Equity Research : Triveni Engineering

ABOUT THE COMPANY

Triveni Engineering & Industries Ltd. is an Indian conglomerate with a diverse business portfolio that includes engineering, sugar, and water management solutions. Here is an overview of the company:

1. Sugar and Engineering Business:

• Sugar Manufacturing: Triveni Engineering is one of the leading sugar manufacturers in India. They have multiple sugar mills and produce a significant amount of sugar, ethanol, and co-generation power.
• Engineering: The company also has a presence in engineering and heavy machinery manufacturing. They design and manufacture various types of equipment, including steam turbines, high-speed gears, water, and waste water treatment equipment, and air-cooled condensers.

2. Water and Wastewater Solutions:

• Triveni Engineering is involved in providing water and wastewater solutions, including technologies for water treatment, waste water treatment, and recycling. They offer equipment and systems for various industries, municipalities, and commercial establishments.

3. Renewable Energy:

• The company has ventured into the renewable energy sector, specifically in the field of solar power generation. They have worked on solar projects, which align with India's growing focus on clean and sustainable energy sources.

4. Research and Development:

• Triveni Engineering places a strong emphasis on research and development to enhance the efficiency and quality of its products and services.

5. Market Presence:

• Triveni Engineering has a significant presence not only in India but also in various international markets. They export their products and services to several countries, particularly in Asia, Africa, and the Middle East.

6. History:

• The company has a long and established history dating back to 1932 when it was founded. Over the decades, it has diversified its operations and expanded into various sectors.

7. Corporate Responsibility:

• Triveni Engineering is committed to corporate social responsibility (CSR) and sustainability initiatives, focusing on community development, education, healthcare, and environmental conservation.

INDUSTRY

The Indian Sugar Mills Association (ISMA) has provided several key insights into the sugar industry for the current fiscal year and the near future:

1. Sugar Production and Ethanol Diversion:

   • Sugar production in the current fiscal year (2022-23) is estimated to be 340 lakh tonnes, slightly lower than the peak of 358 lakh tonnes in the previous fiscal year (2021-22).
   • Notably, there is a significant increase in the diversion of sugar towards ethanol, estimated at 45 lakh tonnes, which is 41% higher year-on-year. This shift towards high-revenue ethanol is expected to contribute to 8-12% revenue growth for sugar mills in the current fiscal year.
   • The government is targeting to divert 60 lakh tonnes of excess sugar towards ethanol annually by the year 2025.

2. Sugar Production Trends:

   • As of February 15, 2023, sugar production has increased by approximately 5.5% on a year-on-year basis. Major sugar-producing states include Maharashtra, Uttar Pradesh, and Karnataka, which is consistent with the previous fiscal year (2021-22).
   • The government has set a sugar export quota of 60 lakh tonnes for the current fiscal year, which is lower than the export levels of 72 lakh tonnes in 2020-21 and 112 lakh tonnes in 2021-22. Additional export quotas will be determined based on the demand-supply situation.

3. Supportive Measures for Sugar Mills:

   • There is a possibility of a reduction in the Goods and Services Tax (GST) rate from 18% to 5%, which would benefit sugar mills.
   • The price of ethanol, especially those derived from different sources, is set to increase, incentivizing sugar mills to engage in high-margin ethanol production and enhance their profitability.

4. Revenue Growth and Government Support:

   • Revenue for sugar mills is expected to increase by 8-12% in the fiscal year 2023, primarily based on the analysis of top players in the organized sugar industry.
   • This growth is anticipated to be supported by capacity expansion for sugar production and distilleries, higher ethanol blending targets, and increased ethanol prices.
   • The government's consistent support for the sugar sector and its emphasis on diverting production towards ethanol, as part of the Ethanol Blending Program in India, are expected to drive growth in the sugar industry.

SHAREHOLDING PATTERN

FINANCIALS

RISK FACTOR

1. Cyclicality in Sugar and Engineering Sectors:

   • Triveni Engineering is involved in both the sugar and engineering sectors, which can be cyclical in nature. Economic conditions, government policies, and global commodity prices can impact the performance of these sectors.

2. Commodity Price Risk:

   • As a major player in the sugar industry, Triveni is exposed to price fluctuations in sugar and other commodities. Changes in sugar prices can impact the company's profitability.

3. Regulatory and Policy Risks:

   • The sugar industry is highly regulated in India, and government policies related to pricing, exports, and subsidies can significantly affect the financial health of sugar companies, including Triveni.

4. Technological Risks:

   • The engineering segment of Triveni involves the manufacture of heavy machinery and equipment. Rapid technological changes can affect the competitiveness and relevance of its products.

5. Debt and Financing Risk:

   • If the company has a significant amount of debt, it may be exposed to interest rate fluctuations and refinancing risks. High debt levels can also limit financial flexibility.

6. Market Competition:

   • Triveni operates in competitive markets, both in sugar production and engineering equipment manufacturing. Increased competition can lead to price pressures and reduced profit margins.

7. Environmental and Sustainability Risks:

   • Environmental concerns and sustainability are increasingly important in the sugar and engineering sectors. Compliance with environmental regulations and changing consumer preferences can affect operations.

8. Economic and Market Volatility:

   • General economic conditions and market volatility can impact demand for Triveni's products and services. Economic downturns can reduce capital spending and delay infrastructure projects.