcohol (Distillery) business, we achieved a blended sugar realisation of ₹37,254 per metric tonne which is an increase of 5.6% over the corresponding period of the previous year, and this was supported by high export realisations and relatively firmer domestic realisations. We achieved the highest ever quarterly alcohol production of 5.04 crore liters, an increase of 19% over the corresponding previous period due to additional capacities and expansions that were commissioned.

The increase in net turnover of the Alcohol business was by 21% during Q1 FY 24, driven by higher capacities. Within the Engineering business, both businesses achieved a combined increase in turnover of just under 25%, bolstered by the power transmission business which reported robust revenue and profitability growth. The order booking for the Power Transmission business grew 21.3% year-

Page 1 of 15

on-year with an order book of ₹271.6 crore up 11.6% year-on-year. The outstanding order book, for the combined engineering business stood at ₹1,613 crore.

Looking at the consolidated financials, our net turnover declined by 2.3%, primarily driven by lower turnover of the Sugar business which was directly attributed to lower quota during the quarter, and the Alcohol and aggregate Engineering turnovers improved, as I had mentioned over the previous corresponding period.

The sugar turnover declined by 15.2% as compared to the previous period after considering exports. And this was because of a decline of 21.7% in domestic sales volume due to lower domestic quota allocations. We had, as you will recollect, we have completed the majority of our export quotas in the previous quarter, and therefore, the benefits for export over there were achieved in that quarter. In addition, we did not convert any juice and therefore, there was some preferential quota allocations. Looking forward, over the course of this quarter and the next quarter, we will find that there will be a balancing of all of this, and we will return to previously forecast levels of quotas this quarter and looking forward. The profit before tax increased during this period by 2.6% to ₹91 crore. Total debt on a standalone basis for the Company on June 30 stood at ₹918.5 crore compared to ₹825 crore on the March 31, 2023.

On a consolidated basis, our total debt was ₹1,011 crore on June 30, compared to ₹913 crore on March 31, 2023 and ₹1,617.5 crore on June 30, 2022. The overall cost of funds stood at 6.7% in Q1. I would also like to mention that the Earnings Per Share (EPS) increased by 12% to ₹3.09 per share.

I would like to spend the next few minutes talking in a little more detail about the various business segments. And turning to the Sugar business, as I mentioned earlier, the reported lower turnover was due to lower domestic dispatches. The contribution of sugar sold in Q1 was higher by ₹880 per tonne over the previous quarter in view of the higher realisation. During the quarter, we achieved exports of 14,531 tonnes out of our total quota of ~205,000 tonnes, of which the majority was achieved in FY 23.

Export realisations were at considerable premium to domestic prices and we actually performed rather well in terms of our pricing ability and our later pricing actually turned out quite well for the Company in terms of our average realizations for exports.

The sugar inventory at June 30 stood at 43.44 lakh quintals valued at ₹33.6 per kilo. The Cogeneration operations during the same period achieved revenues of ₹12.65 crore. And our realization for our prices just as of yesterday, for refined sugar we are achieving prices of ₹3,700 to ₹3,720 per quintal and sulphitation sugar is approximately ₹3,650 to ₹3,670 per quintal.

Looking at the performance of the Sugar business. On a year-on-year period, we achieved a crush in Q1 FY 24 of 1.58 million tonnes of sugarcane versus 1.8 million tonnes. If you look at the sugar season, we actually achieved a crush of 9.3 million tonnes of sugarcane during sugar season 2022-23, which was 10.8% higher than the previous corresponding year.

In terms of total sugar, as you know, the recoveries were slightly lower. However, the sugar production in tonnes was in excess of 950,000 tonnes of sugar, which was substantially higher, 7.5% higher than the previous sugar season.

Looking at the industry scenario for the season 2022-23, the all India sugar production is estimated to be 32.3 million tonnes for this sugar year. As of the end of June 2023, Uttar Pradesh has produced 10.5 million tonnes of sugar compared

Page 2 of 15

to 10.2 million tonnes at the same time last year, while Maharashtra's production has declined from 13.7 million tonnes to 10.5 million tonnes by the end of June 2023 due to lower sugarcane yields and of course, inclement weather.

In Karnataka, three mills have restarted their operation for the special season, and the state has collectively produced about 5.5 million tonnes of sugar compared to

5.83 million tonnes of sugar produced during the same period last year. ISMA has estimated that all India sugar production will be 32.8 million tonnes after considering a diversion of approximately 4 million tonnes of sugar equivalent into ethanol.

With an opening balance on the first of October 2022 of 7 million tonnes, production of 32.8 million tonnes, domestic sales of 27.5 million tonnes and approximately 6.15 million tonnes of sugar exports on closing stock is estimated to be about 6 million tonnes of sugar which is rather good, it is just in excess two months of consumption. And those are the levels that should be directly maintained in the country.

On an international basis, there's been actually quite a lot of activity. The global sugar balance sheet is pointing to a surplus for 2022-23 which is contrary to what we have discussed on our last earnings call, there's been a bumper sugarcane crop and production in Brazil.

For 2023-24 season commencing April, Central South Brazil is expected to have the strongest agricultural yield in many years and an availability of 612 million tonnes of sugarcane and sugar production of 38.8 million tonnes, a 15% increase over the previous season.

In Thailand, another important market to consider, we expect a subdued production. International estimates look at a 10% year-on-year drop in the 2023-24 sugarcane crush for Thailand to about 85 million tonnes of sugarcane and looking at sugar production of just under 10 million tonnes, a fairly sharp decrease. This is primarily due to the El Nino effect, which has led to drought in many regions. And slightly later start to the rainy season in Thailand.

All considered, international sugar prices have remained remarkably firm, the New York #11 raw sugar futures contract broke the 27 cents threshold earlier in the year. However, it reported a mixed trend later and particularly in the quarter. Prices have hovered around 25 cents per lb (pound) in this quarter with the lowest price noticed towards the end of the July contracts. The #11, forward month is trading around 24.8 cents per lb, which is still remarkably firm and white sugar contracts (the London #5) is also at record highs, prices have recovered and are approximately $700 per tonne. Again, given the excess sugar availability in the forward few quarters, these robust prices indicate the kind of sentiment in the sugar sector, which is very buoyant.

Turning to the Alcohol business. Our additional capacities commissioned in FY 23 have resulted in the highest production in a quarter. Despite having record alcohol production and orders in hand, the alcohol sales in the quarter were lower than we anticipated, and this was primarily due to offtake issues at the end of the OMCs at certain depots.

However, I am happy to report that these are temporary challenges and the situation has improved vastly since then, and we're back on track, hopefully, to even make up for lost ground in this year. During the quarter, the sale of alcohol produced from sugarcane in feedstocks are 64%, while grain was the balance of 36%.

Page 3 of 15

It's important to highlight that during the previous corresponding quarter, there were no grain operations. Accordingly, the overall profit margin was slightly lower in the current quarter as compared to the same period of last year and this is with the margin associated with grain operations, which is lower than B-Heavy molasses operation margins. Ethanol constituted 91% of alcohol sales for the quarter under review.

And looking at the industry scenario of the 559 crore liters were finalized by the OMCs as of a requirement of 600 crore liters, contracts were actually formed of

553.68 crore liters. Against this ~351 crore liters have lifted by OMCs up to July 9, and we are looking at an average blending of 11.75% until July 9. And that's extremely good considering the target is 12%. We're right on track.

Of the total contracted quantity, as I had mentioned, sugarcane-based feedstocks collectively contribute 71% with B-Heavy, of course being the highest. And the balance is contributed by surplus rice of 26% and damaged food grain of 4%. Presently, the Food Corporation of India (FCI) has suspended suppliers of surplus rice for the production of ethanol.

Looking at the Engineering businesses, I will speak about Power Transmission business, first of all, we had quite a remarkable quarter where profitability and turnover increased quite dramatically. Profitability increased by almost 110% and turnover increased by 77.8%, very strong export performance in the supply of API gearboxes to the Americas and Europe and compressor gears and gearboxes to Europe and China.

Profitability margins also improved quite dramatically to 34% in Q1 versus 28.8% in the previous corresponding quarter. And this was due to lower raw material costs and an optimisation of SG&A expenses. Both areas that we have worked very hard on, coming out of the COVID experience. The growth in order book during the quarter is driven by growth in critical sectors such as steel, oil and gas and steam turbine compressor and pumps as the OEM segment. The outstanding order book as I mentioned stands at ₹271.63 crore.

The Water business, the revenues declined marginally due to a delay in execution in certain projects. So the business is actively targeting foreign projects, wherever it progresses the prequalification and something where funding is ensured through multilateral and reputed agencies. This is very important, it is a strategic shift, where we were looking just at domestic markets and regional markets. Now we've broad based ourselves and looking at a much larger canvas, and we hope that we will be able to come back to you with greater successes in international markets. As you are well aware, we have two projects in the international markets already that are under execution in the Maldives and in Bangladesh.

The closing order book stood at ₹1,341 crore and which includes some O&M (Operations & Maintenance) contracts, which are over a longer period of time.

Turning very briefly to the outlook of the businesses. In Sugar, we continue to focus very seriously on yield improvement initiatives by our farmers, adopting the best agriculture practices through continuous engagement and demonstration, et cetera, and also varietal replacement.

We will be looking at increasing crushing capacities in sync with our sugarcane availability. The Company is also in the process of increasing its refined sugar production which stood at 60% for the last year to 70% with the change in manufacturing process at our sugar unit at Milak Narayanpur.

The activities that I've previously spoken about three months ago pertaining to modernization, debottlenecking and efficiency improvement are all underway,

Page 4 of 15

which will enhance both the bottom line, most significantly as well as the top line. The condition of the sugarcane crop and grain crop has been satisfactory in our catchment area of all seven of our sugar mills. And we are hopeful that there will be good climatic conditions for the subsequent period. And this is critical. The next three months are critical. We do want a little bit of rain, but not too much. We certainly want a dry September. That is very crucial for operations to start at the end of October, which is what we're forecasting for the next year.

In the Alcohol business, we've been a strong supporter of the Government's Ethanol Blended Petrol program. We've bolstered our capabilities quite substantially, of course, raised capacities from 320 KLPD to 660 KLPD last year. And you are well aware that we are on our way to achieving 1110 KLPD in the future.

The Power Transmission business, there's very high demand that we're witnessing over the last few months, I would say. I think there's been a resurgence in demand globally across the sectors that I was talking about. The product segment domestically is really looking at growth steel, cement, waste heat recovery and oil and gas. Internationally, of course, you have growth in these sectors among and a few others.

Interestingly, we're seeing substantial growth in all of our OEM customer business. steam turbines, gas turbines, pumps and compressors, domestically and internationally. Again, this bodes very well for the future. And our focus is very much on market share gains where we are looking at the international market as our canvas.

In the Defence segment, the business expects increased order booking from key segments of turbine packaging, gearboxes, special application pumps. And we have several RFPs that are coming up to the stage of conclusion over the next few months. And so hopefully, I will have very good news potentially by the next time that we speak or maybe in the next quarter, but hopefully by the next time that we speak.

In the Water business, as the demand for reliable water and waste water treatment solutions is on the rise in India and in international markets. And apart from participating in domestic projects, we are expanding our global footprint, establishing strategic global partnerships and fostering mutually beneficial relationships with key stakeholders. So at Triveni, we find ourselves strategically positioned in order to capitalize on all the growth opportunities across all of our verticals.

And I would be very happy to answer any of the questions that you have. Thank you.

Question-and-Answer Session

Operator:Thank you very much. We will now begin the question-and-answer session. We have our first question from the line of Rajesh Majumdar from B&K Securities. Please go ahead.

Rajesh Majumdar: Good afternoon Sir. I had a few questions. Firstly, on the ethanol supply part, we have heard about some slowdown in offtake by the OMCs and your mix also in 1Q is suggesting that you've been able to sell mostly grain-based ethanol and a little bit B-heavy. So, is there any change in that in this quarter? And will the B-heavy mix change in the coming quarter or the next one or two quarters? That's the first question.

Page 5 of 15