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.
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