In A Sweet Spot
India's sugarcane and sugar industry has literally hit the sweet spot. It is not just the country's second-largest agro-based sector, following closely behind cotton, but has also put India in the top spot globally in sugar production -- churning out an impressive 37 million metric tonne of sugar in 2022. Besides, it also sustains the livelihoods of countless sugarcane farmers in rural areas while providing gainful employment to nearly 500,000 individuals working in sugar mills across the nation.
The industry is in the news these days. Sugar prices in the country have surged over 3 per cent in two weeks, reaching a six-year high due to concerns about limited rainfall in key growing regions. This spike could worsen food inflation and deter sugar exports, which, in turn, may end up inadvertently supporting already high global prices.
Sugar mills fear a sharp production decline in the upcoming season due to drought, making them reluctant to sell at lower prices, according to Ashok Jain, President of the Bombay Sugar Merchants Association. While this price hike may strain consumers, it's a boon for sugar producers like Balrampur Chini, Triveni Engineering & Industries, Dwarikesh Sugar, Shree Renuka Sugars, and Dalmia Bharat Sugar. Improved margins will help them make timely payments to farmers, say experts.
One company, like its peers, has seen robust growth in its production, processing and sale of sugar. One of the largest integrated sugar producers in the country, Triveni Engineering & Industries has set new records in various segments, showcasing its resilience and commitment to growth in FY23. Triveni is also among the leading players in its engineering businesses, comprising power transmission and water and wastewater treatment solutions.
The company's impressive performance was underlined by a substantial increase in sugarcane crush and refined sugar production, robust alcohol production, and remarkable growth in its engineering businesses. "For the last export season, Triveni received an export quota of 2,04,898 tonnes which was the second-highest in the country. The company achieved sugar exports of 1,90,337 tonnes (including sale of quota for 72,988 tonnes) during FY 23, out of the total at record realisations," says Tarun Sawhney, Vice Chairman and MD, TEIL.
Credit rating agency CRISIL Ratings in a recent report projected a promising outlook for Indian sugar mills, with expectations of steady operating profitability for integrated mills amid market fluctuations. In a report, the agency said that key contributing factors include a surge in domestic sugar prices and rising sales of ethanol. Poonam Upadhyay, Director at Crisil Ratings, emphasised, "Tailwinds stemming from the consistent growth in ethanol production and improved earnings, backed by government policies will counterbalance the impact of rising sugarcane prices." She further highlighted the recent upturn in domestic sugar revenues, projecting that integrated sugar mills will maintain an operating profit margin of 11-12 per cent in fiscal 2024, surpassing the 11 per cent achieved in the previous fiscal year, despite decreased export volumes. It's worth noting that the entire sugar value chain, encompassing aspects such as sugarcane procurement rates, monthly sugar distribution, annual export allocations, and ethanol pricing, remains under strict governmental regulation as an essential commodity.
Focus on Ethanol, Power
Triveni has been actively working to align its operations with the government's goal of achieving a 20 per cent ethanol blending target by 2025.The company substantially expanded its ethanol capacity from 320 KLPD (kilo litres per day) to 660 KLPD in FY23, resulting in the highest-ever alcohol production of 18.12 crore litres, a remarkable 68 per cent increase over the previous year, says Sawhney. To support this growth, the company is strategically expanding its distillation capacity from 660 KLPD to 1,110 KLPD. The Board has approved a Capex of Rs 460 crore for two new plants in Rani Nangal and Sabitgarh. "The Rani Nangal distillery is expected to be commissioned in Q4 of this fiscal year," Sawhney adds.
On a year-to-year basis, the power transmission business of Triveni achieved record-breaking results, witnessing a substantial 22 per cent increase in turnover and an impressive 19.1 per cent rise in profitability, with profitability margins sustained at 34 per cent. “Our order booking for FY 23 grew by 5.1 per cent, and the closing order book surged by an impressive 17.7 per cent compared to the previous year. Additionally, we expanded our market share by attracting 18 new customers in the OEM segment, laying a strong foundation for further growth,” says Sawhney.
During FY23, the strategic decision to divest the entire stake in Triveni Turbine further reflects the company's commitment to enhancing shareholders' value, according to Sawhney. The company completed a buyback of Rs 800 crore in FY23 and proposed a final dividend of Rs 3.25 per equity share, further enhancing value for its shareholders. Overall, the increased contribution from alcohol and engineering businesses and the successful divestment and buyback initiatives reflects Triveni’s proactive approach in diversifying its portfolio and managing business risks effectively, Sawhney added.
Looking Ahead
Triveni Engineering & Industries is committed to increasing its sugarcane crushing capacity, with a 2,000 TCD (tonne of cane crushed per day) expansion at its Sabitgarh unit. This expansion will raise the overall crushing capacity to an impressive 63,000 TCD, strengthening the company's position in the sugar industry. Additionally, the company plans to continue its focus on converting more plants to refineries and expanding pharmaceutical-grade sugar capacity to enhance profitability. Strategic investments in infrastructure upgrades such as improved storage facilities, better warehousing, and advanced technologies are expected to contribute to the company's growth in FY24 and beyond.
Experts say the conglomerate's strategic diversification and proactive management of business risks have significantly contributed to its success. The combined engineering and alcohol businesses accounted for 51 per cent of the total segment results in FY23, reflecting a reduced dependence on the sugar business. Triveni’s performance in FY23 showcases its dedication to excellence, diversification, and strategic growth. The company's achievements across its sugar, alcohol, and engineering businesses highlight its resilience and commitment to meeting industry challenges while exploring new avenues for success. With ambitious plans and strategic investments, the company is well-prepared for the opportunities and challenges of FY24 and beyond. “In FY24, the company is set to build upon its strong foundation with a well-structured sugarcane development programme across its seven sugar units and is anticipating a higher crush and improvement in recovery in the upcoming sugar season,” Sawhney added.
ashish.sinha@businessworld.in
