Investment Recommendation: BUY Target Price: Rs 460
Overview: Triveni Engineering and Industries (TEIL), a versatile conglomerate spanning sugar to engineering, is set for a transformative journey with a shift from commodity-centric operations to a profitable blend of ethanol, power transmission, and high-speed gearboxes. This transition positions TEIL for both value delivery and relative stability in the market.
Business Transformation and Growth Drivers:
- Ethanol, Power Transmission, and Gearboxes:
- TEIL is undergoing a significant transformation, focusing on ethanol, power transmission, and high-speed gearboxes.
- The high-speed gear business, a monopoly for TEIL, presents a game-changing opportunity with a 15x export TAM potential.
- Sugar Segment Resurgence:
- Improved regulatory support, cash inflows from distillery operations, and superior seed quality have strengthened Indian sugar companies, including TEIL.
- Located in Uttar Pradesh, TEIL benefits from plentiful rain-fed and irrigated areas, providing a competitive advantage.
- The government’s mandate for 20% ethanol blending by 2025 bodes well for TEIL, potentially resulting in a 20%+ CAGR in distillery division sales and EBIT over FY23-26E.
- Robust Engineering Business:
- Encouraging tailwinds in the engineering division, driven by a 22%/26% CAGR in revenue/EBIT for the Power Transmission Business (PTB).
- Monopoly in the domestic high-speed gear market, marked by industry-leading margins of 34%+.
- Optionality – Demerger of Engineering Business:
- Potential demerger of the engineering division (PTB, including defence, and water) could unlock substantial value.
- Monopoly in high-speed gears, export opportunities, a growing aftermarket, and possible margin improvement position the demerged entity for a premium valuation.
Valuation and Growth Outlook:
TEIL is poised for robust topline and bottom-line growth over FY2023-FY2026, with factors such as higher capacity utilization in distillery, improved sugar production, and a strong order book in the engineering business. Valued at 16x Q2FY26E, the stock reflects a premium, considering strong exports potential, distillery growth, and the shift from cyclical to structural dynamics in the sugar industry.
According to old analysis of Monarch Networth Capital, here is my analysis and recommendation:
TEIL presents a compelling investment opportunity, backed by its diversified business model, strategic transformation, and growth prospects in both the distillery and engineering segments. Investors may find TEIL an attractive option for potential long-term value creation.
Download Data Sheet from here.
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