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Ladies and gentlemen, good day and welcome to Triveni Engineering & Industries Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions]. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.
Good day everyone and a warm welcome to all of you participating in the Triveni Engineering & Industries Limited Q1 FY '23 earnings conference call. We have with us today Mr. Tarun Sawhney, Vice Chairman and Managing Director; Mr. Suresh Taneja, Group CFO; Mr. Sameer Sinha, CEO, Sugar Business group, as well as other members of the senior management team. Before we begin, I would like to mention that some statements made in today's discussion maybe forward-looking in nature, and the statement to this effect has been included in the invite, which was sent to everybody earlier. I would like to also emphasize that while this call is open to all invitees, it may not be broadcasted or reproduced in any form or manner. We will start this call with opening remarks from the management, following an interactive question-and-answer session. I will now request Mr. Tarun Sawhney to open the call. Over to you, sir.
Thank you very much. Good afternoon, ladies and gentlemen, and welcome to the Q1 fiscal '23 earnings conference call for Triveni Engineering & Industries Limited. I'll start off to give a quick update of the concluded sugar season '21-'22 where we're pleased to report that the company has reported a good performance despite the trends of low yields and recovery, especially in the State of Uttar Pradesh. As far as the engineering businesses are concerned, they have both performed well with robust order booking and we remain excited about their growth prospects. Some of the financial highlights of the quarter include revenues from operations, which came in at INR 1,225 crores, registering an 18.2% increase, which is primarily driven by higher sugar and alcohol dispatches, along with some higher realizations. The profit before tax was INR 88.6 crores, declining by 28.4% on a year-on-year basis, primarily because of the previous corresponding quarter, which included a INR 45.3 crore export subsidy in fiscal '21. The profit after tax, as I mentioned, stood at INR 66.45 crores, a decline of just under 30%, which was account of the aforementioned subsidy. Distillery revenues net of excise and profitability grew substantially due to the commissioning of our additional capacities of 200 KLPD during the quarter, which resulted in increase of sales volumes. The engineering business reported a 33% increase in turnover with robust order booking. The outstanding order book for the engineering business stood at INR 1,889 crores for the combined engineering business, which was up from INR 1,746 crores, and was up about 8%. On a consolidated basis, our total debt stood at INR 1,617 crores on the 30th of June against INR 1,568 crores on March 31, '22. This comprised of INR 462 crores of term loans. The total debt on a standalone basis, of course, was lower, on the 30th of June at INR 1,541 crores against INR 1,503 crores on March 31st, '22. As of today, it comprises of term debt of INR 386 crores with almost all loans, again, on the interest subvention or at subsidized rates of interest. The higher debt level that we've experienced as of the 30th of June is due to extremely fast sugarcane price payment and some higher stocks. But primarily this was much faster cane price payments. And to give you an example -- to give you some statistics, of course, there are no outstanding dues as of the 30th of June '22 whereas in the previous quarter of the corresponding year, there were dues of INR 213 crores and the year before that -- sorry, there was INR 213 crores as of March 31st, '22 and INR 272 crores as of 30th of June '21. The overall cost of funds is at 5.07%, which is lower than 5.2% in the previous year. Turning to the businesses, as far as the sugar business is concerned, we achieved a crush of 8.41 million tonnes of sugarcane with a gross recovery of 11.7%, producing approximately 0.89 million tonnes of sugar. This is very much in line with the communication that I've had over the last couple of quarters with you in terms of these slightly lower net recovery -- gross recovery rather, slightly lower gross recovery that we would have experienced this year because of inclement weather, very high temperatures in late March and April and of course earlier unseasonal rain falls at the beginning of the season. On the realization front, during the quarter, our average domestic realization was INR 35.29 per quintal, up 5.7% year-on-year. The current sugar prices at our factories for refined are INR 36.30 for refined sugar and INR 35.60 approximately for 150s. The company has not exported any sugar during the quarter and inventories as of the 30th of June stood at 46.8 lakh quintals, which was at INR 32.2 per kilo. At the same time last year, inventories were lower at 45.12 lakh quintals. The cogeneration operations achieved external sales of just under INR 17 crores during the quarter under review versus INR 14.2 crores in Q1 fiscal '22, an increase of 19%. Looking at the domestic industry scenario, first at the domestic balance sheet, for the current season 2021, our estimates, Triveni estimates are for domestic consumption of approximately 27.35 million tonnes and we export -- we expect exports of sugar to be of course more -- a shade more than 11 million tonnes. The production will conclude at our estimate of 36.2 million tonnes and this is after considering a diversion of 3.4 million tonnes of sugar into ethanol. Considering the opening stocks of 8.2 million tonnes on October 1, '21, this would imply a closing stock of just a shade above 6 million tonnes on the 30th September, which is sufficient for 2.25 months of domestic consumption, which is the intention by the government. In May '22, the government had capped sugar exports at 10 million tonnes, and of course, we're expecting a small increase in terms of exports, which will raise the total exports up to -- above 11 million tonnes. However, by the 30th of September, we estimate that 11 million certainly will have been exported. For sugar season '22-'23, based on our research and initial estimates, the total acreage across the country is expected to be about 58.2 lakh hectares, a 4% increase from 55.83 lakh hectares in the previous year. I think that's very encouraging on multiple fronts. Most importantly for the ethanol blending program. Based on the current signs, patterns of rainfall and crop condition, we estimate sugar production in 2023 to be higher at around 40 million -- over 40 million tonnes before considering the diversion towards ethanol and we expect about 4.5 million tonnes of diversion towards ethanol. With that, the country will require 8 million tonnes of exports and it's important that the government recognizes that number and releases that much at least as quickly as possible for exports over the next sugar year, and this will lead to a closing balance of again a shade above 6 million tonnes, which is the number -- the magic number that is considered acceptable by all players in this industry, especially the government. As far as the international sugar scenario is concerned, the global outlook has now moved to a surplus of 2 million to 3 million tonnes for the '22-'23 season as compared to a marginal surplus expected for this season. This is mainly due to an increase in production in Asia of course, India being a very large contributor, and of course, Brazil. For the '22-'23 season in Asia, apart from a substantial increase expected in India and also some increase in Pakistan, the production will increase in Thailand after a series of disappointing seasons, and we expect a rebound within Chinese sugarcane production as well. Meanwhile, in Central South Brazil, the sugarcane crop is expected to recover next season as it moves beyond the drought impact that it has impacted the present and previous seasons, although the mills in Brazil are likely to divert more sugarcane towards ethanol in the coming year, given where crude prices are at this particular point in time. Global sugar prices have softened after touching $0.2027 per pound in April '22. The New York 11 Raw Sugar future month is currently hovering between $0.1750 and just a shade above up to $0.18-odd per pound. And similarly, London White are now trading at $522 a tonne, down from about $570 a tonne earlier this year. A lot of this has to do with the -- with global events, dollar strengthening, those 2 being the primary contributors, and of course, as a result, we've seen a little bit of softening. However, I think we are seeing certainly a lot of bottom formation here. In our opinion, we can expect as the next Indian sugar season commences, slightly [ further ] prices going forward and homes of course for Indian sugar to be available. Turning to our alcohol business, during the quarter, we commissioned an additional 200 KLPD as a result of production went up by 57.7% to 42,200 kiloliters. We of course sold substantially higher quantities of alcohol and -- up about 42%. And the realization also increased by 7% to an average realization of INR 57.8 per liter. As a result, of course, the PBIT and profitability of the business was also substantially higher. In respect to the financial performance of distillery operations, due to realizations -- higher realizations due to the product mix, an increase in the ethanol price, commissioning of additional capacity, has resulted of course in the higher sales volumes. The ethanol produced from B-heavy molasses constitutes 90% of the sales volume in the current quarter against 81% in the corresponding period of the previous year. Subsequent to the quarter, the company has enhanced its overall capacity to 660 KLPD, again, very much in line with the conversation that I've had with you over the last couple of earnings conference calls. We have certainly met the target, and this is despite supply chain constraints and material price variances that have happened over the course of the last -- over the course of this -- of the previous calendar year -- of this calendar year. And I think it is quite a substantial achievement. And therefore, as we stand today, the unit-wise capacities are as follows: Milak Narayanpur, which is a dual feed plant, at 200 KLPD; Sabitgarh at 200 KLPD; Muzaffarnagar facility comprising of 200 KLPD on molasses and 60 KLPD on grain and 260 KLPD, totaling -- all totaling 660 KLPD. The industry scenario. Out of the 449 crore liters, which is finalized by the OMCs for supply in 2021, the procurement -- the requirement of course is of 456 crore liters. Against the above, 282 crore liters have been lifted by the OMCs. The average blending until the 17th of July stood at just above 10%. So I think it's a huge achievement for the nation thus far. Of course, the road ahead is quite exciting and filled with greater -- substantially greater quantities of ethanol. During the next year, 2023, it's estimated that 545 crore liters of ethanol will be required and that will amount to an average blending of 12-odd-percent for the ration. During this quarter, the OMCs have declared relief on the dispatch of ethanol for supplies made from 1st June to 30th November ranging from INR 1,179 to INR 2,337 per kiloliter depending of course on the feedstock. We are happy to give you the details of that. It is of course publicly available information and Triveni will benefit greatly from its higher dispatches because of more distillery capacity that has come on stream going forward until the end of this ethanol year. Turning very quickly to the engineering business, at an aggregate level, we reported strong revenue growth of 33% during this current quarter compared to the corresponding period last year. For the power transmission business, revenue grew by just under 8% to INR 30.5 crores and the order booking, which is the most important factor, grew at 41.5% and stood at just under INR 54 crores. The total closing order book was INR 243 crores plus, which is a substantial increase compared to the previous quarter, the previous corresponding quarter et cetera, and it is a direct result of the huge improvement and increase in industrial activity that we're seeing, not just domestically, but also internationally. Some of this order booking growth has come about also with the addition of larger orders from our existing OEMs around the world. Turning to our water business, revenues grew by almost 50% to INR 65 odd crores with a PBIT of INR 2.5 crores. And closing order book grew 4% to INR 1,645 crores. The water business group has completed construction of various facilities of the company's Mathura Hybrid Annuity Model, HAM project, which is for the National Mission of Clean -- NMCG, National Mission of Clean Ganga and -- in association with the Uttar Pradesh Jal Nigam. Part of these facilities have already passed through the performance guarantee tests successfully and the balance ones are ongoing. During this quarter, I am very happy to also announce that we received our second international order, a large order in Bangladesh. This is an EPC order under a joint venture agreement with a local Bangladeshi company where INR 170 crores is our share of work in this very important order. As you remember, we had an important order that we have received from the Government of Maldives. And so this is, again, a substantial expansion that we're doing, especially within the South Asian market and beyond in terms of expanding our canvas. The company is expecting robust order booking in coming quarters as well. Very quickly on the outlook of all our various businesses. For sugar, the upcoming season, with an increase of 4% cane area, better crop health, more focused crop surveillance pretty much across the country. And when I speak of Triveni, certainly we're doing a tremendous amount of efforts in the field with respect to crop surveillance, which is expected to -- mitigating any types of pests et cetera that can occur from time to time and monitoring the growth of our cane crop, but I can see that across the country, there has been sustained efforts by most people in the industry, given the great value of sugarcane to the industry and to the farming community. Based on our current forecast of monsoon and crop health, we're anticipating an increase in recoveries certainly in Uttar Pradesh. As far as Triveni is concerned, our previous announcements of debottlenecking and modernization is progressing well and we expect these activities to be completed by October '22, as we had communicated earlier. On our alcohol and distillery business, yesterday at the Board meeting of the company, the Directors have approved the expansion program to set up 2 new dual feed stock, that is sugarcane derived and grain distilleries with an aggregate capacity of 450 kiloliters per day at Rani Nangal and at Sabitgarh, subject to of course receipt of the necessary statutory clearances. This will raise our total distillation capacity to 1,110 kiloliters per day at an aggregate cost of approximately INR 460 crores. We expect that these distilleries will commence commercial production in Q3 of fiscal '24, so about a year and quarter plus away. We have full confidence in the commitment of the Government of India's ethanol blending program, and as such, the augmentation of our capacities on a dual stock basis will provide us with sufficient flexibility to select the feedstock based on commercial considerations and economics. Overall, the distillery expansions will lead to significant growth in turnover profitability in this segment. Looking quickly at the engineering business' outlook, our power transmission business, we believe there is significant growth expected in the domestic economy. This is a direct result of the Atmanirbhar Bharat program, which will drive CapEx across domestic -- end user industries. Power transmission business is focused on increasing global market share, global footprint as well across a variety of different sectors, and we are seeing tremendous activity within the power, cement, fertilizer, petrochemical, steel, sugar and ethanol sectors to be the fuel. The defense business is also poised very well and is expected to grow the expanding portfolio of products that are -- that we're developing, tendering, and producing is growing quite substantially and this will augur very well for Triveni's medium to long-term growth. And lastly, our water business is expected to achieve many new successes in the upcoming quarters. There are several new opportunities that are arising out of center and state funded schemes and we see huge bidding opportunities, including in EPC and in HAM projects. And I think that is very, very exciting because those are fantastic structures and we are definitely, Triveni -- Triveni's water business is a leader in terms of execution of HAM projects. In the water business, the growing water scarcity is catalyzing new opportunities, and this is the fundamental reason for an increase in business where the areas of recycle, reuse, and zero liquid discharge growing across the country and leading to more opportunities. We believe that the disruption caused by the pandemic is largely over and normalcy of the business environment has returned. A quick update before we open up to questions on the Triveni Turbine divestment. As you are aware, on the 9th of May '22, the Board of Directors had decided to divest the company's entire shareholding of Triveni Turbine Limited's shares of approximately 21.85%. The matter of TTL divestment is under progress and we are hopeful of generating the demand that, concluding this transaction early, the company will make appropriate disclosures in due course. Thank you very much. I'd now like to open it up for questions.
[Operator Instructions] The first question is from the line of Riya from Aequitas Investments.
Sir, my first question will be, what -- you just mentioned in your commentary that we have been trying to increase the recovery. So I think last few calls as well, you've been talking about the new varieties we are working with. So what kind of improvement are we seeing there in terms of recoveries?
So the question is -- there are 2 portions to this answer. The first is, we are already working on our crop health per se through a very structured surveillance program to minimize the impact of any pests, diseases, insects, et cetera. So that should lead us -- along with better climatic conditions, should lead us to an increase in recovery. Secondly, we have a plan, medium-term plan over 3 years to reduce our dependence on Co 0238 and go in for the new varieties which are 15023, but largely, the proven varieties of 0118 and 98014. So this is the basket of varieties that we are focusing on going forward and we are looking at the performance of 15023, which have been growing -- grown in our pilot demonstration plants.
So how much would this form in next year's crop and what kind of recovery do we look at like any qualitative outlook on that?
So yes, we can give you a qualitative, we can't give you a quantitative outlook because it's very challenging given where we are in the cycle right now. But these -- you see, with a -- for the very micro managed process of cane development and cane health, more importantly, the subject of cane health within cane development, we are certainly looking at 2 things. It's not just recovery, but it's also yield, which leads to a greater cane availability. So we're certainly at this point in time encouraged by the yields that we're seeing. They are higher than the previous year. It's difficult to give you the percentage because we're in the grand growth phase at this particular point in time, but we see greater number of tillers, we see greater cane height, and we would be in a better position certainly in a couple of months to be able to tell you, the moment the monsoon season finishes, to be able to tell you where we are at that particular point in time. The second with respect to recovery. Now, recovery is influenced by a variety of different factors, as you're well aware. One of those controllable factors is pests. So last year, we did see some disease. It didn't impact Triveni, but it did impact other parts of Uttar Pradesh. This is a disease called red rot on 238. Our impact was minimal at worst -- at best actually. It was very small, and that is something that we have certainly covered. But there was a small impact of top border which again, when the cane is at the height that it stays that you can do very little about. When you can do something about it is now and that sort of very micro level, field to field, acre to acre type intervention will ensure that the health of the crop is better. And that is a direct contributor towards increased recovery. You can see the recovery trends that we've had in the last few years. And if you sort of map it backward and you can see what the sort of the top potential ends are. So, so far we're looking at everything -- sort of all guns blazing, everything going rather well with no negatives at this particular point.
And just to supplement Mr. Sawhney's answer, we are also in the midst of our debottlenecking and modernization, which will enhance our net crush rates. So therefore we feel that during December et cetera, when there is some incidents of field scaling, that could be taken care off, which will also positively impact our recoveries going forward.
Okay. So basically actually I was reading your presentation and it's mentioned that the sugar production in the next season is estimated to be 40 million tonnes as against 39.6 million. So it's more or less flattish. So why do we think so?
No, we expect the overall production to be higher than 40 million, just a shade above 40 million tonnes. We feel that because there is greater cane area, and the monsoon across the country is normal. So it will lead to more cane availability, greater crush. We also believe that the factories in Maharashtra and Karnataka will be starting their seasons in very early October so that they can crush all this very, very large quantum of cane because they do have capacity issues in that part of the country. As a result, a shade above 40 million tonnes is achievable with Uttar Pradesh also returning to a healthier state.
Sorry to interrupt you, Riya. I will request you to come back -- for a follow-up question. The next question is from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead.
Congratulations on a healthy set of numbers. I wanted just one clarification on our ethanol production, which is, when we say 90% is B heavy, is that after deducting the 18% of ENA? So 90% of -- 82% of total ethanol that we produce? Is that interpretation correct?
No. That interpretation is not correct. I mean, there is factory which -- of ours, which produces C heavy, which we give out as levy molasses. So whatever is the quantum that we have produced, which is -- and dispatched, let's say, which is of 389 lakh liters in this quarter, 90% of that is B heavy ethanol and ethanol as a total percentage of this 389 is about 94%.
Okay. So 90% of 94%. Right?
Yes. 90% of 389, not 90% of 94.
Understood, understood. Okay, sir. And just lastly, a sense on how is the current monsoon impacting currently at this point in time to the sugarcane crop in our command area? Any clue or any hints towards that?
See, our factories are spread across the state of UP, and definitely other than in 2 factories, this year, in July, there had been a little less rainfall than previous year, but a large number of these factories have deep low lying areas. So to that extent, it is good for us. The couple of factories which had somewhat more up lying area, which were about to face some water stress et cetera, there have been heavy rainfalls towards the end of July, continuing in early August, which has taken care of that. So there is no water stress. And going forward, in the second phase of monsoons, the forecast is for a normal monsoon in both North and -- India, which will take care of our units also.
Next question is from the line of Bharat Sheth from Quest Investment Advisors.
Sir, you said that we are setting up a new distillery on the dual feed. So can you just explain a little more, I mean, which is a second pit stop that are we going to use and the economy of that refinery? That is the first question. And second, I'll come back.
Sure. So we've already established and are currently processing grain, rice actually, at our existing distillery at Milak Narayanpur, which was established on the 5th of April -- commissioned on the 5th of April of this year and the results of which are of course included in our quarterly result statement. The 2 new distilleries again will follow the same engineering format of dual feed. They are primarily designed to process the grains, the grains that are available in North India, especially where our factories are is primarily rice. However, we will have the flexibility of using other grains as well, and of course, the second product will be sugarcane, juice or B heavy molasses et cetera.
But sir, I mean, in terms of...
Yes. In terms of the economics, at this particular point in time, given what the prices are including the small increase that has been made by the Government of India a few weeks ago, the highest profitability is for B heavy molasses, followed by grain, followed by juice.
Okay. Okay. And second thing, sir, now recently the government has announced this increase in FRP. So how that will affect our profitability? And second, when government is thinking of putting up the 20% blend, so from that -- in that scenario, how much will be the additional requirement of ethanol will be there? And second, the prices of the ENA, do we produce ENA and sell? So how the economy between this ethanol and ENA works out?
Okay. Firstly, I am very happy that you've asked this question. As far as FRP increase is concerned, our sugar factories are in Uttar Pradesh. In Uttar Pradesh, we pay a state advised price and therefore we're not impacted by FRP. The FRP increase that has happened just now is a net increase of only INR 7.5 because the base has also been increased, and that's something for you to consider when you look at the impact on other companies in other states, but as far as Triveni is concerned, it has no direct impact in terms of cane price. The impact is important with respect to the directional increase that can be effected from ethanol prices going forward. Since the government is looking at the ethanol program as a direct program to benefit farmers, the increase in ethanol prices that would happen for the next year, I think, there are strong correlations between the increase in FRP and the industry's expectation of increase in ethanol prices going forward. So from that perspective, it augurs very well for Triveni going forward. Next, with respect to your delta between ENA and ethanol, I think there is a sense of clarity. I mean, yes, demand-supply does vary from month-on-month, but broadly speaking, it will keep pace with the increase in ethanol prices as we go forward. You had another question in there, which I think I missed.
Yes. And sir, on this increasing the -- I mean, yield of the sugar and we are working on these micro processes, I mean, what you say, so some of the -- It has been already started and what are the yield improvement and what will be the economy of that also? Because even if government has to go for, say, 20% blending, the sugarcane crop has to increase substantially. Without that, dual feed will do, but -- so how that whole economy will really play out for -- that is, one is, currently it is on -- a lot of concessions are given and -- but if one -- once it becomes a free trade of ethanol, so how -- what will be the -- really OMC and whole eco point of view will work out?
Sure. Okay. The point of course is in your question was how much more ethanol is required for 20% blending. It will be well above 1,000 crore liters. So let's say the estimate for next year is 545, it's double that, maybe -- let's say 1,000 crore liters is what is required for 20% ethanol blending. Now you ask an important question. In the ramp-up to 20% ethanol blend, the contribution of the sugar industry is quite important, contributing at least 65-odd percent or 2/3 will come from sugarcane and 1/3 will come from grain. It requires expansion of distilleries from both sectors, frankly speaking, going forward. The increases in yields and the change that is happening across the country and the yields that we're seeing, I think these are very, very encouraging steps in terms of our short-term move because '25-26 is literally short term. Our short-term objective is a 20% ethanol blending. I personally believe that a lot of this -- we already have a lot of sugarcane that is diverted to the unorganized sector in parts of the country. So there is -- the quantum of cane that is available is quite substantial. It is growing quite substantially. The kind of work that Triveni is doing is in harvesting, our yield by leaps and mounts over the same time period. And we will, of course, then have that kind of feedstock available to feed our distillery, which we're also establishing currently. I personally believe that the sugarcane industry is well settled in terms of being able to deliver that 20% or contribute 66% towards that 20% outlet example. But as I mentioned, this is a short-term level. Beyond that, there is already a lot of talk about E85 and higher blend levels. And therefore, that is the best step in terms of what will need to happen in the country. As you know, the sugarcane pharma gets the best return of all the staple crops across the country. So I don't see any farmer pretty much going away from sugarcane in the near-term. Companies like Triveni, of course, they such an accelerated manner that farmer same want to grow more and more. The key intensity will increase as time goes by and therefore, feed directly into the E20 program and beyond.
That's fair. But my question is, again, I mean, for the economy of the OMC also, currently, government is…
I wanted to also mention. You mentioned that there are subsidies to given, there are no subsidies given. The overall industry gets some interest of pension, which is only on the debt portion. But it is a small contributor and certainly not a make-or-break in terms of setting up plant capacity. As far as the ethanol OMCs are concerned, this is really about the international agenda. I think you're forgetting that. The agenda -- India imports a massive amount of crude. Our current account services are growing to unimaginable levels. We were at 3% already. And frankly speaking, to develop in cash flow energy program, which includes the development of a nationwide as amount policy and on production policy is absolutely vital. So I stand, of course, completely behind the central corporate agenda of not just ensuring that we have greener fuel. So we have a positive dilution impact, which is extremely important. And number 2, in terms of saving pressures foreign exchange, which will have an impact on inflation on the currency and on other broad macroeconomic parameters. And therefore, that is something that will benefit everybody, including the OMCs as we go forward.
[Operator Instructions] The next question is from the line of Anupam Goswami from B&K Securities.
Sir, my first question on the recovery of this month, this month we have seen a 40 basis points lower recovery, whereas in the previous quarters, we were anticipating about 20 to -- 20 basis points of recovery for the whole season. But today, we are a little lower than that. And also, given this quarter, some late sugarcane is crushed, wouldn't it be a little expected that recovery should have been improved, but it actually did not happen. So what was the reason on that point, sir?
Very short answer, as I had mentioned in my opening remarks, we had some very unstable weather. There was a massive heat wave across North India that started at the end of March and went through April. You're absolutely right. The best recoveries in the sugar industry going back a decade even longer, have always been in the month of April and early May, the best recoveries by partners. However, we had 3 to 4 degrees centigrade higher temperatures during this entire period, which created significant field-related problems and curtail that increase in recovery that we would have seen in the sugarcane crop this year. That is the reason.
Okay, sir. Sir, my next question on the -- now that you mentioned that there is a global outlook of surplus and Brazil and Asia, Thailand also coming back to the surplus production, will and necessary to maintain 6 million closing stock and 8 million export is required. So do we need a government support and subsidy again for this kind of export given the outlook on the global surplus production and prices?
So the surplus production is 40 million tonnes. So yes, there is a slight surplus, but I think the world needs the entire sugar. The fact that India has been an exporter for several years now means that we have ready deep routes in certain countries that import sugar are close to us, whether it be Bangladesh or Sri Lanka or Indonesia or towards the East -- the Middle East, Iran and the Eastern Seaboard of Africa. These are big homes. India's geographical proximity and the time at which we export sugar, is matches the time at when they need the sugar. So India's role in global trade is absolutely vital. Now the question about exporting and the viability of exports, prices go up and down. I think looking forward, the full future and looking at future prices, they all go quite well, frankly speaking. We've had some disruptions. The disruptions have been because of geopolitical events and also because of a strengthening dollar. But I see that India has been certainly export sugar is especially the coastal states as we move into the next season. In fact, they're already gearing up quite substantial to be able to export this quantity of sugar. One point that I would like to leave with you is, that if the nation has exported in clinical of 11 million tonnes, which is a total record, something that people could not have believed even 12 months ago. I think our capacity to be able to quickly export sugar as well and evacuate this sugar quickly is something that is -- that will certainly happen. So whatever the quantity that is released by the government for exports, I see that getting fulfilled in the very, very near term, meaning Q4 of this calendar year and latest Q1 of the next calendar year.
The next question is from the line of Shailesh Kanani from Centrum Broking.
Sir, my question was with respect to our capacity expansion on distillery front. First is on 450 KLPD expansion, we have talked about dual feedstock. So basically, I wanted to know, if it is going to be broadly grain based or it would be going to be more on asset base. And what is the payback period for the -- this CapEx of INR 460 crores?
I'm sorry, just repeat, what is the -- what INR 460 crores?
Payback period. Payback period?
Right. Okay. So firstly, let me just say that it's dual feed. So it can take both green as well as sugarcane derivatives. So it is not a portion of grain or the other. I'll just remind you of our distillery at Milak Narayanpur, where it is exactly dual feed. We've got to set up a smaller grain-based distillery on the site. We've made the entire plant into dual feed, we believe that, that model is exactly what we would like to replicate at these 2 new locations. But of course, Sabitgarh, we haven't discerned so it's an expansion, and the other place is Rani Nangal, it will be single distillery. As far as our rate of return is concerned, as I mentioned earlier, we don't pretty disclose exact paybacks, but we certainly see a very healthy rate of return and the Board in its consideration of this has always evaluated the IRRs that we have hurdle rates that we employ of 16% to 17%, and we're certainly ahead of that as far as these 2 distilleries are concerned.
Okay. Sir, just to continue the feedstock point, I was just wondering if do we have extra molasses? Do we have extra room at the current level, assuming the same levels but also in the last year, what we had in the last 2, 3 years, do we have the molasses or it's dependent upon only of increase in availability?
So number one, the crush, we are expecting, of course, the crush to be higher. So there will be greater molasses availability. However, these distilleries will have to run either on green or a juice. So we have the juice available.
Okay. Okay. Sir, the second point on monetization of our stake in Triveni Turbine, I know you have said it, in opening remarks side, we expected soon, any timeline or anything or any floor price apart from this -- apart from Triveni Turbine, INR 171 is the rate, I guess, apart from that any development of that?
No, I have nothing more to add than what I said in my opening remarks that the divestment is under progress, and we're happy and we're hopeful or generate demand quickly and precluding the transaction earlier.
Okay, sir. So last question for myself on monsoon side, July per se has been below normal for UP, especially, right? So how is going to impact the yield, if you can throw some light on that? Last, if you can derive, I'm hearing that bit better. But in general, July has been lower than average, right?
So UP -- for UP, July has been, but I'm going to remind you of the remarks or the comments that was made by my colleague Sameer. For the Triveni factories, the rainfall has actually been absolutely perfect, because we have some factories which are greater about low-lying area, where frankly speaking, we do not want excess rainfall. And we have benefited over there, we're seeing fantastic growth. And in the areas where the levels are normal, high line areas, again, just at the onset of any drivers we had fantastic to inform and this is perfectly timed for the brand growth period. In addition, I must tell you that all of our factories are [indiscernible]. So in terms of irrigation and supply from groundwork from [indiscernible] that is a distinct possibility for farmers, so I don't foresee any negatives as far as the monsoon or rainfall or irrigation is concerned. Let me just say as far as irrigation is concerned for Triveni. In fact, I think we do not want excess rainfall. Last year, we had unseasonal in excess rainfall in some of our factories in western Uttar Pradesh. And this year, clearly, we're moving in terms of the best possible scenario.
[Operator Instructions] The next question is from the line of Sanjay from ICICIdirect.
Just have a few questions on the new capacity which you have announced. What I understand -- hello, can you hear me, sir?
Yes, Yes, I can hear you.
So what -- I understand that it includes the grain-based capacity also. So if it is -- if you think that it will be running on the 6-month basis in the off-season, would it be right to assume that the full year volumes from the grain would be somewhere around 9 crore to 10 crore liters?
So it could very well depend. I mean, even if we see -- we're just calculating this for you, we think -- but let me just say that it has great optionality. So it may or we not run on juice during the season as well. That is totally dependent on what's the prevailing juice prices. As I mentioned in the question ago today, the pecking order of returns is be heavy followed by grain followed by juice. I do anticipate an increase in prices because of the FRP increase and also because of the recent increase in prices that the central government has announced. And that covers very well for next year's ethanol supply year. And therefore, based on that, we will have that optionality. But if we were to operate in a scenario where during the season, we were on juice and during the off season, we were on grain. It would be about 7 crores on an annualized basis.
Okay. Okay. And if I can get some guidance about the current year's ethanol volumes and if you can give some guidance about the next year as well?
So we're looking at above 18 crore liters for this year in terms of total spirit. And next year, not including the new distilleries…
We have given a guidance of about 21 crore liter earlier, and it will go up to with the new additions, it will go, let's say, about 25 crore liters.
Okay. Okay. Perfect. Just one on the macro front, given the fact that we are having such a huge production now and means the -- we'll be at 40 million tonnes on a gross level. Would it not be a risk for the sugar prices going forward, given the fact that we may or may not be able to export as a country the huge quantities of 7 million to 8 million tonne and in any event of global price declining substantially? And would it also not sort of contrary to what the government earlier was thinking that replacing the export -- exports with the ethanol divergence? This is despite the ethanol divergence -- despite the 6 million or 7 million tonne lower diversion of sugar towards ethanol, we still would require 7 million to 8 million tonne kind of an export every year?
Okay. So I think you've asked a fairly complex question, okay? But it's the right question to actually ask. As far as next year is concerned, let me try and answer all the 6 or 7 questions you've just asked. Number one, can India export sugar? Yes. Can it export right now? Yes, it can. Where is it exporting from? It's exporting from Karnataka and Maharashtra, and they're ready to export. Millets, at this particular point in time, are ready to enter contracts for next year. If they were, they would be starting their factories as early as they are in October of '22 at the start of the net season and starting the marketing grows. And frankly speaking, with the start of both the states and the started rows, all that sugar simply has to be exported and it will be exported earlier. We'll be exported earlier for 2 or 3 reasons. Number one, because I personally believe that there will be some hardening in prices globally, as we move forward towards the next 2 year. And number 2, because of massive cash flow benefits to the exporting millets in terms of quick price realization, otherwise it lies in the stock that they're subject to the release and control mechanism. So I do see India as being exporting this quarter of sugar even at these price points. Going forward, I think there is no question about it. If the prices harden, then clearly, it may even be faster. And I've also given an indication of the time line when I expect this export to happen. Number 2. Going forward, which you're talking about a multi-year situation, I think India's export campaign has to be one that continues. And the reason for that is very simple. We have developed very strong loans for Indian sugar. If India dispels like it did, like if you go back into our 20 or 30-year history, India comes into the market that disappears from the market, et cetera. That has been the trend as the sugar cycle had existed. I believe the sugar cycle does not exist any longer in its previous one, certainly. And therefore, with continued export over the last few years, India's role in the global balance sheet is ever more important, especially as far as homes in the Northern and Eastern Hemisphere are concerned. And so I believe that, yes, greater quantum of sugarcane will be diverted towards the ABB program. And as we're producing a gross value of over 40 million tonnes going forward, I see that number going higher. It has to go higher, and it will go higher. And we will be able to meet our demand for ethanol and some quantum certainly for exports in the medium to longer term. That is the type of very happy scenario that I see fructifying over the next few years.
[Operator Instructions] The next question is from the line of Rajesh Majumdar from B&K Securities.
Sir, sorry, actually. I just have one question because some of my questions have been answered earlier. You mentioned sir that the proportion of molasses versus grain will be 2/3 as against what [indiscernible] has been saying at 50-50. So that is one. What your comment on that and why it should happen? And a related question to that is, what percentage of increase do you expect to choose that would still be economic heavily towards juice versus grain because my personal thinking is the grain-based capacities are not going to be even 20%. So just thoughts on that?
Well, then you're thinking in the same lines that I'm thinking, which is that sugarcane plays the most important role in our march towards E20. I can't comment on the [indiscernible] number. I rely on our team and our own modeling in terms of sharing Triveni's numbers with you. And we believe that at least 2/3 is going to come from sugarcane. And it is exactly for that reason because the number of applications for grain-based distilleries maybe 20. But physical establishment of infrastructure for solo grain is going to be limited as we go forward. Now in terms of answering your next question in terms of price, I see another -- given the present status quo, if we have another INR 5 increase in terms of juice ethanol pricing, that is a very happy scenario between INR 5 and INR 5.5, will be a very happy scenario and would see much greater investment in terms of juice capacity.
And sir, there was a talk of some new technology like Brad, which allow you to store these for a longer period as against using bioenzymes. Does that help in terms of the [indiscernible] between juice and grain?
Well, it does -- theoretically, if you had -- if you did not have dual feed, you had single feed, then you'd be able to utilize your juice for a longer period during the off season. The same debate happened with re-edible assets. The real question of re-edible assets earlier we can we actually store it through the duration of the offseason. And the answer, of course, has been as we can. Now if we look towards juice storage, the quantum that we're talking about are much, much larger. So for somebody to be able to start using juice through the off season, the kind of expense in terms of storage is fashioning. It may not quite work out. And that's something that you have to consider.
So you may have to produce the ethanol and store the ethanol for longer periods of time rather than store the juice? How long it needs towards the end on?
As almost, there is a shelf life on ethanol.
The next question is from the line of Shreyas Mehta from SKB Securities.
Sir, I would like to know whether we have finalized any vendor for the setting up of this expansion of distillery program?
No, not.
Sir, any plans to finalize in near term, and you can elaborate on that anything?
Yes, I think in this kind of scenario, we will certainly be looking at costs very, very closely and looking at vendors that can match our costs given what's happened to metal prices going forward. And in terms of closing out the ordering, it will happen. So it will happen soon. But at this particular point in time, it has certainly not happened, and we have not finalized on vendors. But we're very happy with the kind of expansion and capacity that we're looking at in terms of incorporating new vendors potentially and relooking at our earlier vendors.
Thank you. The next question is from the line of Udit Gupta, individual investor.
Good afternoon, sir. The likely terms for FY '23, we are looking at 18 crores liters, in FY '24, we're looking at 25 crore liters. So after this entire capacity comes online, how much can we look at in FY '25?
We would be looking on an annualized basis once the assets are stabilized at somewhere in excess of about 32 crore liters.
Okay. And sir, my next question is that like the government is looking at [indiscernible] reflection going forward. So by when can we expect the cost to become compatible with [indiscernible]? Is there a time line given by the government demand?
No, the government has it. Because as far as flex fuel is concerned, we're talking about E85. In fact, even the decision whether it's going to be E85, E93 or what percentage is going to be has not presently been declared. I see that scenario happening only when we get closer to '25, '26, where those important decisions have to be made. So I think over the next year, we're not going to hear anything about greater levels of blending. But maybe 18 months down the line is when you can expect to start hearing more discussion and hopefully a price because as you can well imagine, a lot of capacity has to be developed to be able to meet that energy requirement and that demand.
So E20, sir, is there any government requirement for the cost?
I'm sorry. Can you repeat the question?
E20?
What about E20?
Sir, are the cars expected to coming by next year or something, the new car?
Absolutely. My understanding is that the cars are expected to be in place by the start of the next financial year. And 2-wheelers. And we assume 2-wheelers. The greatest construction is actually 2-wheelers. In fact, most cars, I think, are already pretty much there in terms of material composition, et cetera. There are some changes that are required, as I understand technical changes in the engine that are required, that they'll be done. But the real question is about 2-wheelers, and I believe that, that will be beginning of next year.
Next question is from the line of [indiscernible].
Thank you, sir, for my follow-up question. So my question is for Power Engineering business and Water business. So basically, we are looking at a margin decline on a Q-o-Q basis. So is this because we couldn't take pass-through and we will take it in the future quarters to come? Or what is the change? Also, the percentage of O&M orders in the Water segment has been more or less stagnant. So are we looking at O&M portion or is more of the EPC portion which is increasing? I think that's it.
So yes. So 2 questions, I think to look at the revenue, the margin percentage. The margin percentage is, in one quarter it's not exactly the same because it depends on what we have dispatched, well course of the year uncertainly we're not looking at any change in terms of our overall margin structure across the businesses. In fact, I think when I talk separately about both the Power Transmission business, to be able to grow at the pace that it is with the order booking very much in place is quite positive that it is doing it without the cost of margin valuation. As far as the Water business is concerned, certainly, I would, again, I would encourage you to look at a longer time horizon because of how we book our revenue, et cetera, and to look at the annualized results in terms of overall margin. As far as the O&M specific question is concerned, there is absolutely no intention of transition of one or the other. This is just how the businesses have about over the course of the last quarter. As we go forward, the projects have or otherwise that we're tendering include healthy portions of O&M. And in fact, it is a very determined strategy of our business to offer O&M services to our customers. So this is something that we do very well. This is something that our customers want. We're certainly not about to do away with that.
So current order book consists of margin -- higher-margin value-added order?
I will not comment on the margin of our order book because I haven't in the past.
Okay. Sir, my second question would be for the Triveni Turbine, the consideration which we will be getting or that is will be completely used in the new CapEx? Or are we planning what is the capital allocation for the sale?
So in terms of the new CapEx, we've announced INR 460 crores of CapEx. Certainly, a portion of it would be funded by debt because debt is under interest of mention, and we would be rather foolish to take that. As far as the distillery assets are concerned, the equity contribution will certainly come from internal accruals because the businesses are throwing off annually, very healthy amount of cash. Now as far as proceeds on the sale of TTL shares are concerned, what I can share with you is there will be 2 things. It will need some of the global CapEx requirements of the business, and the remainder will certainly be returned to the shareholders of the company.
Okay. And my last question would be you are seeing the size of or the grains have been increasing on a sequential basis. So are we getting any impact in the higher prices? So is the incremental cost or the benefit given by the OMCs able to cover the incremental cost increase of the raw material, which is the grain feedstock?
Yes. Yes, your assumption is absolutely correct. It is, in fact, more positive, marginally more positive percentage, and it certainly covers the increased costs.
And we still have more availability of the grains or the feedstock for our…
Absolutely. We're running at full capacity at our full rated capacities. And so we have sufficient feedstock for the remainder of the supply year. Absolutely.
The next question is from the line of Pratik from Systematix.
I just wanted to, sir, what is the current sugar price actually?
The current refined sugar price is INR 36.30 for refined sugar, maybe INR 36.40 even today and about INR 70 for a quite lower, so about INR 35.60 for plantation wide.
Right. And then now we see the FRP has also been increased. So -- but the MSP continues to remain at 21%. Any talks on MSP going up or any flat fee on that front?
I say, I can't offer any clarity. The industry is certainly asked for an increase in MSP. I mean, sugar has been sold well above MSP throughout the country. So it is certainly an ask of the association. We, at Triveni, have also risen to the government requesting them to reconsider on the MSP at this particular point. But I'm afraid I have no news to offer you in terms of any progress on any developments from the government in terms of actually increasing that MSP.
Right? But sir, now on the ethanol prices, of course, it will have a positive impact, right, because in line with FRP, we can expect the ethanol prices to increase in the next year?
Absolutely. And you would expect the ethanol prices to increase because of 2 factors. Number one, the recent increase for the remainder of the ethanol supply year is a very progressive move by the government to ensure that the increased costs have been taken into account and that there is no margin dilution for ethanol manufacturers, very, very progressive. Similarly, with an increase, those are sort of more operating costs and some raw material costs, et cetera, that have gone up. But your main cost, of course, is sugarcane, as you know. So with the FRP price having gone up, it is -- I am very confident that the government will have a very healthy increase in ethanol prices derived from sugarcane. And also for a variety of reasons, I expect ethanol price of grain to also be higher.
Next question is from the line of Anupam Goswami from B&K Securities.
Sir, what is the margin of this IMIL that we made, I recall?
Right. So at this point in time, the unit is losing a little bit of money. We expect not a very substantial amount, but a small amount of money is being lost, and this is really in terms of development costs and marketing costs that we have in place for the IMIL business. Going forward, I would also like to mention that we do not have -- we have not had an increase in the sales price of IMIL for many, many quarters. We expect that when we go beyond H1, we will be absolutely fine that we will be in the black.
Okay. And sir, by H1, sir, what kind of volumes are we looking at such a breakeven?
So we've really not given any disclosures in terms of volumes. So volumes are constrained because of manufacturing capacity and the legal limits that we have. At this point in time, we're at a maximum run rate of 4 lakh cases a month.
Sorry, sir, I did not catch it out, run rate?
4 lakh cases a month.
4 lakh cases a month. Okay. So annualized, that is the target for this fiscal year?
No, it's not quite the target because it really depends on where we are and what supplies we have. As you know, within the IMIL business, there is greater attraction for petrobras and we have several petrobras machines that have been ordered -- it will be commissioned over the course of the year. So it is dependent on the supply format as well, expect versus tetrabasic, where tetrabasic is clearly more desirable by the market. And so as and when that comes in -- and if that is commissioned, that there are, unfortunately, some delays in terms of getting that pace. It works out just fine because we're in the process of establishing greater market share in the markets that we supply in. So indeed, as and when that is commissioned, we will be able to supply more of high buyer, as per our legally rated capacity.
Next question is from the line of Shivani Sharma from Power Bulls Capital. Participants, I now hand the conference over to the management for closing comments.
Thank you very much, ladies and gentlemen, for joining us for the Q1 earnings conference call for fiscal '23 for Triveni Engineering & Industries Limited. As we look forward to this quarter and beyond, I think that as far as sugar is concerned, we have to watch and see how the monsoon progresses by the time we speak to you next -- for the next quarterly results, I anticipate that the sugar season of Triveni will have almost started or started and we'll be in a much better position to give you hard data in terms of next year, which that sugar year, which I expect to be actually a record year, certainly, for Triveni in many respects. The Engineering businesses continue to deliver very positive growth, and I look forward to reporting to you more positive news next time around. Thank you very much, and have a good day.
Thank you very much. On behalf of Triveni Engineering & Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.