Triveni Engineering reported its December quarter results earlier on Tuesday. The company reported healthy revenue growth of 34 per cent to ₹1,658 crore, helped by higher price realisation on exported sugar at ₹40/kg, versus ₹36/kg in the home market. The company did not have any exports in 3QFY22. However, higher realisation was offset by higher cane cost in 3QFY23, which ate into the company’s margins, resulting in a 3 per cent drop in operating profit margin to 16 per cent.
Net profit for the quarter grew by 13 per cent year-on-year to ₹147 crore. Both the sugar and distillery segments, although witnessed healthy growth, saw their margins decline in the current quarter, on account of higher cane costs. Power transmission segment, though insignificant in size, did well during the quarter.
Potential to outperform
That said, we believe the stock has potential to outperform the markets for the following reasons.
First, the strong revenue and profit visibility for the company over the next two years. The company is expanding its distillery capacity by 450 KLPD (2x 225 KLPD) from the current 660 KLPD, which is a 68 per cent increase. This should help the distillery segment almost double its revenue from the FY22 levels of ₹1,071 crore, two years from now. The company will soon place orders for machinery, while the land acquisition process is underway. Triveni is expecting the new capacity to come onstream by 4QFY24.
Second, the sugar business is expected to remain steady in the current year, with good export opportunities and also improved efficiency in plant operations. The company has made process improvements, which will increase the efficiency in the sugar business, though cane pricing is the key determinant of the segment’s performance.
While cane price risk remains, higher realisation from ethanol with the recent interim increase should support the company’s overall performance. The company is also investing ₹100 crore in its power transmission business, which, though currently small, enjoys healthy margins in excess of 30 per cent and is expected to grow multi-fold over the next few years.
Finally, the company’s board also approved ₹800 crore share buyback (tender offer) at a price of ₹350 apiece, implying an upside of 28 per cent from the current levels. SEBI approval for the same is awaited and this will also continue to support the stock price.
The company will fund this through internal accruals and also plans to reduce the long-term debt on the books even further, from the current ₹480 crore, versus ₹592 crore last year. At the current price of around ₹265, the stock trades 16.3 times its trailing twelve-month earnings and has risen by 21 per cent since our buy recommendation in August 2022. We continue to remain constructive on the stock with a long term perspective.