Triveni Engineering and Industries Ltd
NSE:TRIVENI
Earnings Call Analysis
Q3-2024 Analysis
Triveni Engineering and Industries Ltd
The sugar business has shown a robust performance, with a significant increase in gross recovery for the quarter under review, standing at 11%, a notable jump from the previous year's 10.61%. This improvement in recovery, coupled with a 6.4% hike in the average blended realization per quintal, culminated in a 5.5% boost in pre-tax profits. Additionally, despite an upward revision in the sugarcane price by the Uttar Pradesh government, sugar prices have absorbed this increase well, suggesting a firm and stable market. As refined sugar production scales up due to the conversion of the Milak Narayanpur unit and the higher quantum of pharmaceutical-grade sugar at the Sabitgarh facility, the outlook for the sugar business seems optimistic.
The distillery operations faced some profitability challenges resulting from the substitution of low-margin maize for FCI rice. Nevertheless, a concerted shift to produce more sugar is expected to enhance profitability despite lower production. With an increase in IMIL sales by 25.5% for the quarter and a decrease in distillery production by only 4.2%, these challenges appear manageable in the medium term. However, with government actions leading to disruptions and a shift in feedstocks, the company looks forward to more favorable terms within the ethanol blending program that could provide greater flexibility.
The company is bullish about the Power Transmission business, witnessing expansions in demand across various sectors domestically and in Western Europe and North America. With an increased focus on growth segments like propulsion gearboxes and special application pumps, plus the setting up of a new defense facility, there are positive expectations for order bookings in the upcoming quarters. The company aims to leverage opportunities from the 'Atmanirbhar Bharat' and 'Make in India' initiatives to boost its defense capabilities and tap into market potential.
The Water business is seeking to further expand into international markets after achieving success in the Maldives and Bangladesh. Though there have been delays in project execution, the company is confident it will be back on track in the upcoming quarters. Capital will continue to be allocated dynamically towards growth, particularly within the Power Transmission business, ethanol blending program, and areas offering shareholder value. The company's strategic flexibility and investment philosophy prioritize profitability maximization and leverage of existing market opportunities.
Despite experiencing some setbacks due to government policies in feedstocks for the distillery operations, the company is adapting its strategies, including a focus on increased sugar production, which is anticipated to offset any reduced profitability from ethanol production. With plans to expand capacity utilization in the Power Transmission business, bolstered by the recent capital expenditure investments, and an optimistic view on the ethanol blending program's growth prospects, the company is positioning itself for a positive trajectory going forward.
The company is exploring avenues like the modernization of the newly acquired Sir Shadi Lal unit to enhance efficiency and profitability, indicating a potential for gains without necessarily increasing production volumes. With an emphasized focus on maximizing profitability, the company remains intent on exploring opportunities in IMIL and IMFL markets and ensuring the Atmanirbhar Bharat initiative is capitalized to support its defense business growth. This proactive approach to both optimization and innovation positions the company to navigate the dynamically changing market landscape effectively.
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Ladies and gentlemen, good day, and welcome to the Triveni Engineering & Industries Limited Q3 and 9-Month FY '24 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. Thank you, and over to you, sir.
Thank you. Good day, everyone, and a warm welcome to all of you participating in the Triveni Engineering & Industries Q3 and 9-Month FY '24 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 was shared with everyone 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 commence the call with opening remarks from the management, following an interactive question-and-answer session. May I now hand it over to Mr. Tarun Sawhney? Over to you, sir.
Thank you, Rishab. Good afternoon, ladies and gentlemen, and welcome to the Q3, 9-month fiscal '24 earnings conference call for Triveni Engineering & Industries Limited. The overall performance of the company for the 9 months ended December 31, 2023, has been satisfactory with a healthy performance in the Sugar and the Power Transmission business in particular. There were some challenges in the Alcohol business due to feedstock constraints, and the profitability of the Water business was impacted due to a slower execution on some of the projects, and these are problems relating to some customers. For the 9 months, the revenues from operations, net of excise, stood at INR 3,918 crores with a profit before tax of INR 312.3 crores and a PAT of INR 234.1 crores. At the recently concluded Board meeting, the Board of Directors of the company have declared an interim dividend of INR 2.25 per fully paid equity share for the fiscal year '23-'24 and a special dividend of INR 2.25 per share.
The Board has also approved a new venture of the business of manufacturing and marketing IMFL as part of the forward integration of our distillery operations. This would involve the establishment of a state-of-the-art bottling facility at our alcohol-chemical facility in Muzaffarnagar in Uttar Pradesh to produce high-quality IMFL products. The total cost, capital cost would be approximately INR 25 crores, and of course, it is subject to the necessary statutory clearances. The facility is expected to be ready for commencement of production by the end of quarter 1 fiscal '25, so in a few months' time.
It was also noted by the Board that the project enhancement for the Power Transmission business for INR 250 crores to INR 400 crores is under progress and is expected to be completed by December '24 instead of March '24, as informed earlier. The Board has also further approved a CapEx of INR 180 crores for further enhancement in capacity from INR 400 crores to INR 500 crores or just about INR 500 crores. It's important to note the reason and rationale for this approval at this stage is because of the longer time period in acquiring some of the very highly specialized equipments from some of the European vendors. So some of the highly specialized machines have order timelines of 12 to 18 months, and therefore, the impact -- the majority impact of the INR 180 crores investment approved by the Board will be felt in fiscal '26. It is also noted by the Board that the commissioning of the new multi-feed distillery at Rani Nangal is expected by March 31, 2024, just a few months late. Furthermore, considering present government policy and challenges in the availability of the permitted grains at viable procurement prices for distillery operations, it's been decided to keep the implementation of the new proposed distillery expansion at Sabitgarh in abeyance. So any further development, of course, will be intimated in due course. The Board has also approved the entering into a share purchase agreement to acquire 25.43% stake of Sir Shadi Lal Enterprises at a total value of INR 35 crores. The proposed acquisition affords an opportunity for us to expand our Sugar and Distillery business. It is a strategic fit for us as it is at this -- the sugar factory, the company, of course, has a sugar factory, and a 100 KLPD distillery at the sugar factory is in the vicinity of our sugar units. We've evaluated the opportunity of the company, and we believe that it is capable of being turned around by us in a very short period of time. The equity value of the target has been determined at INR 138 crores based on our estimated value of assets and liabilities, which is primarily from information in the public domain and our knowledge of the targets being in the same area -- geographical area of operation. Right. Returning to the highlights of the businesses. For our Sugar and Alcohol business, there's better performance in terms of crush and recovery during Q3 in the ongoing sugar season. The crush is higher by 6.7%, and the recovery is higher by 38 basis points on a net basis after considering the diversion of sugar in B-heavy molasses. And the sugar production is higher by 11%. That is -- it was extremely encouraging and higher than what one had forecast and spoken to you all about at our previous conversations. So we're quite happy about the improvement in total sugar production. The higher sugar realizations have helped the sugar segment profitability and largely offset the impact of lower sales and the increased cost because of the revision in SAP.
Alcohol sales of 13.8 crore liters in -- for the 9 months of fiscal '24, an increase of 8.3% over the previous corresponding period. The segment profitability has been impacted due to low margin maize operations in substitution using the surplus food grains from the FCI. The FCI rice is what was being used for the previous corresponding period. Looking at the Engineering business. There's been a robust increase in both turnover and profitability in the Power Transmission business growing at 34% and just under 45% year-on-year for turnover and profitability, respectively, for the 9-month period. The order booking also increased by just a shade under 25%, increased by INR 240.5 crores and closed at INR 297.2 crores. The outstanding order book for the entire Engineering business, including our Water business stands at INR 1,546 crores. The profit before tax for the company declined by 8.4% in Q3 fiscal '24 and was flat for the 9-month period. This is because, as I mentioned, the Sugar business reported higher profitability due to higher realization prices. The Power Transmission business also reported significantly higher profitability commensurate with the higher turnover. And there was a decline in profitability of the distillery operations, as I mentioned, with the substitution of maize for FCI rice. And the segment profitability of the Water business was in line with the lower turnover of the business. The gross debt of the company as on the 31st of December '23 is INR 515 crores compared to INR 389 crores. However, after considering surplus funds, which are held in FD of INR 369 crores, the net debt is INR 145.5 crores. The overall cost of funds is 5.25% for Q3 fiscal '24 versus 4.75% in the previous corresponding period. Looking at our Sugar operations. As I had mentioned, the realizations have led to much improved contribution margins and have offset the impact of lower sales volume and increased sale price. It's important to mention that the sugar inventories on December 31, '23, were 29.63 lakh quintals, valued at INR 36.6 per kilo. And this was a staggering 24% higher than the same situation on the 31st of December '22, where the inventory was 23.93 lakh quintals. And of course, the decisions to produce more sugar, I will be covering that in our industry update of the Alcohol business, et cetera, have allowed us to be able to produce significantly larger quantums of sugar. Of course, the higher recovery and higher yields have also helped, and higher processing capability of the company has also helped quite substantially. The co-gen operations achieved its sales of INR 30.6 crores for the 9-month period. The current realization is perhaps slightly lower than late November, early December, but still stands at a fairly healthy INR 38.80 to INR 39 for refined sugar per kilo and sulphitation sugar is, of course, lower, approximately INR 38.40 to INR 38.50 per quintal, actually. For the quarter, the sugarcane crush was 3.33 million tonnes, a 6.7% increase. The net recovery, of course, was higher at 9.76 versus 9.36 (sic) [ 9.38 ] in the previous corresponding period, with sugar production being 10.9% -- 11% higher.
The gross recovery -- it's also important to give you a flavor of difference because it gives you an exact of -- this quarter and perhaps -- and Q1 of the next fiscal year, the last bit of the sugar season has installed. The gross recovery for the company stands at 11% for the quarter under review, which is 0.39 basis points higher than 11.6 -- sorry, 10.61 for the previous corresponding quarter. The average blended realization for the quarter was 6.4% higher at INR 3,952 per quintal. And of course, this led to a PBT increase of 5.5% up to -- of INR 120 crores. On the 18th of January 2024, the Government of Uttar Pradesh revised the state advised price of sugarcane and increased all 3, the general, the early and the rejected variety, by INR 20 per quintal. And, therefore, early variety has been revised from INR 350 to INR 370 per quintal, general variety sugarcane has been increased from INR 340 to INR 360 per quintal and the rejected variety has been increased from INR 335 to INR 355 per quintal. The press note also notified that the transportation charges of cane from out centers has been improved -- has been increased by INR 0.45 to INR 9 per quintal. So that is a little bit of a benefit actually to the industry. Just before that, on the 15th of December '23, the Department of Food and Public Distribution issued directions in view of the lower -- expected lower sugar production of the country to limit the sugar sacrificed through B-heavy and sugarcane juice route to 1.7 million metric tonnes of sugar, and this was compared to 3.8 million metric tonnes in the previous season. And I think it came as a bit of a surprise to the industry. And of course, it has impacted distillery operations. So it'll continue to impact distillery operations, not just for Triveni. The sugar balance sheet for the season looks reasonably healthy according to ISMA, with an opening balance on the 1st of October '23 of about 5.6 million tonnes. The net sugar production now stands revised at 31.7 in million tonnes, potentially with an upward bias and domestic sales or consumption of about 28.5 million tonnes. And so we're looking at a closing stock on the 30th of September '24 at a very healthy 8.8 million metric tonnes. And this, of course, is after considering 1.7 million tonnes of sugar diversion towards ethanol. And what I'm trying to say is that actually we have sufficient sugar in the country. And regardless of what the outcome of rains are over the summer months, I think the higher balance is something that we can all be very comforted with in terms of providing enough sugar for consumers within the country and not just this year, but also for the next year.
Amongst the major sugarcane producing states, we expect Uttar Pradesh to produce between 12% to 14% sugar, increase in sugar output for the season, and Maharashtra, a decline by about 15%, and Karnataka by about 22%, perhaps -- between 22% and 24%, leading to an overall 3% to 4% lower net sugar production for the country. The government has also imposed 50% duties on the export of molasses, which is effective from the 18th of January 2024. Very quickly, looking at the international scenario, we're looking as a surplus production globally. We're looking at a record output from Brazil with estimates coming in above 43 million tonnes of sugar for the 2024-'25 season. We're looking at the Thai sugar crops to remain subdued, and this is important because for -- when one looks at the regional balances and regional suppliers of sugar, not to this year, but going forward, et cetera, Thailand is expected to be subdued for this sugar season. And international sugar prices still remain robust. After a considerable period of weakness in recent weeks, we've seen prices rebound. And on the 24th of January, the New York #11 contract was trading at about $0.245 per pound. The London #5 contract had rebounded to just about $285 (sic) [ $685.3 ] per metric ton. Of course, it's off from the recent highs of approximately $760, which was in November 2023, but it's still a very robust level. Turning towards Alcohol business. During the quarter, the profitability of the distillery operations has been impacted due to low-margin maize operations in substitution for FCI rice. Maize operations would also lead, as I had mentioned in our last call, to lower capacity utilization, and therefore, resulting in slightly lower production. The issue of lower capacity utilization is being technically resolved for us to be able to enhance our capacities through some very simple changes in the production systems. The increase of transfer price of B-heavy molasses by INR 100 per quintal is subsequent to the increase in the SAP, and increase in statutory fees of ethanol has also led to some lower profitability. The net turnover was boosted by higher alcohol sales of -- for our IMIL business, and that was very encouraging and a big bright spot within our alcohol operations. During the quarter and 9-month period under review, the alcohol produced from sugarcane feedstocks formed 73% and 67% of total sales volumes, respectively. In the previous corresponding quarter and 9 months, the alcohol produced from sugarcane-based feedstocks formed 64% and 79% of total volumes, respectively. So I think it's important to mention very clearly that this is a concerted decision to produce more sugar.
And as the season transpires, of course, there will be more greater quantum of sugar that will be produced, and so we'll be making C-heavy molasses at 6 of our 7 sugar factories for the course of this season. The inventories will be higher, and sugar prices are, frankly speaking, quite robust. And we believe that the flexibility that we have as a company in terms of operations has, again, been tested and proven that we have made current decisions -- correct investment decisions in the past. The production fell during the quarter under review on the Distillery business by 4.2% to 44,000 kiloliters. However, the sales realization increased by 4.3% to INR 59.1 per liter. IMIL sales improved by 25.5% to 11.68 lakh cases for the quarter under review. Looking at the domestic scenario, the OMCs have announced an incentive of INR 5.79 per liter from maize-based ethanol with the effect of 5th January 2024. However, I must point out that the majority of this increase on this incentive has been captured by higher maize prices. And maize prices are higher at INR 34 per kilo, touching almost INR 35 per kilo on certain days as well. So the majority of this increase, unfortunately, has been captured or rather taken away -- the benefit has been taken away by increased raw material prices. Turning quickly to the Power Transmission business. The increase in 9 months turnover and profitability was 33.9% and 44.8%, respectively, driven primarily by improved product sales, an excellent and favorable product mix, improved realizations and our continuing cost control measures. The order booking continues to be robust with higher domestic contribution. The order booking for December -- order booking from December 31, '23 stood at just under INR 300 crores with long duration orders of INR 136 crores. Looking at the Water business. The revenues declined unfortunately due to the delay in execution of certain projects. The business is actively targeting foreign projects wherever it possesses the prequalification and funding is ensured through multilateral and reputed agencies. The order booking on the 31st December stood at INR 1,248.8 crores, which includes INR 880 crores -- approximately INR 880 crores of O&M contracts, which are over a slightly longer period of time. It is important to also mention that we did maintain profitability. Although it is lower in line with the lower revenues at the crux of the business, the PBIT was INR 6.2 crores for the quarter under review.
The outlook for the various businesses, and we start off with the Sugar business, we're witnessing improved operational results in our sugar business for the ongoing season, in terms of crush, in terms of recovery and in terms of sugar realization where we compare this over the previous year-end season. The current estimates of lower production in the sugar season '23-'24 and '24-'25 are likely to maintain firm, stable, and with potentially a small positive bias in sugar prices. The recent increase of INR 20 in SAP has been well absorbed by prevailing sugar prices. A higher proportion of refined sugar production post the conversion of our Milak Narayanpur sugar unit will lead, and of course, a higher quantum of pharmaceutical-grade production at our Sabitgarh sugar facility augur very well for the sugar realizations of the company in comparison to our peer group as well. We continue to make judicious investments in our facilities to enhance crush, add quality and efficiencies. While there may be a shortfall in production in Maharashtra and Karnataka, Uttar Pradesh is certainly showing a significantly higher production. The recent weather conditions in Uttar Pradesh of dense fog with limited or no sunshine for long durations have had a limited impact in certain pockets on yields. But we believe that this has not impacted the plans for getting the crop. And our estimates of increased production and especially as far as Triveni Group is concerned stand unabated.
Looking quickly at the Alcohol business, the recent government actions related to feedstocks have led to some disruptions in operations. And we experienced that head-on in Q3 in the last quarter. After utilizing the permitted B-heavy molasses, the distillery operations will be carried out with C-heavy molasses and maize as the feedstocks. And this is in stark difference to B-heavy and FCI rice, which was used in the previous corresponding period. It will lead to slightly lower operating capacities, and hence, lower production, and the margin structures will also be different. I would, again, like to say that in this scenario of feedstock prices, it would be more sensible actually to make greater quantum of sugar, which is exactly what we will be doing. The situation is under watch, and we hope that these pricing situations are anomalies and that the Government of India will relook at the ethanol blending program over the next few months more favorably and give us a little more flexibility in the industry. In my opening remarks, I had mentioned that our Rani Nangal new distillery facility will be operational by the end of this quarter by the 31st of March '24. The Power Transmission business has a strong and robust outlook. We've seen brownfield and greenfield expansions domestically in a variety of sectors, especially in metals, mining, cement, et cetera. Its high potential that is being witnessed in the aftermarkets, and this is what is resulting in higher levels of profitability. And this primarily comes from the oil and gas and API sector, the power sector and the fertilizer sector. The Product business is mainly driven by growth in our steam -- in demand for steam turbine gear boxes, not just domestically, but globally as well. The potential of Waste-to-Energy through agricultural and municipal waste is going to be very encouraging as well for the Power Transmission business.
On the export front, there's enormous positive outlook in order bookings and gaining market share across product segments. We're seeing our OEM shares increase, especially in Western Europe and in North America. Within the Defense segment, the business expects increased order booking from key segments of propulsion gas turbines, propulsion gearboxes, propulsion shafting and special application pumps over the -- and this will happen, hopefully, over the next couple of quarters -- few quarters. The setting up of the multimodal defense facility, it will also help in terms of expanding our service offerings within this business segment.
Lastly, looking at the Water business, after the achievement of successes in the Maldives and Bangladesh, Water business is trying to expand our activities in overseas markets. Having said that, the municipal business opportunities are looking very attractive in states. However, there are delays in execution in certain projects. It happens because there's been a lot of activity, economic and noneconomic activity, that has delayed some executions, et cetera. But we believe that we will be back on track in this quarter under review and in the following quarter as well. In conclusion, the business strategy in terms of identifying and harnessing growth companies -- growth opportunities for the company remains the same. And we have been able to successfully add value for our stakeholders and shareholders. We continue to see significant leadership opportunities in a rapidly evolving and competitive environment. I think the company is well braced for the future to embrace the next phase of growth. Thank you very much. I'd now like to open up the floor for questions.
[Operator Instructions] The first question is from the line of Sanjay Manyal from DAM Capital.
I just have a few questions. I think your crushing number is approximately 7% up as of now and even recoveries are better. Can we expect the similar trend for the full season?
Yes, I believe we can.
So we can expect similar 6% to 7% kind of crushing and probably the recovery improvement would be in a similar range, right, for the...
With sugar production, yes. I think we would be happy to look at, I think, an increase in sugar production by a double-digit figure of 10% to 11%. And I think that will continue through the course of the season. The sampling of plant cane that is coming is very, very encouraging, and we're hopeful that the weather that we've experienced in the month of January will abate as we move into February.
My second question is on the profitability of B-heavy and C-heavy per liter. But what exactly has changed after the policy change and as well as on the -- after the sugarcane price increase in the current season? So what would be the profitability per liter for B-heavy, C-heavy, even maize-based ethanol?
As regards to B-heavy molasses, we have been getting a profitability of about INR 12, INR 13 per liter. But as Tarun have explained to you right at the beginning, there is an increase transfer price, subsequent to increase in cane price. So as a result of that, it will come down a little bit, but it will still be strong. And as regards maize, yes, the margins are under pressure as of now in the region of about INR 5 as of now. And let's see to what extent the crushing takes place to that extent.
Okay. So INR 12 to INR 13 for B-heavy, INR 5 for maize. And C-heavy if you can explain probably?
C-heavy is also on the same level as B-heavy molasses. Also, there is a recent price increase.
And estimated -- because the policy change has happened in the mid of the season. So I think our estimate of ethanol volumes would also change. So what would be -- what can we expect in terms of ethanol volume for FY '24 and FY '25?
So what would happen is that we would be looking at adding another about close to 5 crore liters in our dispatches going forward. And for the new distillery coming up, we will be adding another about 4.5 crore liters for the next year.
Okay. Understood. My last question is on the acquired company. I'm assuming that you will be having controlling stake after this open offer and everything. And so what could be the optimum crushing capacity for this company? I understood I read somewhere this is close to 10,000 TCD, but the number which -- the crush number was much lower. So what could be the optimum crushing capacity once you acquired this company?
Right. Well, we can't comment on the outcome of the open offer. It's still too early to tell. But the -- to answer your second question, it is -- the capacity of the -- of Sir Shadi Lal's factory at Shamli is 7,500 TCD, and we believe that it can operate at that level, and it has sufficient scale, of course. Frankly speaking, it has the greatest quantum of cane amongst factories in Uttar Pradesh.
And does this company also has the payment, means farmer dues and the higher debt level also?
From publicly available information, the debt levels are not very high, about INR 140 crores. But the farmer dues is -- certainly exists, and it's about INR 225 crores, which is the dues of the previous season's farmer dues.
The next question is from the line of Shailesh Kanani from Centrum Broking.
Congratulations, sir, on doing well in a very challenging quarter. Sir, I just wanted to understand a couple of things. On sugar volume front, we seem to have done well against the quota. Is it due to a pharma-grade sugar or the volume seems to be higher against the domestic quota what we have been allotted?
So there are 2 parts to your question. So firstly, the domestic sales have been higher in the quarter under review because the second tranche of the September quarter, which was allowed to be sold in October was actually sold in October. So that is 1 reason for the quantum of sales. The second reason, of course, is that we had very attractive realizations in the month of November, in the month of October and also for the majority of December as well. And, of course, the...
Sir, if I understand, I just was looking at the volume of quota given to us and the volume what we have done in the domestic dispatches. So there was some overlap from the second quarter you are saying put up.
Correct, because the September quota was given in 2 tranches. One, the first tranche was supposed to be sold by the end of September. And the second tranche could have been sold up to the 10th of October, and we exercised that and sold it in October.
Sir, second question was related to ethanol volumes. If I heard it right, last year, we had done INR 18 crores, and FY '25, we are guiding INR 22 crores or INR 27 crores, I'm a little confused of the number.
So 2 parts to that question. One, of course, we did INR 18 crores. And this year, again, we'll be about INR 18.5 crores plus, INR 18.75 crores or along those lines. And the reason for that is 33% of what we are doing would be grain-based, and therefore, wherein the capacities are limited by 20%. Now, going forward, and the second part is that our Rani Nangal distillery, which was supposed to have come a little earlier, is now coming at the end of March, and therefore, we would be adding another, as I mentioned, close to 5 crore liters going forward for next year.
So it is around INR 23 crores, INR 24 crores, which will be in the next year.
Absolutely, yes.
Sir, my other question was, I would like to discuss -- I'd like to know your views on macro challenges the company faces, right? Given the present circumstances and projections, we are anticipating that the sugar inventory by the year end of the season is going up from 5.6 to around 8.8, right, so which should be negative for sugar prices in general, right?
Secondly, ethanol volumes are contingent upon the availability of starchy feedstock. We have no clarity on FCI rice still. In spite of rice production, what I understand, is decent, FCI has stock, but they have not released the rice for ethanol production. So how does the management envision these challenges? And what strategies we are trying to implement in this situation?
So -- I think the first part of your question is with reference to sugar prices that are based on the balance sheet position of sugar in the country is -- I think you need to look at the -- you need to look at all factors in terms of making that assessment. The fact of the matter is that sugar production in the country has declined year-on-year. I think, because of net diversion towards the EBP program, there will be an increase in the closing stock. However, this is quite important for the country as there is -- that there has been reports of a poor monsoon for the next -- over the -- for the next -- for the upcoming summer.
Now, that is point one. The second point is that the plantation of the Adsali crop, the 18-month crop in Central and South India, Maharashtra, Karnataka, has been down quite significantly. And those reports are still coming in, but there is a significant decline, which means the total millable cane in the country for the next year in that portion of the country is going to be a little bit lower. And as a result, despite the slightly higher closing balance, I think we're in a scenario where we have very robust sugar prices, and sugar prices are a function of the situation today and also the expected situation in the following year. And as a result, as I had mentioned in my opening remarks, I believe that sugar prices will remain stable with a slightly upward bias.
Your second question about FCI rice. Well, frankly speaking, this is a decision that's been taken by the central government. We're not in a position to be able to comment on the release of rice or the quantum that are required for the nation.
So I was just wondering, if the situation remains what it is right now, and starchy feedstock probability may be less or the price, as you rightly said, are not that remunerative, we would continue to kind of have an enhanced volume of ethanol going ahead as well, right? I was just thinking on those lines.
I think the way that you should look at it is different, okay? The first thing is, yes, with the change in feedstocks, B-heavy and rice moving to C-heavy and B-heavy combination and maize, there is an impact on -- a small impact on production, but there is an impact on the margin structure. But that is more than compensated by the extra sugar that has been produced, much more than compensated by the extra sugar that is being produced. And I'm not talking about the additional output due to enhanced capacities, et cetera. But I'm just talking about the conversion of B into C. So that decision, again, is something that is quite important.
Now, the fact that the company, most of its distillery assets are dual-feed in nature means that we are still making a positive contribution regardless of what the input feedstock is into the business. And I think that is something that makes us very different from our peers in the industry.
Sir, just last final question from my side. How is the availability of maize for our distillery facility? Is it readily available even if it is at increased rate of '24-'25? How is the availability of maize in markets?
It's available, and the next crop of maize is yet to come into the market, and we believe that we will be able to book sufficient quantities for the course of the year.
[Operator Instructions] We take the next question from the line of Sudarshan Padmanabhan from JM Financial.
Sir, my question is on your investments. I mean, you have upped your investments on the Power Transmission business, and the domestic side, we are anyway the market leader eyeing on the exports, and also, this business you are targeting in the defense. I mean, what I understand is that which part of your business is also seeing a substantial -- in terms of volumes and should be relatively better?
I'm so sorry...
This is on the [ PTB ] business. So my question here is, given the increased CapEx, and also, we're talking about defense and exports, we have been running at around INR 70 crores or between INR 250 crores to INR 300 crores a year in this business. With the CapEx in place now and the growth outlook only looking better with exports and defense, where do we see this run rate increasing, say, over the next 18 months?
So typically, I refrain from giving any forward-looking statements. If you talk about the capacities, we're moving to a scenario where the capacities in the next few quarters will be in excess -- should be in excess of INR 50-odd crores. We're certainly cognizant of the fact that our growth in export markets is something that we are now seeing in our order booking. And it is going to only translate in our revenues in the next fiscal year, but certainly in the following fiscal year as well. So I'm fairly certain that the state of growth is going to be as per our plans and our investment in capacities are being done so that we're well-prepared, and we do not face any delays. One of the great things that we do in this business is we have delivery or manufacturing timelines that are the best in the world. There is nobody in terms of a turbo gear high-speed manufacturer that can match our delivery timelines. And so we want -- and that allows us -- one of the reasons that allows us to have a very healthy margin. And we're conscious of that, and therefore, the investments in machines, et cetera, which have long delivery periods need to be made in a time-bound manner. The growth is certainly something that we envisage because we were absent from the majority of export markets for a long period of time. And now with that opportunity, I think we have huge possibilities of being able to continue the growth rate. I mean the 9-month growth rate, for example, was 34-odd percent for this fiscal year in terms of revenues and 44% in terms of profitability, as you know.
Sure. And sir, a little color on the defense side because that is again looking exciting. And also, when that starts kicking in that opens a huge avenue of related things which we can do a lot more than what we're currently doing. So is that an area where we can...
Absolutely. So there's tremendous potential there. I would like to add a word of caution here. And that is that to have budgeted expectations in terms of quarters is something that sometimes doesn't happen because the finalization of tenders is not in our domain. It is finalized, in our case, primarily by the Navy, and sometimes, there are delays in the finalization of such tenders and award of such tenders. And so it's a process-oriented scenario. I would encourage you to look into this business over a much -- over a longer period of time where the decision on orders will then get blended in, in terms of averages over a longer period of time. But yes, there is tremendous potential. The Atmanirbhar Bharat initiative is something that we are certainly beneficiaries of and we're counting on. The Make in India is something that is quite important for our defense capabilities, and that is why we have invested in this particular business.
One final question before I join back the queue is currently the sugar availability is casting a little bit of ambiguity on the ethanol side. But from a longer-term perspective, the ethanol blending program is on course. And second is, if I'm looking at the IMIL and the IMFL opportunity that we would eventually have, I mean should the -- IMIL and the IMFL opportunity, I mean, given it gives us the maneuverability between using ethanol towards -- OMCs are moving towards IMIL. How should the profitability in this division be from a longer-term perspective, given that you'll have these options?
So I think you've asked a fantastic question. The point is -- and I've been clear -- I've been emphasizing this that we -- our corporate strategy is to ensure that all options are considered and that our businesses of function would be so intent on maximization of profitability. That is 1 of the reasons for our expansions, et cetera.
Now, when we look at IMIL and IMFL, that is it's not only to create optionality, but it's also to add additional value. The margins come when the businesses are stable. And that's something that you have to recognize. This is a -- we're a new entrant in a competitive, fiercely competitive new business. However, our intention obviously is to run highly profitable businesses. We see that our road to profitability will be as short as possible. But overall, the investment philosophy remains one of having optionality to maximize profitability.
The next question is from Rajesh Majumdar from B&K Securities.
So I had a couple of questions. First, sir, on the acquisition of Sir Shadi Lal, is it fair to assume that you'll be able to do the modernization of this enterprise before the next sugar season? That is my first question.
So at this point in time, we have already acquired 25% -- or we're in the process -- if I understand the data correctly, we're in the process of acquiring 25.43% shareholding of the company. We have also launched, as per SEBI guidelines, an open offer for 26%. If we do have majority control, and of course, control over the company, we are fairly certain that we will be able to put in some investments, of course, to ensure our production capabilities with. But I want you to know that this unit has crushed at its rated capacities in the past. The investments that could be made, and I don't know if they need to be made, so I'm hypothesizing at this particular point in time, would be in terms of efficiency improvements to lead to lower cost of production. So it is not necessarily for a higher crush, it is to improve profitability. Now, can it happen before the start of the next season? It's a little too early to tell.
No, I understand that it's to reduce the cost of production because the crush already exists, yes, and there are possibly low-hanging fruits there. But yes, my other question, sir, was when you give the capacity of the power transmission business, this excludes the aftersales. Is it correct to assume? Because aftersales and service is also a big chunk of your revenue, as I understand. So when you give the capacities of INR 250 crores, et cetera, it excludes aftersales?
No, it includes aftersales. However, this capacity is a rated capacity. And frankly speaking, depending on what products come in from the defense side, the same facility could potentially produce more, but we are keeping the rated capacity at INR 500 crores post these investments.
Because the new CapEx that you've announced of INR 180 crores is giving you an incremental turnover of only INR 100 crores, which assumes a slightly more than 0.5 asset turn, which seems to be ridiculously low for this kind of a business.
Yes. So -- I would discourage you from looking at it from an asset turnover ratio. And I'll tell you the reason why. A lot of the machines that are coming have long deliveries. And, therefore, the effective utilization in addition to capacity will happen at a certain point in the future. The original capacity enhancement that we did last year -- that the Board approved last year was a lot in terms of infrastructure. Infrastructure is 1 part, which is, for example, the [indiscernible], et cetera. The machines, the testing equipment, the furnaces, et cetera, everything that needs to be put in is actually a little bit more expensive. In addition, this CapEx also adds capacity to our defense or complete capacity, including manufacturing equipment to our defense manufacturing facility for which we are very hesitant to give a total capacity at this particular point in time, which is why I said it is a minimum capacity utilization of INR 500 crores with -- and it can be -- it is certainly higher than that.
Yes. Because as I understand, capacity is a bit of a misnomer in this industry. It depends on the product mix, et cetera, which you can finally deliver from that facility, right?
It does. So what we're saying is that we will be able to deliver, a significant portion of that INR 500 crores will be geared products and geared services, including aftermarket services. And a smaller portion of that will be from our Defense business, but that business will not require significant investments in the future for enhancement in terms of overall revenues. The quantum of that enhancement in capacity is something that we are not declaring at this particular point in time.
Right, sir. And my last question is on the capital allocation. How would we go ahead in the future? Because we had a certain plan on ethanol, et cetera, it seems to be slightly in the back-burner for the time being. So if we look at the cash flows being generated in the future, how will you be able to allocate our capital, also dividend policy, et cetera, or buyback in this regard, if you could highlight?
So I think the -- in terms of return to the shareholder, the Board's policy remains unchanged. And I think we've declared that, it's given on our website as well. In terms of allocation of capital towards growth, I think we're in a dynamic business environment. And things will change, things will come about at different points in time. So I don't -- I wouldn't say that looking at our postponement of 1 distillery at Sabitgarh is any great shock to the system. It's just been postponed. And I think I'm quite confident that the ethanol blending program will surpass 20 -- EBP 20 in the very, very near future. And we're very bullish about that and all aspects of bio-energy for our nation.
But allocation of capital will go towards the growth areas of the business. You've already seen the Board has allocated quite substantial amounts of capital towards the Power Transmission business. And from time to time, it will evaluate capital expansion within Sugar, Distillery and our Water business.
Sir, if I could sneak in a last question, the Sabitgarh, I mean, if the policies of the government were to change, Sabitgarh can be commissioned in a fairly short period of time? That's like just an added question.
Yes, I think so. Once we take a decision, we will be in a position to implement it within 1 year because what we've already done is that we have frozen the engineering, we have got environmental clearances, all those things are in place. And we have discussed with the vendors, not placed the orders, but taken it to a fairly advanced negotiation stage.
The next question is from the line of [ Jayesh Mistry ] from Asit C. Mehta Investment.
Sir, my first question, the way you are into many -- making yourselves into a many-business vertical from a traditional sugar and ethanol blending. So now from this acquisition and the way you are spending CapEx for this bottling facility also, so by making that, the way you are also doing a multi-feed facility, you are also creating. So it is one kind of new vertical apart from ethanol blending, so you are also making yourself into ENA kind of thing as a full fledge, that is the main business strategy to open up that new vertical by this acquisition and also setting up this facility as far as business growth is concerned. That's what I understood. Correct me if I'm wrong. It is my first question, sir.
Yes. I think you're a little wrong. The acquisition of shares is in a business that runs a sugar factory and 100 KLPD ethanol plant. With respect to the second part of your question, with the IMFL and bottling business, that is very directly a move towards premiumization and forward integration of our existing products. We are already a large manufacturer of ENA in our existing facilities, sort of a forward integration of that business.
So this is 1 kind of synergy that can be read?
I'm afraid I don't understand what synergy you're talking about.
I mean to say that this acquisition will give you -- that's what I mean to say if I understood that because...
It is in lines of businesses that are closely tied to the existing business operations of Triveni Engineering. It is also very close to 2 of our largest sugar factories and our large ethanol facilities as well. So the geographic proximity as well as industry comfort is the rationale.
Okay. Second question, sir, the way the operating margin that has been improved in this particular quarter, we should be able to maintain around that trajectory in the coming quarters as far as your operating margin is concerned.
I would say we don't give forward guidance for our business performance.
Okay. And lastly, sir, the way the government has imposed some kind of temporary restriction and -- on export of sugar and also some kind of stipulated quota for ethanol manufacturing. But sir, you are into a multi-feed -- you are going to start with some multi-feed facility, so, sir, what we understood that the impact of that particular thing as far as ethanol blending will not be that much significant to you versus your peers because you have a multi-feed facility, so you have another option as well apart from the sugar. So correct me if I'm wrong, sir. That's what -- so it would not be that much be impacted to you by this particular thing?
Yes, you are absolutely correct that we can move between various feedstocks in the generation of ethanol or ENA as the case may be. So we have that flexibility for the majority of our facilities, including the new facility at Rani Nangal.
So that will not be a significant impact to you versus your peers, right?
Yes. I think I've addressed that in the previous commentary during this call.
[Operator Instructions] The next question is from Chetan Thacker from ASK Investment Managers.
So just 2 questions from my end. One is I missed the number on the past dues for Sir Shadi Lal of cane arrears.
The cane arrears for Sir Shadi Lal, as we understand, are INR 235 crores for the previous season. This season's dues have been paid in their entirety, as we understand.
Understood. And the second, which was more on the IMFL, the INR 25 crore is the investment for bottling. But over and above that, for branding, marketing, what is the kind of investments that you are envisaging at this point in time?
So we'll be going ahead. We are competing with various established brands. But in terms of the product development, we know we have got a very good product. In terms of packaging, we have engaged the best agency, but we will not be making a huge marketing splash over here. Therefore, in terms of the total outlay for entry into this business and my -- the media plan and the marketing expenses will not be very substantial, let's put it this way, without diverging the competing numbers. And this is also restricted only to the initial launch, would only be in the state of UP.
Okay. Understood. So it will be more of a district-state strategy that you will be adopting as you then scale up this business and keep recalibrating?
Yes, it could be a regional strategy of UP, and UP is a very important market as a percentage of the national sales, et cetera. And, therefore, based on the success of the product, its acceptance, we'll roll it out over a period of time to the other states.
[Operator Instructions] Well, as there are no further questions, I'd like to hand the conference back to the management team for closing comments.
Thank you very much, ladies and gentlemen, for joining us for the Q3, 9-month fiscal '24 results earnings call for Triveni Engineering & Industries Limited. As I mentioned during the course of this call, I think, the -- all the businesses have performed well, some much better than others. I think the performance of the Sugar business and the Power Transmission business is certainly notable. And I look forward to getting back to you about the growth that we have in these businesses at the next call, which is -- which will be for our full year results.
Plus, I do believe that there is a lot of upside within the distillery business. And that Q3 is normally the longer-term picture. And frankly speaking, we are very much on track for ethanol blending to 20%. And the government, of course, is in full support of this particular business. And similarly, with the Water business as well, I think Q3 was an anomaly. And I think the full-year results will showcase that when we speak in a few months' time.
Thank you again, and have a good day.
Thank you very much. On behalf of Triveni Engineering & Industries Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.