Rationale

 The rating action for the debt programmes of Triveni Engineering & Industries Limited (TEIL) factors in the expectation of healthy growth in operating profits as well as strengthening of debt protection metrics in FY2022 and FY2023. The ratings note the higher domestic and international sugar prices, along with increased ethanol volumes and improved blended distillery realisations with favourable change in ethanol mix emerging from the commencement of expanded capacities in Q4 FY2022 and Q1 FY2023. ICRA expects the company's revenues in FY2022 to remain stagnant, notwithstanding higher revenues from the distillery division, offset by lower sugar volumes (both domestic and exports). Further, higher sucrose diversion towards B-heavy molasses/juice-based ethanol would moderate the inventory levels and hence lower its working capital borrowing levels going forward. Additionally, TEIL has forayed into production of country liquor in FY2021, thus, further facilitating forward integration. Moreover, TEIL's grain-based distillery of 60 kilo litres per day (KLPD) is expected to commence its operations in Q4 FY2022, which is likely to strengthen its operational profile and improve revenue diversification. The ratings continue to factor in TEIL's large scale of operations with 61,000 tonnes of cane per day (TCD) of crushing capacity. Further, its forward integration into distillery and co-generation provides alternate revenue streams and cushion against the cyclicality from the sugar business to some extent. The ratings also take into account TEIL's healthy gross recovery rate at 11.8% in FY2021, supported by increased proportion of high-yielding cane in the varietal mix and cane developmental activities undertaken by the company. Further, ICRA notes that the introduction of the minimum support price (MSP) for sugar in FY2019 gives some protection against any downside in the operating profits in sugar surplus years compared to the past. Over the medium term, TEIL's operating profits are likely to be less volatile than the historical levels, driven by the expected continuation of MSP and the industry's focus on diverting of excess cane towards ethanol production. The ratings remain constrained, however, by the vulnerability of TEIL's profitability to the cyclical nature of the sugar industry (though the sharp fall in sugar prices is curtailed after the introduction of MSP) and agro-climatic risks related to cane production. Further, the profitability of sugar mills, including TEIL, remain vulnerable to the policies of the Government of UP's (GoUP), sugar international trade, sugar domestic quota, sugar and ethanol pricing and interest subvention loan for distillery capacity expansion. The Stable outlook on the rating reflects ICRA's opinion that TEIL will continue to benefit from its healthy operational profile. Further, ICRA does not expect any material moderation in capital structure and debt coverage metrics.