Triveni Engineering - Special Situation- Loss making business hived off

Triveni group has strong tie ups with industrial sector and with General Electric for technology and exports.

Triveni Engineering has announced demerger of its loss making sugar & allied business, along with all related assets and liabilities into a separate entity.

Market Cap - Rs.600 Crores,
CMP - Rs.22
Debt - Rs. 1258 Crores (mainly owing to sugar business working capital)
Holding in Triveni Turbine Ltd (@21.8%) = ~ Rs.700 Crores

Shareholder having 1 share of Triveni Engineering will receive

  • 1 additional share of Triveni Industries Limited . The loss making sugar business Triveni Sugar Limited having a turnover of ~Rs.1900 Crores will be a subsidiary in this business.

What is interesting, of course is the Engineering business that remains. Make in India and strong relationship with GE at the start of the capex cycle should provide a good upside with low downside.

FY 2015 Engineering business
Sales - Rs.300 Cr
PBIT Rs.25 Crore
Order book of 600 Cr+ (mainly in Water business)

Gears business

  • Tie up with GE Lufkin
  • 60% market share uses technology from GE for higher power gears
    Excerpt from BSE Announcement : The major boost in exports is expected to come from the sourcing drive of major OEMs including from GE–Lufkin, GE Oil & Gas and the business is having good enquiries under this arrangement.
    Not strictly comparable but Triveni Turbine which has similar arrangement with GE is quoting at 5 times Sales

Water business
This business is focused on providing world-class solutions in water and waste-water treatment
to customers in industrial and municipal segments.

Latest management update link below

Views invited for forming a better opinion on this special situation.

Disc : Invested @ Rs.24


Any guess on the probable valuation of the Engineering business- the gear and the water business? The Company was very optimistic on the call about both the businesses. The Gear business ramp up has been quite slow so far and the water business margins have been low. Except the optimistic future laid down by the Management, the past doesnot give that much confidence. Additionally, the sugar business efficiency in terms of EBIT margins is the lowest among its peers, even the molasses division has the lowest margin. Any views on this would be helpful.

Triveni Engineering stock price has moved up significantly along with stocks of other Sugar company’s.

Currently, there is an expected shortfall in Brazilian sugar production and in India in 2015-16 which has led to a ~20% increase in Sugar prices. The other part of the equation is the export subsidy / state administered pricing which has to fall in place to make sugar mills operationally profitable. But I have still not figured out why the mills continue to crush sugar if it is an unprofitable proposition? I would love to be enlightened.

Even if the sugar business of Triveni (revenues Rs.2000 crores) is valued at Rs.200 crores in equity, the rest of the business at ~Rs.500 crores is a great buy. How much it will get valued in another 2-3 years depends on the follow through of the optimistic plans of the management.

The other sugar companies seem to have rallied much higher than Triveni. My sense is one big institutional investor holding 10% is a seller at higher levels and hence the cap in the price. The call is scheduled on 16th Nov and should provide more details on the sugar scenario and the possible steps the Govt. is taking to resolve the sugar industry problems. More later after the call.

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