Buy Triveni Engineering; target of Rs 90: ICICI Direct

ICICI Direct's research report on Triveni Engineering

The most significant factor in the September quarter results of most sugar companies has been a significant increase in operating cash flow & reduction in working capital debt. In a similar context, Triveni Engineering (TEL) also saw ~Rs 900 crore of operating cash flow generation in H1FY21 & ~Rs 1000 crore debt reduction in last one year. TEL has been able to increase distillery volumes by 34% in H1FY21 mainly due to better utilisation of 160 KLD distillery commissioned in April 2019. Further, the company has aggressively exported 2.85 lakh tonnes (lt) in sugar season 2019-20, which led to reduction of 1.7 lt of sugar in last one year. TEL is holding three months of sugar inventory (2.7 lt) vs. industry average of five months. It is also considering a capital expansion of 160 KLD distillery to utilise the sugarcane juice/B heavy route to leverage the ethanol blending programme & subsequent increase in B heavy/sugarcane juice ethanol prices.

Outlook

With the liquidation of excess sugar inventory & significant increase in ethanol revenue, the company is expected to see 9.1% CAGR earnings growth in FY20-22E. Moreover, possible expansion in distillery is likely to eliminate the dependence on sugar exports in future. We expect operating cash flow generation of Rs 592 crore & 706 crore in FY21E & FY22E, respectively. We estimate ~Rs 850 crore of debt reduction in FY20-22E. We value the stock at 1.2x FY22 book value with a revised target price of Rs 90/share (earlier target price was Rs 95/share) and maintain BUY rating.

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