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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to Triveni Engineering & Industries Limited Q3 and 9 Months FY '23 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, Mr. Barar.
Good day, everyone, and a warm welcome to all of you participating in the Triveni Engineering & Industries Limited's Q3 and 9 months 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 may be forward-looking in nature, and a statement to this effect has been included in the invite which were sent to everybody earlier. I would also like to 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, Rishab. Good afternoon, ladies and gentlemen, and welcome to the Q3 9 months fiscal '23 earnings conference call for Triveni Engineering & Industries Limited. The overall performance of the company for the 9 months ended December 31, 2022, has definitely been satisfactory. The key highlight I'd like to discuss that before we get into the business-wise detail are the following. The sugarcane crushed for quarter 3 fiscal '23 is 3.12 million tonnes, which is an increase of 25.3% over the corresponding period of the previous year. And this is a result of the CapEx that was spread on modernization and debottlenecking at 3 of the factories of the group. The net recovery stood at 9.38% after the diversion of B-Heavy molasses with 92% crush with B-heavy molasses during the quarter. The lower recoveries, which I will discuss later, are mainly due to the heavy late rains. We are expecting to narrow this gap in the balance part of the season as our sampling data suggests that the plant came which will start coming to the factories in the next couple of weeks is showing great promise.
The company has achieved sugar exports of 135,000 tonnes, which includes the sale of quota of 73,000 tonnes during Q3 fiscal '23. And this is, of course, at a total quota of approximately 205,000 tonnes. All of this has been attributed to cumulative prices.
The increase in net distillery turnover by 61% in the 9 months have been driven by additional capacity for commission during the course of the year, and this leads to sales volume increase of just under 40% coupled with a 8% approximate improvement in realization. So there's been a robust increase in the turnover of both the power transmission and water business growing by 29% and 41% approximately year-on-year for the 9 months. The outstanding order book for our engineering business stood at INR 1,766 crores.
Yesterday, the Board of Directors at our board meeting approved a CapEx of INR 90 crores for the sugar business and INR 100 crores for the power transmission business. The proposed CapEx of INR 90 crores towards our sugar business is for a process change as Milak Narayanpur towards refined sugar and modernization, debottlenecking and most importantly, efficiency improvements at various sugar units, which will lead to substantial cost optimization and a reduction in our cost of production.
The promos CapEx of INR 100 crores in our power transmission business is towards a brand new bay that will be set up with complete equipment for a new gear shaft. This will be at our existing facility at Metagalli in Mysore. And it will also include machinery towards our defense business project and plant which is a separate facility that will be set up over the next 12 months as well. For the power transmission business, this will lead to an enhancement in terms of total capacity from a base of approximately INR 450 crores to INR 400 crores.
I'd like to also spend a few minutes discussing the financial highlights for the 9 months of fiscal '23. Profit before tax before exceptional items increased by 7.4% in the quarter. The profitability in the sugar business is lower as the cost of sugar sold pertaining to the previous season includes the impact of sugarcane price, which was increased for sugar season '21, '22, and led to a higher cost of production when compared to the previous corresponding quarter. Further, is for the 9 months of fiscal '22, these numbers also include an export subsidy of INR 57 crores related to the previous periods.
The higher profitability of the engineering business is due to strong revenue growth of 45.8% and 35.8% during the current quarter and 9 months period compared to the previous corresponding periods. The total debt of the company stood at INR 389 crores on a stand-alone basis versus INR 525 crores on the 31st of December '21. The stand-alone debt comprises of term loans of INR 335-odd crores. Almost all these loans again are with interested subvention or at subsidized rates of interest. On a consolidated basis, the total debt is INR 480 crores compared to INR 592 crores for the previous period. The average cost of funds on the 31st of December stood at 4.75% versus 4.15% in the corresponding period of the previous year.
The company at this point in time is holding surplus funds through short-term fixed deposits of INR 1,278 crores. A proposed buyback of INR 800 crores is presently under approvals. The stake sale in Triveni Turbine Limited has a few substantial funds in the company, which, even after the proposed buyback, will meet the expansion requirement of the businesses and reduce finance costs for working capital requirements.
I'd like to give a brief update on the buyback. The company has obtained approvals from shareholders. The draft letter of offer has been filed with SEBI and the final observation letter is awaited.
Turning towards the financial highlights. Again, I'd like to point out that for the quarter, the revenues from operations per company grew by 34% to INR 1,658 crores or INR 1,659 crores, and the EBITDA margin stood at 16% at INR 230 crores, and the PAT was a shade above INR 147 crores.
I'd like to now spend a few minutes discussing the various businesses in a little more detail. Starting with the Sugar business, our realizations during the quarter were INR 3,611 per quintal. For domestic sales and our export realization was a considerable premium at INR 4,041 per quintal for the same period. The current sugar prices as of the 24th of January at our factories, for refined sugar is approximately INR 3,560 per quintal, and for sulfitation, it's about INR 3,450 per quintal. The sugar inventory on the 31st of December, was just under 24 lakh quintal valued at INR 34.4 per kilo.
Co-generation operations have achieved external sales of INR 36.5 crores for the 9 months against INR 33 crores, an increase of 10%. I'd like to mention that our domestic realization price for this quarter is as I mentioned INR 3,611, which is a 1% reduction versus the corresponding period of the previous year. Now this to me frankly speaking, seems a little bit of an anomaly because if we look at the stock position, especially on a month-on-month basis, to have prices at the same level and merge really lower than the previous corresponding period, is a little bit of an anomaly. Frankly speaking, the expectation for the remainder of this year is that prices will gradually increase to a more healthier level.
From an industry perspective, the country as of the 15th of January, is produced 15.68 million tonnes, which is an increase of 4% when compared to the previous year. 515 mills are crushing versus 507 mills at the same point last year. And Uttar Pradesh has produced more sugar, 1% more sugar, at over 4.07 million tonnes at this particular point in time, which is in line with our project.
According to our estimates, Triveni estimates, we are anticipating net sugar production in sugar season '22, '23 of 35 million metric tonnes, and this is lower than the previously announced estimate as well as fleet estimates, which were approximately 36-odd million tonnes. We still believe that this is a very healthy amount of production and with 6 million tonnes of exports that have been announced, there is impossibility of a second tranche of a maximum of probably about 1 million tonnes that can be considered by the government. And our hope is that the government does consider an additional tranche very soon of 1 million tonnes of sugar. And the window to truly export sugar from India will end with the sugar season. And that is approximately the point in time when Brazilian sugar, et cetera, will also be in global markets.
Turning to the international markets based on reports, the forecast is that sugar season '22, '23 is a surplus of 3 million tonnes of sugar, and this is primarily due to a substantially larger crop in Central South Brazil, as well as an increase in Thailand. The global sugar prices have also softened very recently, but these are -- it has been fluctuating for quite some time and very substantial and improved pricing in global markets.
So today, after touching highs of over $0.21, $0.2118 in December '22. New York #11 futures are now trading at about $0.198 per pound; London White, the #5 contract, was trading at $551 per tonne, down from the recent highs of about $580 per tonne in December '22.
So we're sort of hovering around recent highs, which is quite encouraging and which leads me to the point that if we were -- if India were to export another 1 million tonnes of sugar, the timing is very appropriate right now. The world market will certainly absorb that sugar and Indian mills will receive remunerative pricing.
Turning towards our alcohol business, we've had an 87% increase in production for the quarter under review. The same quarter has had an increase in average realization of INR 2.5, which stood at INR 56.6 per liter. Additional capacities have been commissioned in the 9 months, which has aggregated -- which has resulted in the increased sales volume and the aggregate distillation capacity now stands at 660 kiloliters per day. The profitability margins have been somewhat impacted by an increased transfer price of B-Heavy molasses. And as you will note, we adjust the transfer price to be more relevant with the market prices from time to time.
The sale of ethanol produced from grain accounted for 33% and 20% of total sales volume in the current quarter and 9-month period correspondingly. The ethanol produced from B-Heavy molasses constitutes 57% and 72% of sales volume in the current quarter and 9-month period against 88% and 80% in the corresponding periods of the previous fiscal year -- of the previous year.
From a domestic industry perspective, of the 470.5 crore liters that's been finalized by OMCs against a total requirement of 600 crore liter contracts, for just under 460 crore liters have been executed until January 1, 2023. Against the above, 38 crore liters have been lifted by OMCs by January 1. The average blending is 10.43%. The target, of course, as we all know for the nation after this year is 12% of blending. The total contracted quantity from sugarcane juice and B-Heavy molasses, 133 crore liters and 204 crore liters, respectively, until January 1, 2023. 5.8 crore liters in the contracted quantity towards C-Heavy molasses, 18.7 crore liters from damaged food grains and 97 crore liters from surplus rice.
Therefore, the sugarcane-based feedstock continues to be the dominant contributor towards the ethanol blending program. And my view on this is fairly clear. That as we go forward and approach levels of EBP 20, the sugarcane sector should continue to play a disproportionately high role in terms of the government EBP program. And we definitely need that to be accounted for in government policy. And I'm alluding directly towards the pricing of ethanol that is made from juice. Because I think it is the most reliable source for ethanol and for the EBP program as we move towards the 1,000 crore mark and beyond.
Turning quickly to the Engineering businesses, I'd like to start with our Power Transmission business, which has seen revenue increases in the quarter of 71% to INR 60.5 crores, and a PBIT improvement of 91.5% to share about INR 21 crores. The closing order book is 23% higher at 262.75% -- sorry, INR 262.75 crores. For the 9 months, the order booking grew at 10% for the same period. And I will, of course, be happy to discuss the changes in the CapEx of the power transmission business during the remainder of this call.
Turning quickly to the water business, there's been a 34.4% improvement in revenues in the quarter to INR 104 approximate crores. And the closing order book is a shade above INR 1,500 crores, broadly in line with what it was in the previous corresponding period. And the above results are based on the consolidated perspective, including our wholly owned SPVs. The orders that have been achieved in the water business for the 9-month period stands at just above INR 190 crores, excluding OEM -- O&M orders. The company is expecting robust order booking in the coming quarters, and we're anticipating several important orders to be concluded within Q4 of this fiscal year.
I'd like to spend just a few minutes talking about the outlook of the various businesses. As part of the sugar business is concerned, as a result of the debottlenecking and modernization carried our start factories or crush is expected to be significantly higher this year. We are still maintaining as we did on the call -- on our last call before the sugar season or just about when the sugar season had started that we will have a higher crush of between 9% and 10% this year. Of course, with the CapEx that have been planned, we propose that we will have a higher crush in the next season, an even higher crush compared to this year as well. But the current ongoing season, there is a declining trend of recoveries across the state of Uttar Pradesh for the returned crop. And this is due mainly through the rains during the grand growth periods and thereafter in late October.
However, we've had fantastic conducive weather and this is expected that there will be a catch-up for the balance part of the season with the plant crop coming to the factories. Our test data from our labs indicates very positive results for the plant crop which we anticipate coming to our plants over the next. But the start will happen in the next week or 10 days up to 2 weeks, depending on each plant.
Considering the crush and recovery expectations, we expect higher production for the year. And with 60% of our total sugar being refined sugar and the doubling of the pharmaceutical grade production plant, this would all boost realizations and profitability in the coming quarters. The plant at Deoband, which was converted into the refinery is operating brilliantly, and the sales of that refined trigger will be reflected in Q4 and beyond. A very small quantum was reflected in Q3.
On the policy front, we believe this is the most appropriate time for the government before the budget to consider during the budget and increase the MSP of sugar to offset the impact of cost and grain prices, et cetera. As I mentioned, the Board has also approved a INR 90 crores CapEx further modernize to debottleneck the plants and for efficiency improvement or cost to various facilities.
I would like to also mention that the recoveries for this year and last year are not directly comparable because last year, our largest factory at Khatauli ran on C-Heavy molasses. And therefore, a higher recovery versus this year, the factory has run at 6 out of the 7 plants have run on B-Heavy molasses, quantums are different as I mentioned earlier.
Turning to the outlook of our alcohol business, we have a capacity of 660 KLPD and a planned increase after 110 KLPD with 2 more distilleries, both of the new ones being dual feed. We believe that, that is the modus or any 4 sugar mills that should be adopted giving you ultimate flexibility in terms of looking at the bottom line and the availability of different feed stocks for the distilleries.
We're encouraged by the recent increase in ethanol prices. However, there is an urgent need for the government to improve the pricing of ethanol produced from juice. It is our understanding that the government is concentrating as well as an improvement in ethanol prices from grains, as far as Triveni is concerned, we have 260 KLPD that can operate on grain or the 660 KLPD. So therefore, we do have a great deal of flexibility of being able to take advantage of the relative increases in prices as and when they happen.
Looking at the Power Transmission business, the outlook for the domestic product segment within high-speed gears is extremely promising as industrial CapEx in sectors like cement, energy, distillery, steel are growing and have been supported by policies and robust economic growth. And we're very encouraged by the increase in demand from these sectors. I would like to mention that following the expiration of the high-speed license agreement with Lufkin Gears LLC, which happened just a few weeks ago in January 2023, the company will pursue the high-speed, high-power segment independently and it is confident and I am confident of enhancing our market share in identified target markets, which includes global markets.
In the aftermarket business, the company is focused on expanding its addressable market and market share looking both at domestic and identified target markets. The government Make in India initiative has led to new opportunities for diverse engineering products and the Power Transmission business is actively participating in many of these indigenous projects.
In the Defense segment, the business expects strong orders and areas such as -- in areas such as propulsion shafting and many others. We believe that there is long-term growth in this segment combined with the machining infrastructure that is likely to show growth over the coming years. Furthermore, the LM2500 package in digitization, the agreement that we have with GEAE is expected to grow and to result in positive and good revenues for this particular segment. With a CapEx of INR 100 crores, which is split sort of 2/3 -- sorry, in the 66% for gears and 33% for the defense business, that will allow the business to really meet the accelerated order booking that is anticipated over the next few quarters.
Very quickly for the order -- for the water business outlook, the company is expecting a fantastic order booking, hopefully in the next -- in this quarter and in the next quarter, with many projects coming under conclusion. We are expanding our activities in overseas markets, as I mentioned earlier. And that too -- and there are certain tenders in international markets, which will also be concluded during the first half of this calendar year. And there are many attractive states such as Karnataka, Uttar Pradesh, Punjab, Delhi, Telangana and Maharashtra where the company is working aggressively on securing projects.
The overall output for EPC and HAM projects, which is driven by large investments for the government, both at the state and central levels is extremely positive, and we hope for some positive news on that front as well.
Thank you very much, ladies and gentlemen. With that, I'd like to conclude my opening remarks and open up the floor for questions.
[Operator Instructions] The first question is from the line of Sanjay Manyal from ICICI Securities.
Just a few questions I have. I wonder if you can give a range for the gross recovery decline till December and till date? And what is your expectation for the full season.
So the gross recovery declined till 31st December was about 0.39 units. As we stand today, we are around 0.34, 0.35 units down -- and we believe that we'll be very close to last year's figures. We may not touch it, but it's generally at a touching distance.
So you are expecting there would not be on a full season basis there should not be much decline.
There will be a decline, but not significant.
Sure. Sure. Just on the accounting purpose, you have...
Also, let me just add to it, and this is predicated on the plant game performance, which is yet to come, which will come in February. It may even turn out to be better than what we are seeing at our labs right now.
Sure. Sir, just 1 more thing on the accounting purpose, where have you accounted for this INR 29 crores profit book from the quota set.
It is recurring as a part of the revenue.
This is not the part of other income.
No, it's not a part of the other income.
Okay. And just 1 last thing on the alcohol side. I think you are still selling some 10% around ethanol from C-Heavy. Given the fact that it is not tax remunerative, why you are still selling C-Heavy...
We are not selling from 10% of ethanol to -- from C-Heavy. It is largely ENA, which is for our in-house consumption for IMIL business, as well as a little bit of grain ENA.
And just lastly, if you can just elaborate on the engineering business from a 2- to 3-year perspective, what is your vision for this business, given the fact that you are taking a substantial CapEx. What do you think -- how the revenues for the gears, as well as the defense business can pan out in next 2 to 3 years?
So you've seen the growth in order booking across the power transmission business. And I've always given this as a combined number, which includes gears and defense. And we're anticipating that on the defense side, certainly, there are a lot of projects that are gearing conclusion. The growth has been very good this year. It will fructify into revenues. And therefore, that business requires an independent facility for -- we manufacture all of these very products. That's part of the CapEx. The other portion of the CapEx that has been announced is for a brand new facility and the same complex in Mysore because we will be touching full capacities at some point during the course of the next fiscal year. And so we need to set up a brand-new facility because we are seeing this business growing. We're seeing -- we're anticipating larger quantums of business both from OEM and aftermarket sales, and therefore, there is a requirement for newer capacity addition.
Now in terms of a 2 to 3 year perspective, I think the growth that is anticipated across both these businesses of power transmission is extremely robust by looking at not just the domestic market contributing towards it but also select international markets. And the signs of that are already flowing in, in terms of enhancement of order booking from key customers. So I definitely don't give you numbers in terms of what our anticipation is, but we've been growing at good rates. I expect those excellent double-digit rates of growth to continue.
The next question is from the line of Yash Agarwal from JM Financial.
Congrats on a good set of numbers. Firstly, what is our distributed capacity at the moment in terms of liters? Annually, how many liters can we do? And going forward, what are our plans to enhance this capacity further and what amount of liters would that get us to also?
Okay. So we have enhanced our capacities very recently. There's been 1 distillery that was commissioned in April of 2022, a second distillery that was commissioned in July of 2022 -- June, July of '22, taking our total capacity up to 660 kiloliters per day across the 4 distilleries. This year, as we have projected, we will be producing about 18 crore liters of alcohol.
On a steady state, the 660 KLPD which will be next year fiscal '24 will produce just a shade about 21 crore liters of alcohol. The Board has also announced a further addition of 2 distilleries of 225 KLPD each which will be commissioned in Q4 of the next fiscal year. Those distilleries when they are running at full capacity will take our total production above 31 crore liters.
Okay, sure. That's helpful. Secondly, this question again on sugar prices. So you mentioned that you expect sugar prices domestically to move up as the season progresses. On that count, what is the probability of a further cut in production numbers from 35 million tonnes? Because I think we started at 36, 37, now we're down to 35. So is there any further probability that the domestic production could be lower? First question is that.
And second question, obviously, is suppose the government does not allow exports -- further exports beyond 6 million tonnes. Would that pressurize prices or subdue the momentum in terms of prices in any way?
So I think the -- my interpretation of this is that the markets -- at this particular point in time, have taken a view that the government will have no further exports. And therefore, if there are exports that happen, it will certainly boost domestic sugar prices, number one. That's an important point to consider. So I don't see any downside from a perspective of the government does not announce another 1 million tonnes of exports. It will have a dampening effect. In fact, it's quite the opposite. I think it's already been factored in. If there is exports, it will boost domestic prices. Number one.
Number two, further downside revision one -- of course, anything can happen because we are leading with agricultural products. And last year, the most significant impact on the plant crop was unseasonably high temperatures in the month of March. Now today, as we stand at the end of January, we are still 35, 40 days away from March. So metrological data suggests, which is far more accurate suggests that we will have normal temperatures as we go through the rest of the season.
Now in case that is -- that remains so I believe that there will not be any great vacillation from the numbers that we project from the country out of any estimates of 35 million tonnes of production after a diversion towards ethanol. However, there is any possibility. I don't think there is a great possibility of the production, the net number be higher than 35 million tonnes frankly speaking.
Okay. Got it. Also, I wanted to know what is the diversion to ethanol that we've considered in the current sugar season? And what could possibly be the division in the next season once more capacities come along in the country?
So the diversion this year is taken -- we've taken it to 4.5 million tonnes. There is a little bit of work that is required to touch 4.5 million tonnes. And my hope is that with the subsequent tenders and the government thinks to proactive in terms of facilitating with 12% lending for this year that we will see more diversion of sugar as the season concludes by March -- sorry, by May, by the end of May. That's number one. As far as next year is concerned, I think it really depends on the capacity addition that takes place.
Now the capacities, frankly speaking, new capacity addition from sugar factories to process juice has waned. So the sugar industry investing large -- into large distilleries, that is not projected to increase by any dramatic amount between now and the next year. And as a result, I don't see that increasing. Although I do believe that we need higher prices of ethanol based on cane juice and then -- and we will very quickly see more investments happening.
So there are a few isolated distilleries. Triveni has 2 coming up, a few other groups that have a few coming up and nothing substantial. But I do believe the government is looking at this, and my hope is that, that policy will change, and it will allow the sugar industry to divert more juice taking it up to at least 6 million tonnes of diversion and beyond over the coming years.
My personal view is that the sugar industry should be able to divert off of 8 million tonnes of sugar towards the ethanol blending program. And that should be a most sustainable model over the medium to long-term basis.
So last question from my end. What approvals are required for the buyback to go through?
It is -- major thing about the shareholder approval, which we have already received. And we have given all the draft advertisements, et cetera. And the later draft, later offer has been filed with SEBI, and we are awaiting the final observation which is expected soon.
It's an open market route? Or is it a tender, the buyback?
It is a tender on a push, Yash.
The next question is from the line of Anupam Goswami from BOB Capital Markets.
Sir, I want to know what is our ethanol mix target this year and going forward.
So this year, we have already done the numbers, which I was already with you in terms of 90% coming in from B-Heavy, 90% being the total ethanol and 10% being ENA. Of that, 57% is from B-Heavy and 33% is from grains. This is for the Q3 numbers. Now for the total alcohol, which we will be dispatching in FY '23, I think the number will be from B-Heavy will be about 74% to 75% and grain will be about 25% to 26%.
So our endeavor would be more towards producing B-Heavy till the maximum can right?
Absolutely. Correct. I would also -- as I mentioned in my concluding remarks, the crush increase that is happening of 9% to 10% this year gains substantially improved feedstock for the distilleries. And the fact that we are now -- we're looking at more optimization next year means that we will have more feedstock, more B-Heavy molasses that will be available for the distilleries for the following year as well.
Okay. And this recovery scenarios, which caused due to the late rain. I was under the impression, like why haven't the price moved in UP then, if the whole UP had a lower recovery, and how chances are good that for additional export quota will come?
So I think I just answered part of that question just a few minutes ago. The movement in sugar prices or rather the stagnation in movement of sugar prices is a bit of an anomaly, frankly speaking. There is no reason given the balance sheet position as of even today that the sugar prices should be at the levels that they are. My view is that the market is relating what the production numbers will be. We are happy to give us of any estimates in terms of production today that the association meetings are happening early next week, where there will be more announcements of the production for the nation as a whole. And I think all of that once it gets absorbed, will reflect into some positive movement in sugar prices.
But according to you, how much other -- like do we need another 3 million tonnes of exports to keep the stock as well as the prices steady for the mills to have at least in margins on this.
No, absolutely not. If I run through the quick balance sheet numbers, if you have just under 26 million tonnes of consumption in the country. So let's say, 27.5 to 27.7 million tonnes and you have 35 million tonnes of production with 6 million tonnes of exports. With another 1 million tonnes of exports, it's pretty much maintained the opening balance as the closing balance for sugar season '22, '23. So there's not that much export that is required. And I think the government is judicious in this perspective and is watching what the total production numbers are.
My hope, of course, is that with these estimates coming up, the government will quickly announce 1 million tonnes of exports. However, my personal view is that the market, the trade has factored in no more exports. And so therefore, I do not see any downside to sugar prices. Frankly speaking, I only see some upside.
Okay. Some upside will obviously cause when the sales and demand supply, again, more of a demand and less of a supply it comes. Otherwise, it stays more or less at this level, the prices.
No, that's not what I said.
Okay. Because if there is no export, there would be, again, no pressure on the supply. So the prices could be at a gross level, basically.
Frankly speaking -- see prices, of course, move from time to time. There is a quota that is announced by the central government on a month-to-month basis. It has an impact on pricing. The variables that actually result in market price are fairly substantial. It is not simply a demand and supply equation. Because it's a controlled commodity, there are various elements. So it is -- I wouldn't agree with you that the prices will remain stable at this level. I think there is huge opportunity and other mechanisms to allow for price enhancements to happen. The majority of those rest with the central government and DFPD.
Okay, sir. Even though we have a -- had a good export realization, what is our cost of production because I'm trying to gauge like what caused the margin to decline like this.
If we are able to get almost the same recovery as last year, I think the cost of production would also remain at the same level. The cost of production as of 31st December is not very relevant because as of now, the recoveries are a little less. And going forward in the season, the recoveries would further improve. So therefore, you would get the benefit as the recoveries improve.
Okay. So still 31st December, since the inventory has now valued at 34.4, can we take it similar to this level 34.4?
No, that's not what we said. We said that with the rest of the season, the recoveries will improve. The cost of productions will come down. And if we achieve the same recoveries as last year, but -- and with higher crushes despite some small increases in other costs, input costs, et cetera. We will still maintain the average cost of production as last year. Just to give you an example, 31st March 2020 -- '22, our cost of production was 32.7%. So with the recoveries converging now, I think one should move towards that figure.
The next question is from the line of Shailesh Kanani from Centrum Broking.
Congratulations on a good set of execution. Sir, my couple of questions were on the PTV division. What would be the capital employed as on third quarter in this division?
Just one second.
Yes, it will be there.
Just one minute. INR 141 crores.
INR 141 crores.
INR 141 crores. Okay, sir. And if my understanding is right, we are spending roughly around INR 180 crores more in this division, considering our early announcement and the announcement in this quarter? So broadly, given the asset turns, what we have, which is, say, in the range of 5.5, we are expecting very good growth in this division. Is that understanding right, sir?
That understanding is correct. I would also urge you to consider that the CapEx that is being incurred, the total amount that you have mentioned is pretty much split towards to 1. So 66% of it is for growth of the traditional gears business. And the balance is for the new facility that is being set up defense production. The latter is required as a discrete independent facility for all the defense products, the orders that we have won as a company, and we will continue to win as over the next few quarters. And we anticipate excellent growth on that front.
As far as the traditional gears business is concerned, with a focus of expansion in certain areas, especially a dream from strategy of OEM growth and service and aftermarket revenue growth. We do need further capacity additions. And the growth rates that you've assumed are very much in line with what we expect and what we are already seeing in terms of enhanced order booking levels.
Okay. Sir, to just summarize what you said, so out of this INR 180 crores, INR 120 crores is going towards capacity expansion and 1/3 is a little bit longer just or expected, right? So that is the understanding right? Is that right, around the INR 120 crores in the gears business?
Absolutely. That is correct.
And what are the key monitorables apart from the private CapEx on you highlighted for this division because I'm not that aware with the division as such. So private CapEx would be 1 monitorable. Apart from that, other monitors for the division.
Shailesh, your line is a bit unclear. Could you just go softer and slower as we are not able to hear you.
Yes. I will just repeat it out. I just wanted to know monitorables for the division, apart from the private CapEx, what sir has mentioned in the opening remarks.
I'm sorry, what exactly do you mean by monitorables?
So what I'm trying to understand is that, see, basically, I'm expecting around 30%, 35% jump in the business. So just wanted to know where the other inflows are expected to come from apart from private CapEx. Any other monitorables for us to look out for the next couple of years in this division?
It's defense. There's private CapEx, there's public CapEx and there's defense. There are 3. And I'm not going to comment on the growth rates that you're expecting. But what I will say is that we're expecting very reasonable growth across both the traditional gas segment and the defense segment. The boost in terms of order bookings, the very large quantums of course, will come from the defense side. but that will have a longer gestation period. That will be over a large number of years.
On the traditional gear side, it is expected with shorter duration as is always, that is the nature of the business. I do want to mention that the growth will not be as a consequence of profitability. We're very proud of the margins that the business has maintained over the last 15, 20 quarters of over approximately 35% EBITDA margins and over 30% PBT margins. Broadly brushstrokes I'm giving you for the last number of quarters, and the growth will certainly not be at a consequence of that. So we're looking at profitable growth as it happens.
Okay. That was very useful. So coming to the Power -- Water division, there has been some margin pressure till 9 months. Any views on that, any particular reason for that? We are facing margin pressures on Water division?
I mentioned this in my opening remarks. I think we -- I would encourage you not to look at 9-month numbers and to wait for the next quarter and look at the annual numbers. Because a lot of this is based on execution and recognition of revenues, et cetera. And that is lumpy. The business is lumpy, the recognition is lumpy. And so point in time to look at the margins is -- will not do justice to that business and its unfair to that business. I do believe that it is a challenging business, but we have got excellent margins, especially when we compare ourselves to our peers in the group, certainly in the top echelon, and I believe that, that -- and this business is growing profitably and growing well, and you will see that reflection when you review our full year results.
Sorry to interrupt you sir, we would request you to come back in the queue. [Operator Instructions] The next question is from the line of Lokesh Maru from Nippon India Mutual Fund.
Sir, I wanted -- just wanted a hint on what you're expecting or maybe this is enough next season...
Sorry to interrupt you Lokesh, your voice is not very clear. Please speak with -- through the handset.
Hello? Am I audible now?
Yes.
Yes, you are much better. Thank you.
Yes. Just wanted a sense on what you are expecting on or what you're hearing on cap price hike expectations front, basically given that this year is on the pre-election one. So from the current sugar season and the next one, if you can provide any clue on that.
So Lokesh, this is not a pre-election year. In fact, next year is the pre-election year. And we are halfway through the course of this year, there have been press articles, your news is as fresh as mine, but my perspective is that there is really no reason for any increase to happen this year even if it is from a political perspective, from an economic perspective, I don't think there is any reason. The real improvement to farm incomes has happened as a consequence of yield and farm incomes have done very, very well. I think it is very clear to me that if there were any increase in SAP this year, it will lead to substantial cane areas.
And that is something that the government definitely wants to avoid. It has done extremely well as part to ensure that cane price payments have been better than ever before, frankly speaking. And so even at this particular point in time, I don't think that position is something that the government wants to tinker with. My view would be that there will be no increase in SAP this year. And I would certainly argue and then put forward our perspectives to the government for next year to see where sugar prices are and give our views in terms of what the pricing should be for the following year.
The next question is from the line of Nikhil Jain from Galaxy International.
Just 2 questions.
Sir, your voice is not very clear, if you can speak with handset.
Just 2 questions. So on the water business. What do we anticipate as our sustainable EBITDA margin, right, on a long-term basis? What is it that we can actually achieve? And second is that the business, the engineering business and the water business, so they are, let's say, distinctly different from the sugar business. So do management have any thoughts or any plans to demerge that at some point of time, let's say it's now INR 500-odd crores business plus, right?
You have a -- you've asked a very pertinent question. Let me answer the first one. On a long-term sustainable basis, we're certainly looking at EBITDA margins north of 10% to double-digit PBIT margins is what is the expectation of this business. Of course, there is lumpiness order value changes, it's execution changes, et cetera, et cetera. But over a long-term basis, that is the expectation at a sustainable level and a much larger level of revenues from where we are today, point one.
The second point is in terms of the disparate nature of businesses that you've commented on the Board at this point in time has not evaluated any form of demerger, et cetera, et cetera. As and when it does, we will inform the stock exchanges. Happy to come back to you to discuss it further. But at this particular point in time, the businesses are all under the umbrella of Triveni Engineering.
The next question is from the line of Rajesh Majumdar from B&K Securities.
I had a couple of questions. One specific to the company and one at a macro level. So again, on the sugar number, ESMA started off with a figure of 40.5 million tonnes as on December. And now we're hearing figures like 38.5, 39, where it will go. And it seems that this production loss is going to be coming from Maharashtra, Karnataka mostly. Is that a correct assumption? Because most of the UP mills are thinking that recoveries will be higher in the fourth quarter, and production will be slightly higher than last year. Is that a correct assumption?
So broadly speaking, I think the most significant lower production numbers are certainly coming from Maharashtra. One or 2 mills if -- I'm hearing 1 or 2 mills have already shut down, and more and more will start. So the reduction is coming there. Now as far as the ESMA estimates are concerned, I think earlier, they were broadly our own Triveni estimates were very much in line where we had 4.5 million tonnes of diversion, coming to about 36 million tonnes of sugar production. We've now reduced that number to 35 million tonnes, as we believe then the numbers coming from Maharashtra and a little bit from Karnataka will be lower to the majority of this. Uttar Pradesh should be broadly in line with what is last year, some higher -- some companies higher, some companies lower.
So effectively the same as last year.
Correct. Your second question?
Yes. My second question was a larger question on the E20. If you could give me some color on the way the supply side is gearing up because we are hearing by April 23, there will be E20 in the pumps. So how is it going to be like, is it going to be like a separate dispenser like we see abroad or is going to be like pumps changing over to E20, because the latter is not possible given that the old cars are not the likely to run a need today. So some color on the supply side because I know how the auto companies are gearing up, but on the supply side, how will the pumps gear up to sell E20.
So -- well, actually, I'll answer both, even though you've asked me only on the side. On the supply side, frankly speaking, from the announcement -- the press announcement for MoPNG, it is going to be on a pilot basis in certain cities across the country. And I think that is going to basically look at certain distribution points, certain petrol pumps that have the facility to bifurcate E20 from E10 and offer that optionality to customers. We don't know as yet what the pricing of E20 will be, very frankly speaking. So will it be at the same price or will it be at a potential discount is still something that is to be discovered. That's point one.
The second point that I would like to make is that most 4-wheelers. From a metallurgical perspective, have engines that can meet higher levels of ethanol blending. So they don't really have any performance metric issues. It is the 2-wheelers that have the bulk of the problems of historic vehicles. But going forward from 1st of April, there is no problem for any new vehicle in the country. And so this announcement strategically matches with the automobile manufacturers having E20 vehicles being sold to the public. I do believe that from a pilot perspective, it's the best way to go because frankly speaking, otherwise, creeping up from E10 to E11, 12, 13, 14 all the way up to 20, it's not a variable scenario. This is an ideal scenario, and it is frankly speaking, a reasonable move in terms of adoption of E20 across the country.
So even the old 4-wheelers...
Sorry to interrupt you, I would request you please come back in the queue.
Just a follow-up with the earlier question.
Okay.
So just -- yes, so as I understand the old 4-wheelers can also handle the E20 as per what you just discussed as per the engineering of the old 4-wheelers are concerned.
I can't comment on all 4-wheelers. But only from a metallurgical perspective, there are -- there may be some rubber part issues, et cetera, et cetera. But broadly speaking, the answer would be towards yes. Everything is shades of grey here.
So can I just supplement it? What you will have is finally 2 dispensers coming in. One will be E10, which will be the base of the protector, which may up to E11, E12 and the other one will be a E20 dispenser. So that would be the -- what the pilot is going to undertake right now. And that's how you are going to get blending. But 4-wheelers to answer your second question, by and large, should not face any problems.
We'll move to the next question from the line of Nitin Awasthi from InCred Equities.
Sir, I would like to know what was the grain ENA prices which you realized last quarter.
Grain ENA prices which we realized last quarter were about INR 54 plus 18% GST.
Grain ENA, I was referring to not in grain ethanol. There would be a difference, right. Is it grain ENA will be selling in the market.
So that's why I said INR 54 plus 18% GST. So this matches with the ethanol prices of INR 58.50 plus 5% GST. If you look at those parity numbers, you will come closer to those numbers.
Okay. Understood, sir. Sir, second question was, if -- like you mentioned, you're looking for the government to increase the ethanol prices, if the government were not to increase the ethanol prices, would it be under the investment plans going ahead in the ethanol segment.
I think the speed at which new CapEx would come up, would certainly be impacted because you are seeing material price increases you are seeing input cost increases that are happening. For example, for the grain-based plants, you are seeing that the cost of fuel has increased quite substantially. You're also seeing metal price increases and some delays. So there will certainly be an impact and will delay the amount of CapEx coming into this industry. However, is it a total negative -- not a complete negative. There is still a difference between green and molasses or truce based plants.
The next question is from the line of Rajiv Agarwal from Sterling Capital.
I just want to understand this Distillery division, you have recorded very good growth in IMIL sales, Indian Made Indian Liquor sales. So which areas do you market this product? And can you share the quantum of sales for the quarter and for the 9 months in terms of liters?
Well, in terms of the number of cases I'll just give it to you. I'll just give it to you, I'll just give it to you. What we are doing right now is that we are selling it in UP, and our focus is on 2 areas. One is which are the areas which are close to us, where we save on the freight costs going ahead. And b, is also a little distant away to some good cities within UP wherein our brand gets built up. And the numbers we have in terms of cases is about 9.31 lakh cases in this quarter and 21.84 lakh cases in the 9 months.
Sir, I wanted this in liters. Can you share it in liters? Sales in liters? Hello?
Multiply by 9, please, and you'll get the liters. Can you hear us?
Yes, yes. Okay.
The next question is from the line of Udit Gupta, Individual Investor.
Sir, I wanted to understand, sir, what is the amount of grain required to produce a liter of ethanol, sir? And what is the price of the rice that we are buying right now for the grain.
So there are 2 aspects to it. One is the surplus rice, which comes from FCI. That's fixed by the government at INR 20. And the recovery we are getting right now is between, let's say, virtually 470 liters per metric tonne of grain. The other one is what we buy from the market. That's called the damaged food grains. And their pricing has been somewhere around INR 19 to INR 25 . And we get about 45.5 plus liters per -- or 455 liters per metric tonne of the grain.
The next question is from the line of Shikar Singh, Individual Investor.
Can you put some light on the cost of production of the ethanol both syrup drive and B-Heavy ethanol and also the country liquor. Hello, am I audible?
Number one, in the case of ethanol produced from B-Heavy molasses, we have a transfer price of INR 1,000. And the recoveries are approximately about INR 29.5 to INR 30, so you can come to the material cost. And over and above that, you can take approximately INR 10 to INR 11 considering variable costs as well as the fixed expenses. So that will be your total cost of production.
And similarly, in the case of grain, I think we have already given you the figures of recovery, et cetera. We have already given you the procurement price, so you can arrive at what is the material cost per liter of ethanol. And thereafter, approximately the same amount, INR 11 to INR 12, you can add towards the variable cost and fixed expenses.
Okay. And regarding the country liquor?
No, I think we don't declare prices for conversion of country liquor.
Can you please, pardon?
In terms of grain, it's an important thing that we also get a co-product out of it and which is DDGS, which is about 36% of it and of the alcohol produced and which we market at about INR 25, INR 26. So at the end of the day, my net conversion cost comes to about INR 4 or INR 4.50. That's for grain based.
The next question is from the line of Shailesh Kanani from Centrum Broking.
Sir, just 1 question I had to ask. Sir, in Sugar division, what is your strategy to increase availability of feedstock going ahead? If you can elaborate something on that front because we are seeing good growth on that front and crushing facilities also is excellent. So can you just help me understanding on that front?
Absolutely. We have a multipronged game development strategy that has been in place. There are short-term and medium-term targets that go down to the macro -- the micro level to be over 1,000 people that actually work within the development function of the business. Now to give you a small idea of -- the work that is being done, it is being done right from soil mapping and understanding the constitute elements of the soil and improving the soil balance so that you can get higher productivity at the farm level to the actual planting of the crop to propose newer technologies across our area.
We've had a huge success, and we will continue to hopefully have great success in terms of newer technologies and better planting practices, deeper and wider, just to paraphrase et cetera. In addition to that, the provision of quality seed, seed treatment, quality fertilizers, pesticides, herbicides, et cetera. That is extremely vital.
Lastly, I think the program that we have in place with respect to technology in terms of capturing information, is absolutely vital in terms of our sourcing the cane once it is grown. So it's a multipronged approach. And the last point that I left out is the vast number of demonstration plots. The show and tell method is absolutely vital in terms of encouraging farmers to adopt more modern and current practices. And that is extremely important in terms of our medium-term targets.
And I've actually left out 1 more element, which is an association that we have with leading institutes across the country in terms of getting the best advice really at the ground level to be disseminated amongst our farmers. So it's a 6-pronged strategy that we have in place to ensure continued availability and greater availability of sugarcane.
As there are no further questions, I now hand the conference over to management for closing comments.
Ladies and gentlemen, thank you very much for joining us for the Q3 9-month results for Triveni Engineering. It's been a very interesting quarter, I believe, a good set of numbers. There have been some challenges in the sugar production front, but the other elements of the business have all performed well. As we move into the fourth quarter of this year, there is huge hope in terms of a turnaround, not really a turnaround, but a vast improvement in sugar production and cost of goods as far as sugar is concerned. And of course, the expectation from the engineering businesses as well as our distributing business is quite robust.
I look forward to talking to with our full year results in May. Thank you very much, and good afternoon.
Thank you very much. On behalf of Triveni Engineering, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.