Expansion In Power Transmission And Ethanol Will Boost Future Opportunities

Key Takeaways

• Strategic initiatives, including reducing lower-recovery sugarcane and amalgamating with Sir Shadi Lal Enterprises, aim to enhance profitability and financial stability.
  
• Government policy changes and strong order book growth in Power Transmission and Water sectors suggest promising revenue and earnings potential.
  
• Challenges across multiple segments, including sugar, ethanol, and power, impact margins, revenue, and profitability, exacerbated by external delays and increased production costs.

Catalysts

Engages in the sugar and allied businesses, and engineering businesses in India and internationally.

• The delayed start of the Sugar Season '24-'25 and efforts to reduce the proportion of lower-recovery variety sugarcane could lead to improved sugar production, potentially boosting future revenues and earnings.
  
• Strong growth in the order book for the Power Transmission and Water businesses, with a combined closing order book increase of 52.5%, suggests potential for higher future revenues and earnings.
  
• Government policy changes, such as the export allowance of 1 million tonnes of sugar and the revision of ethanol procurement prices, are expected to improve margins and provide incremental revenue boosts in the Sugar and Ethanol businesses.
  
• The ongoing capex in the Power Transmission business, with an expected capacity increase to ₹700 crores, signals anticipated growth opportunities and revenue enhancement in the mid-term.
  
• Strategic moves such as the amalgamation with Sir Shadi Lal Enterprises and initiatives to reduce net debt could result in better margin profiles and stronger balance sheet positions, improving overall company profitability.

Triveni Engineering & Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Triveni Engineering & Industries's revenue will grow by 11.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 8.8% in 3 years time.
• Analysts expect earnings to reach ₹6.5 billion (and earnings per share of ₹30.44) by about March 2028, up from ₹2.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.6x on those 2028 earnings, down from 38.5x today. This future PE is greater than the current PE for the IN Food industry at 18.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

Triveni Engineering & Industries Future Earnings Per Share Growth

Risks

• The sugar business faced lower sugar sales volumes and realizations, which impacted the segment's margins and could potentially affect future revenues and profitability.
  
• There were issues with lower recoveries in sugarcane due to inclement weather and crops affected by disease, leading to an inventory write-down and increased production costs, impacting net margins.
  
• The ethanol business saw lower profitability due to a shortage of molasses-based feedstocks and higher costs associated with grain feedstocks, leading to non-recovery of fixed expenses and pressuring segment earnings.
  
• The Power Transmission business experienced delays in order execution due to equipment repairs, and any prolonged issues could have a negative effect on revenue growth.
  
• The Water business faced delays in execution due to external factors in international markets, which could affect revenue recognition and increase working capital needs.

Valuation

• The analysts have a consensus price target of ₹489.2 for Triveni Engineering & Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹582.0, and the most bearish reporting a price target of just ₹358.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹74.0 billion, earnings will come to ₹6.5 billion, and it would be trading on a PE ratio of 28.6x, assuming you use a discount rate of 12.5%.
• Given the current share price of ₹388.95, the analyst price target of ₹489.2 is 20.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.