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Higher sugarcane price hurts profits
Triveni Engineering & Industries’ (TEIL) Q1SY12 result was below our
estimates with EBITDA at Rs215mn against our estimates of Rs449mn and
operating margin at 5.1% vs. est. 10.1%. EBITDA was adversely impacted due
to inventory (of previous year) valuation write-down of Rs250mn. The
company reported adjusted loss (adjusted for Rs790mn paid for sugarcane in
crushing season 2007-08 after the recent Supreme Court judgment) of
Rs108mn against profit of Rs16m in Q1SY11. Sugar business during the
quarter was impacted because of higher sugarcane price coupled with lower
sales volume (down 19.5% YoY) and reported EBIT level loss of Rs229mn
against profit of Rs59mn in Q1SY11. In the Engineering segment, Gear
business was adversely impacted due to general economic slowdown and
reported revenue decline of 24.4% YoY and EBIT decline of 39.8% YoY to
Rs42mn. However, the management expects the performance of this division
to improve in Q2 as it believes that off-take by OEMs should improve going
forward. We believe that the profitability of the company would be under
pressure given the higher State Advised Price (SAP) (Rs240/quintal vs.
Rs205/quintal in SY11) fixed by the Uttar Pradesh State government and
pressure on sugar prices as higher production is expected in SY12E. However,
we maintain Buy rating on the stock on account of attractive valuations with
target price of Rs23 (upside of 20.6% from CMP).
Disappointing performance of sugar segment: Sugar division reported EBIT
level loss of Rs229mn against profit of Rs59mn in Q1SY11 (and Rs157mn in
Q4SY11) driven by 19.5% YoY decline in sales volume to 0.10mt and higher
sugarcane price paid to farmers after the increase in SAP (State Advised Price)
by the Uttar Pradesh government. The profit was impacted adversely due to
inventory (of previous year) valuation write-down of Rs250mn. Realization of
sugar improved 6.5% YoY to Rs28.5/kg.
Improvement in realization leads to better performance of distillery
segment: Led by 2x YoY sales volume increase and 20.6% YoY in realization,
revenue from the distillery segment went up 141.9% YoY to Rs310mn. EBIT of
this segment increased 4.8x YoY to Rs55mn and EBIT margin improved 878bps
YoY to 17.7%.
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Higher sugarcane price hurts profits
Triveni Engineering & Industries’ (TEIL) Q1SY12 result was below our
estimates with EBITDA at Rs215mn against our estimates of Rs449mn and
operating margin at 5.1% vs. est. 10.1%. EBITDA was adversely impacted due
to inventory (of previous year) valuation write-down of Rs250mn. The
company reported adjusted loss (adjusted for Rs790mn paid for sugarcane in
crushing season 2007-08 after the recent Supreme Court judgment) of
Rs108mn against profit of Rs16m in Q1SY11. Sugar business during the
quarter was impacted because of higher sugarcane price coupled with lower
sales volume (down 19.5% YoY) and reported EBIT level loss of Rs229mn
against profit of Rs59mn in Q1SY11. In the Engineering segment, Gear
business was adversely impacted due to general economic slowdown and
reported revenue decline of 24.4% YoY and EBIT decline of 39.8% YoY to
Rs42mn. However, the management expects the performance of this division
to improve in Q2 as it believes that off-take by OEMs should improve going
forward. We believe that the profitability of the company would be under
pressure given the higher State Advised Price (SAP) (Rs240/quintal vs.
Rs205/quintal in SY11) fixed by the Uttar Pradesh State government and
pressure on sugar prices as higher production is expected in SY12E. However,
we maintain Buy rating on the stock on account of attractive valuations with
target price of Rs23 (upside of 20.6% from CMP).
Disappointing performance of sugar segment: Sugar division reported EBIT
level loss of Rs229mn against profit of Rs59mn in Q1SY11 (and Rs157mn in
Q4SY11) driven by 19.5% YoY decline in sales volume to 0.10mt and higher
sugarcane price paid to farmers after the increase in SAP (State Advised Price)
by the Uttar Pradesh government. The profit was impacted adversely due to
inventory (of previous year) valuation write-down of Rs250mn. Realization of
sugar improved 6.5% YoY to Rs28.5/kg.
Improvement in realization leads to better performance of distillery
segment: Led by 2x YoY sales volume increase and 20.6% YoY in realization,
revenue from the distillery segment went up 141.9% YoY to Rs310mn. EBIT of
this segment increased 4.8x YoY to Rs55mn and EBIT margin improved 878bps
YoY to 17.7%.