Buy Triveni Engineering Ltd For Target Rs.350 - ICICI Direct
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High sugar prices; distillery volumes boost profits…
About the stock: Triveni Engineering (TEL) is one of the largest sugar companies in India with sugar crushing capacity of 60,000 TCD, distillery capacity of 320 KLD & co-generation power of 100 MW. It also has power transmission & waste water management business contributing 10% to revenues
The company is increasing its distillery capacity from current 11 crore litre per annum to 22 crore litre per annum by FY24 to utilise B-heavy, grain & sugarcane juice route to produce ethanol
Q3FY22 Results: TEL reported strong earnings growth led by higher sugar prices
Sales were flat YoY, due to dip sugar volumes off-set by higher sugar prices
EBITDA was at | 202.8 crore, up 26.4% YoY, with margins at 18.2%
PAT was at | 130.1 crore, up by 37.5% YoY, with high sugar & distillery realisation
What should investors do? TEL’s share price has gone up 3.8x in the last five years (from | 74 in February 2017 to | 285 in February 2022).
We expect 2.1x increase in distillery volumes to boost earnings with CAGR of 34.4% during FY21-24E
We maintain our BUY rating on the stock
Target Price and Valuation: We value the stock at | 350, valuing the business at 16x FY23 PE.
Key triggers for future price performance:
With distillery capex, TEL would be able to increase its ethanol volumes 2.1x to 22 crore litre by FY24. Distillery sales to see 32.8% CAGR to | 1285.8 crore in FY21-24E, which would be 24% of total revenues
Sugar segment profitability would improve with surging domestic & global sugar prices. We estimate sugar realisation of | 34-37 /kg in FY22-24E
The company is expected to generate | 1165 crore of free cash flow in the next three years, which would be utilised for ~| 400 crore capex, debt reduction, buybacks & dividends
Alternate Stock Idea: We also like Dwarikesh Sugar in our sugar coverage
The company is one of the most efficient with highest sugar recovery and abundant sugarcane availability. It is increasing its distillery capacity to 3x in the next three years
We value the stock at | 135/share with BUY recommendation
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