Buy Triveni Engineering; target of Rs 82: ICICI Direct

ICICI Direct's research report on Triveni Engineering

Triveni Engineering reported a strong set of numbers with 74.9% growth in revenues & 72.6% growth in earnings. Robust revenue growth was led by 105%, 97% growth in sugar, distillery segment, respectively. Sugar volumes doubled on the back of 1.3 lakh tonnes (lt) of export during the quarter. Distillery volumes increased 66% aided by new 160 KLD capacity commissioned in May 2019. However, power revenues were down 10.3% due to reduction in tariffs by Rs 2/unit in July 2019. Gear business sales dipped 17.3% impacted by lockdown at the end of March. Water business revenue grew 8.2% due to slower execution of some projects. The company aggressively exported sugar during the year benefited by sugar subsidy announced by government. The company has contracted for 2.7 lt of export in the current crushing season (October 2019-September 2020). This has led to a substantial reduction in inventory & healthy cash flow generation.

Outlook

With the introduction of MSP, continuance of export policy and Triveni’s effort towards diverting higher sugarcane towards ethanol has created a strong business model with sustainable earnings & stronger balance sheet. Given the strong cash flow generation of ~Rs 700 crore in the next two years, we believe the company would be able to reduce its working capital debt by ~Rs 400 crore. We value the stocks1.2x FY21E BV to arrive at a target price of Rs 82/share and maintain BUY recommendation on the stock.

Triveni Engineering 19062020