TRIVENI - Triveni Engineering & Industries Ltd Share Price

The management of Triveni Engineering & Industries has provided an outlook that reflects cautious optimism amid recent challenges. For Q1 FY 26, they reported consolidated revenues of Rs.1,598 crore, with a PBT of Rs.2.9 crore and a PAT of Rs.2.1 crore. The net turnover saw a robust increase of 23%, driven by a 53% rise in alcohol dispatches and a 14% increase in sugar dispatches, aided by improved sugar realizations.

The company highlighted a significant growth in its Power Transmission business, reporting a 15% increase in order bookings, leading to a record closing order book of Rs.423 crore"”an increase of 38% YOY. Overall, the engineering business's closing order book reached Rs.1,975 crore, up 32% from the previous year.

However, the management identified challenges in the sugar division, where segment profit fell 80% to Rs.7.6 crore due to elevated production costs. The cost of sugar sold affected by lower recoveries led to a notable acute pressure on margins. The average sugar realizations were approximately Rs.40.4 per kg in Q1, but the price declined towards the end of the quarter due to decreased demand.

Looking forward, management expressed optimism regarding sugar recovery, as they expect improvements linked to the current rainfall patterns in North India. There is also a commitment to judicious investments to enhance operational efficiencies. In the alcohol segment, the highest quarterly production of 6.5 crore liters was achieved, with efforts to stabilize the sourcing of raw materials to boost profitability.

The management's major forward-looking points include:

1. An anticipated decline in the cost of funds due to improved debt ratings.
2. Expectations of improved sugar recovery rates despite challenges, with gross recovery for FY 26 projected at 10.8%.
3. Continued focus on expanding distillation capacity, underpinned by the government's policies projected to increase ethanol blending to 27%.
4. Positive outlook for the water and wastewater treatment business, citing increased government funding opportunities.

Overall, the management remains committed to navigating current challenges and leveraging growth opportunities across its diversified segments.

1. Question: "How much of the Rs.423 crore order book do you expect to convert into revenue in FY26? Do you see margins improving in the export-heavy mix going forward?"

Answer: We expect substantial execution from our order book of Rs.423 crore. The long-duration orders total Rs.182 crore; thus, the remainder is directly executable this fiscal year. Orders typically take about six months to deliver. We're optimistic about Q2, Q3, and Q4 showing significant growth, especially with our defense orders. While there's higher depreciation and HR costs from our investments, we anticipate margin improvements as we ramp up exports, which generally yield better OEM margins.

2. Question: "What other levers of cost optimization are you working on in FY26?"

Answer: We're enhancing our supply chain by implementing dual testing for maize quality and improving its storage conditions to maintain starch content. Operationally, we're focusing on reducing fuel costs at our distilleries by optimizing steam economies. This will also involve some minor capital expenditure. By increasing sugar factory bagasse yields and reducing reliance on costly fuels, we're confident we can improve our operating results in the next supply cycle.

3. Question: "Can you provide an update on the composite fuel arrangement for SSEL and PTB?"

Answer: We anticipate the composite fuel arrangement will conclude in Q1 of the next calendar year, which is Q4 of this fiscal year. We're actively following up on regulatory approvals, and while we expect some delays, we remain aligned with our original timelines.

4. Question: "Will the drop in profitability be primarily on account of lower gross spreads in the sugar business?"

Answer: Yes, the drop in profitability results from lower gross spreads due to increased costs relating to production. While Q1 traditionally experiences some off-season costs, the share of these is less than in Q2. Our strategy involves maintaining profitability in Q3 and Q4, especially as sugar prices are trending positively with expectations rise during the festival season.

5. Question: "Is the entire impact of FCI rice in this quarter accounted for? How do you see profitability moving forward?"

Answer: Yes, we accounted for the 27% impact of FCI rice in Q1, but we aim to reduce this in Q2 to below 13-13.5%. The variance stemmed from a strategic decision that, upon reflection, did not yield the best results. Moving forward, we plan to minimize rice use and increase profitability.

6. Question: "What are the expectations around the sugar recovery and crush for the upcoming season?"

Answer: We project a cane crush of 819 lakh quintals and a gross recovery of 10.8%. Compared to previous years, the recovery has declined from 11.49% last year. However, we expect some recovery improvements, albeit not to the peak levels seen in 2022-23. We have seen an increase in the area under cultivation, suggesting potential for better yields.

7. Question: "What are the targeted returns for the water division and when can we expect to see 12%-15% ROE/ROCE?"

Answer: We have not directly invested capital in the water business as we employ an asset-light model, mostly outsourcing manufacturing. We focus on selecting profitable projects to optimize returns, but achieving 12%-15% ROE/ROCE will depend on how these projects develop, as they vary by contract and project specifics.

8. Question: "What is the expectation for maize imports and how does this affect your strategy?"

Answer: We have requested the government consider maize imports to enhance our ethanol production and address feedstock shortages. We're optimistic about obtaining approval for DDGS imports, which could facilitate more effective plant utilization. While direct ethanol imports would pose a challenge, we're mainly focused on securing maize imports to boost our operations.

9. Question: "What is your outlook on the IMFL market in light of the new UPML excise policy?"

Answer: We've already launched UPML brands this June and expect to introduce further products soon. Our machinery is capable of handling UPML production, ensuring we can meet market demand effectively as we continue to expand our presence in this segment.

10. Question: "Can you elaborate on the CapEx for the gear business expansion?"

Answer: The CapEx for our gearing business is ongoing and will meet our timeline for a Rs.700 crore turnover by September 2026. Production assets are being installed on schedule, and while it will take time to ramp up to full capacity, we are confident about meeting our operational goals.