Expansion In Power Transmission Will Capitalize On All-Time High Order Book

Key Takeaways

• Improved plant health and higher sugar prices may increase production volumes, boosting Triveni Engineering's sugar business revenues and margins.
  
• Expansion in Power Transmission and ethanol policy changes could enhance revenue growth and profitability, while restructuring aims to unlock shareholder value.
  
• Challenging conditions across Sugar and Alcohol businesses could impact profitability, while government policy changes introduce risks to stable financial growth.

Catalysts

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

• The expected increase in sugarcane crush by approximately 15% on a consolidated basis due to improved plant health and recovery efforts suggests higher future production volumes, potentially boosting revenues.
  
• Recent positive trends in sugar prices, driven by lower nationwide production estimates and increased exports, could lead to higher margins and profitability for Triveni Engineering's sugar business.
  
• Expansion plans in the Power Transmission business, including an incremental CapEx of ₹60 crores to increase capacity, indicate potential revenue growth as the order book reaches an all-time high.
  
• Government policy changes, such as the approval of ethanol procurement price increases and allocation of FCI rice for ethanol production, are expected to enhance margins within the Alcohol business.
  
• The proposed scheme of arrangement, including the amalgamation of Sir Shadi Lal Enterprises and restructuring of the Power Transmission business, aims to unlock shareholder value and streamline operations, potentially improving net earnings.

Triveni Engineering & Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Triveni Engineering & Industries's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 8.4% in 3 years time.
• Analysts expect earnings to reach ₹6.3 billion (and earnings per share of ₹29.53) by about February 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 29.4x on those 2028 earnings, down from 38.1x today. This future PE is greater than the current PE for the IN Food industry at 22.4x.
• 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 12.15%, as per the Simply Wall St company report.

Triveni Engineering & Industries Future Earnings Per Share Growth

Risks

• The past financial performance has shown that the overall profitability was subdued due to lower margins in the Sugar and Alcohol businesses, which could impact future net margins and earnings.
  
• In the Sugar business, initial lower recoveries and the impact of inclement weather and degeneration of sugarcane variety pose a risk to sugar production and might affect revenue.
  
• There are delays in the startup of the season and slower execution in some projects in the Water business, indicating potential challenges in meeting revenue targets and cash flow.
  
• The Alcohol business faced lower profitability due to the shortage of molasses-based feedstocks, impacting ethanol production and net margins.
  
• Government policy changes, such as restrictions on stripping of sugar to B-heavy molasses and substitution of grain operations for ethanol, have affected the Alcohol business profitability, signaling possible risk to stable financial growth.

Valuation

• The analysts have a consensus price target of ₹491.2 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 ₹74.7 billion, earnings will come to ₹6.3 billion, and it would be trading on a PE ratio of 29.4x, assuming you use a discount rate of 12.2%.
  
• Given the current share price of ₹384.75, the analyst price target of ₹491.2 is 21.7% 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.