Triveni Engineering Q2 Results Review - A Challenging Quarter, Revival Likely In H2; Maintain Buy: Systematix

Systematix Research Report

Triveni Engineering and Industries Ltd.’s consolidated revenue grew 8% YoY to Rs 17.5 billion (in line with estimate), driven by strong 20%/30% YoY growth in distillery/gear revenues at Rs 4.1 billion/1.0 billion, respectively. However, 5%/36% YoY degrowth in sugar/water revenues at Rs 9.6 billion/Rs 0.4 billion, respectively, partly offset the positives.

Gross margin contracted 67 bps YoY to 30.3% (estimate of 31%). Ebitda fell 93% YoY to Rs 46 million (90% below estimate) and Ebitda margin contracted 360bps YoY to mere 0.3% (estimate of 2.6%).

We attribute the lower profitability to Rs 354 million/Rs 58 million Ebit loss (including Rs 98 million loss pertaining to Sir Shadi Lal Enterprises, a subsidiary of TRE), in sugar/alcohol segments, respectively, with water Ebit tumbling 51% YoY to Rs 32 million.

The 33% YoY rise in gears to Rs 385 million partly offset the losses. Management believes its sugar business is optimally placed to advantage from the expected growth during Sugar Season 2024–25, which would reap the benefits of favorable weather conditions, rigorous crop management, shift towards high-yielding varieties and anticipated revision in Minimum Support Price of sugar. Triveni Engineering is confident of achieving 210 million liters of ethanol sales volume in FY25 and expects profitability to jump on likely higher ethanol prices.

It expects positive developments in its gears, water, and waste-water treatment businesses in H2 FY25, with robust domestic and international order books. We have trimmed FY25/FY26E Ebitda by 16%/2% to factor in the higher raw material costs in sugar and ethanol and cut EPS by 21%/5%.

Our SoTP-based target price of Rs 482 (earlier Rs 474) implies 17 times FY26E P/E and 12 times FY26E EV/Ebitda.

We retain Buy on Triveni Engineering and assign EV/Ebit of 14 times to distillery, seven times to sugar and 20 times to engineering and water businesses.

Key risks: Disappointing recovery rate and subdued domestic sugar prices.

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