Triveni Engineering and Industries Ltd
NSE:TRIVENI
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Triveni Engineering and Industries Ltd
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Ladies and gentlemen, good day and welcome to Triveni Engineering & Industries Limited Q2 and H1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, Mr. Barar.
Good day, everyone, and a warm welcome to all of you participating in the Triveni Engineering & Industries Limited's Q2 and H1 FY '23 Earnings Conference Call. We have with us today, Mr. Tarun Sawhney, Vice Chairman and Managing Director; Mr. Suresh Taneja, Group CFO; Mr. Sameer Sinha, CEO of Sugar Business Group, as well as other members of the senior management team.
Before we begin, I would like to mention that some statements made in today's discussion may be forward-looking in nature and a statement to this effect has been included in the invite, which was sent to everybody earlier. I would also like to emphasize that while this call is open to all invitees, it may not be broadcasted or reproduced in any form or manner. We will start this call with opening remarks from the management, following an interactive question-and-answer session. I will now request Mr. Tarun Sawhney to open the call. Over to you, sir.
Thank you very much. Good afternoon, ladies and gentlemen. Welcome to the Q2 H1 fiscal '23 earnings conference call for Triveni Engineering & Industries Limited. The overall performance of the company during the quarter and half year ended 30th of September 2022 has been broadly satisfactory. The key highlights that I would like to mention before we get into the business discussion and detailing of the commentary are that the sugar season '22-'23 has commenced, 6 of our 7 sugar factories have commenced their operations. Our factory needs to be -- we'll be starting its operations within a week or so.
From a readiness perspective, the debottlenecking and modernization of the 3 sugar units has also been completed in a timely manner. This will lead to an enhancement in crushing efficiency. Along with this, we have increased our refined sugar production capability from approximately 40% of total sugar to about 60% of total sugar production and we have doubled our pharmaceutical grade sugar production capacity, both of this will boost realizations and profitability for the group. With respect to the distilleries, the additional distillation capacities commissioned during the quarter aggregating 660 KLPD is fully commissioned and operating at high levels of efficiency and we are on track for enhancing our capacities to 1,110 KLPD by fiscal '24.
In our Power Transmission business, the order booking has grown a robust 29% year-on-year. And within our Water business, there has been an extremely important development where we have achieved commercial operations date for the entire Mathura Hybrid Annuity project, the HAM project and this was on the 21st of October '22.
Turning to the quarter under review, I'd like to first start off by discussing the financial highlights. The net turnover has increased by 26% quarter-on-quarter and 22.2% for the half year versus the previous corresponding half year and this has been primarily driven by higher sales of sugar and alcohol. The profit before tax, before exceptional items, during Q2 fiscal '23 has declined by 79% to INR 24.48 crores, which was previously a INR 113 crores in the previous corresponding quarter.
The contribution from sale of sugar during the current period is lower due to the impact of higher cane price. The SAP was increased in the previous year and that of course increased our cost of production. In addition, for the quarter under review and half year under review, there was an export subsidy in the previous corresponding periods. This, of course, was absent in this quarter and half year under review and that is another significant difference in the profitability numbers.
The sugar revenues, as I mentioned, grew by 26% quarter-to-quarter and this was driven by higher sales volumes and also improved realizations. The profitability, as I mentioned, was impacted due to higher SAP and no subsidy. Further, increased cost because of wage board corrections that had to be made were also witnessed during the quarter and added towards our cost.
The distillery revenues net of excise grew 45% during the quarter due to additional capacities that were commissioned, which resulted in increased sales volumes. The profitability margins have been impacted due to an increased price of B-heavy molasses and some stabilization period for the new distilleries that were commissioned around about the -- at the turn of the previous quarter. There was also a slightly lower margin with grain on feedstock, mainly attributed to a stabilization period.
The Engineering business, at an aggregate level, reported very strong revenue increases, of almost 27% during the current quarter. The outstanding order book for the Engineering business stood at INR 1,825 crores compared to just under INR 1,700 crores in the previous corresponding period. On a consolidated basis, our total debt for the company is INR 721 odd crores, net of FD of INR 148 crores, which has been made from an operational surplus. This is on the 30th of September '22.
The previous corresponding period saw consolidated debt at INR 1,568 crores -- sorry, this was INR 1,568 crores on March 31, '22 and not a year ago. The above debt position is without considering the net divestment proceeds of INR 1,593 crores, which is currently being held in fixed deposits with various banks. Our overall cost of funds has marginally increased to 5.16% during Q2 fiscal '23 as against 5.09% in the corresponding period of the fiscal year.
Clearly, this is not in line with the massive increases in interest rates that we've seen for the nation as a whole and it's because we have a large amount or the majority amount of subvention -- did under subvention. During the quarter, the company has divested its entire 21.85% stake in Triveni Turbine Limited for a net consideration of INR 1,593 crores, unlocking significant value for our shareholders. This has led to an unbundling of businesses and a monetization of non-core assets.
As I had indicated earlier, the proceeds from this divestment will be utilized for growth and expansion of businesses as well as rewarding shareholders. To this effect, the Board of Directors, subject of course to the approval of shareholders, has approved a proposal to buyback equity shares of the company up to INR 2.28 crores, approximately INR 2.29 crores equity shares at a price of INR 350 per equity share and the aggregate amount not exceeding INR 800 crores.
I would like to mention that this is almost the maximum buyback that the company could have done at this particular period. And I would like to remind, ladies and gentlemen, on this call that the previous buyback that the company -- the company has had a rich history of doing buybacks. The last buyback that we have done, which is a smaller one of INR 65 crores in October of 2020 was done at a share price of INR 105. And this time, as I mentioned, the buyback will be at INR 350.
Turning to the financial highlights of the company, the revenue from operations grew at 27% to INR 1,471 crores, while the PBT declined to a profit of INR 24.5 crores, which is a decline of about 79 odd percent. The EPS, after accounting for exceptional items, has jumped very substantially to INR 57.4 per share.
Turning to the businesses as I will spend a few minutes discussing our different business verticals. Starting with our sugar business, on the realization during the quarter, the average that we have achieved is INR 35, INR 45 per quintal, which is about 1.6% higher year-on-year. So not quite -- certainly higher, but not as high as we had anticipated or would have liked frankly speaking. The current price of sugar, however, as of today, refined sugar is selling at INR 3,690 per quintal and sulphitation sugar is selling at INR 3,615 per quintal. There has been an increase in pricing this morning after the very positive announcement on exports by the GOI over the weekend.
The company did not export any sugar, of course, during the quarter. Sugar inventories on the 30th of September stood at 20.81 lakh quintals, valued at about INR 32 per kilo. The cogeneration operations achieved external sales of about INR 17 crores versus INR 14.2 crores in the previous corresponding half year, an increase of about 19% and there was no operations during Q2 as it was the off season. We dispatched 35,447 metric tons -- sorry, I apologize. Our domestic realization, as I mentioned, was INR 35, INR 45 per kilo during the half year and this was on the base of 259,000 metric tons of dispatches, 22% higher quarter on previous quarter.
From a policy perspective, there has been very big news over the past weekend, with the export policy for the season '22-'23 being formally announced. The government has announced exports of 6 million metric tons from the 1st of November 2022 to 31st of March, '23. This was a key husk of the industry and an enormously big positive for the sugar sector. We believe that this is the first tranche and I personally do believe that the government will come out potentially with the second and, if be, a third export tranche, at least the second one being, our hope is 3 million metric tons in 5 or 6 months' time, so that there could be better planning and execution.
I would like to point out that this again shows that the government is acutely aware of the needs of the industry and act in a timely manner to assuage the market and to provide stability in terms of operations for the entire industry. And of course, this has a cascading effect and benefit all the way down to the farm level -- to the farmer level. So it's a great positive and yet another example of excellent and timely government intervention. The 6 million tonnes will be easily exported, in my opinion, during this time potentially even well ahead of this time. The past experience from last year shows that India is well capable of exporting this total amount within the 6 month window.
Earlier, in October, the government has extended the restriction on sugar exports up to the 31st of October '23, however, the subsequent new orders, of course, in addition to that previous order. For Triveni, we have received our quota of just under 205,000 metric tons of sugar and we've contracted a significant portion of this already at substantial premiums. These are refined premiums for the company, which are in excess of prevailing domestic prices. We intend to dispatch this entire quota during this current financial year, which will, of course, improve the financial performance for H2 fiscal '23.
Turning towards the domestic scenario, based on the recent ISMA estimate, the total acreage for the country is about 6% higher than the previous year. I would also like to mention that it is our belief that the state advised price, which is the sugarcane price that Triveni pays in Uttar Pradesh will remain the same and that is our earnest hope for sugarcane for this current season.
Looking at the balance sheet for the nation, for sugar production in 2023, before considering diversion to ethanol, we anticipate that to be about 5% higher at 41 million tonnes, another record production of sugar in our country. It's expected that 4.5 million tonnes of sugar will be diverted towards ethanol this year. With an opening balance of about 5.5 odd million tonnes, I anticipate that with balancing export numbers, we will close out sugar season '22-'23 with the same figure as the opening balance, about 5.5 million tonnes on the 30th of September '23. And that of course is also the hope of the industry.
Based on international sugar -- international reports, the forecast for the global sugar industry is a surplus of about 5 million up to about 5.2 million tonnes. And this has been driven primarily by major sugar exporters, which is India, Brazil, and Thailand. Higher supply will, of course, lead to higher ending stocks as well.
In the Center South region, I think the Brazilian sugar production will return to normalized levels of 36 million metric tons odd next year which starts in April '23. So it is anticipated that there will be more sugar produced relatively in Brazil and of course that will come to global markets for sale. Similarly in Thailand, we're anticipating an increase of about 11.5 million tonnes of sugar for the season '22-'23 which starts in October '22.
Having said that, I think this has all been very well factored into global sugar prices, which have actually performed quite well. So New York has been hovering between $0.175 to $0.194 per pound. At present the prices are $0.187-odd per pound, which is a reasonably good price. And the London White Sugar contract for the December month has been trading at about $540-odd per tonne with the March trading at just under $513 per ton, again a very healthy price of solid white premium actually. So we, at Triveni, for our exports, are hoping to at least capitalize on this wide whites premium for a portion of our total exports.
Turning to the alcohol business, the production was 57% higher. The sales quarter-on-quarter were 23% higher. The average realization was just about 13% higher. Key changes for this quarter is our product mix and our higher capabilities, which led to higher volumes. The sale of ethanol produced from grain accounted for 24% and 13% of total sales volumes in the current quarter and half year corresponding in the other way around actually. Ethanol produced from B-heavy constituted 70% of the sales volume of the current quarter versus 73% in the previous corresponding quarter.
There has been big news also in the distillery segment where the government has recently announced price -- an increase in prices under the EBP program. We note that the increases for B-heavy juice and grains are only marginally higher when you include the relief that was provided by the OMCs earlier and therefore it is my view that more support will be required as we march towards EBP 20 and beyond and we will need more capacities to come up to convert juice, which is definitely the most reliable feedstock for the ethanol blending program.
We can see that from Q4 of the ethanol supplier that the most reliable suppliers at the most precarious time has come from the sugar sector and I do believe that as we move towards E20 and beyond the sugar sector with respect to ethanol has to be the bedrock for this particular program. The ethanol supplier has -- this is important -- has been redefined and it will now be from 1st of November to the 31st of October in the following year.
And therefore, in view of the above changes to the ethanol supplier, the ethanol supplier for '22-'23 will be considered from 1st of December to the 31st of October '23, 11 months. Out of the 455 crore liters finalized by the OMCs and a total requirement of 458 contract for 454 liters have been executed after the 23rd of October '22. The total lifting has been about 82% of the contracted quantity and the average blending percentage after the 23rd of October was 9.57%, let's say broadly 10 odd percent.
Till October 23, '22, out of the supply of 371 crore liters, 70 crore liters has been supplied from sugarcane juice and 234 crore liters has been supplied from B-heavy molasses, the vast majority of this total supply. And the OMCs have recently invited bids to supply 651 crore liters of ethanol for the supply of '22-'23.
Turning to the Engineering businesses very quickly, the Power Transmission business again has had an excellent quarter under review, with gross revenues improving by 12% to INR 61 crores, PBT of INR 21.1 crores and an order booking increasing by 20 odd percent to just about INR 60 crores. The closing order book, of course, was 200 -- just over INR 245 crores, which is 52% higher.
In Q2, there has actually been a fantastic growth and we've seen orders coming in, not just domestically, but internationally as well. There have been some supply chain disruptions because we saw metal prices vacillate substantially, but those have been pretty much set aside and the recent performance with metal prices augurs very, very well for the business going forward. We've seen an excellent performance as well in export markets. And this is a focus area for the company in terms of discovering new customers, OEMs and gaining more market share. The outstanding order book, as I mentioned, stood at INR 245 crores, which includes long-term orders of INR 105 crores.
The Water business had a fantastic quarter under review where revenues grew by 43% to INR 68 crores. The order booking decreased by about 3% to INR 1,570-odd crores. The results are very good on a consolidated basis, which includes our SPVs. And the Water business, as I had mentioned, has achieved commercial operation date, the COD date for the entire Mathura Hybrid Annuity project with effective 21st of October. It's a very important milestone in terms of our revenue recognition, et cetera.
I mean, this -- the most successful HAM project in my opinion that has been executed in -- across the nation. The outstanding order book, as I mentioned, continues to grow quarter-on-quarter, half year on half year. And we're anticipating that there are large number of orders that will be executed -- that will be finalized over the next few quarters.
Looking briefly at the outlook, the sugar business, as a result as I mentioned of the debottlenecking and modernization, there is going to be a good increase in the performance and a reduction in costs of the sugar that is produced this year. Of course, the sale price will benefit with higher quantities, 60% of refined sugar and a doubling of pharmaceutical grade sugar that is produced by the company.
As the season has started, the crop condition looks excellent. For Uttar Pradesh as a whole, there is a projection that there will be 4% increase in production. This is recovery and crush combined. I would be happy to mention that Triveni estimates that our production will certainly be much higher than the average of the state of Uttar Pradesh.
Our 6 factories have already started operations. The relative recovery rate this year, we've started earlier than last year, are higher, which is very -- which bodes very well for the season, and we are crushing at a significantly higher crushing rate as well this year versus the previous year. All of these, of course, help in cost of production and better efficiencies across the entire system and provided, of course, we don't have any unseasonal rains or inclement weather, et cetera, this has the potential of being a record year for the company. And a lot of the work that has been done has been done at the farm level. So we are seeing the yield increases, which means that our farmers are certainly seeing an increase in their take home income and profitability from the land and we're delighted to mention that.
Looking at the alcohol business, we're well on our way in terms of expanding our capacities to 1,110 KLPD and we are looking at expanding and leading to better growth in terms of revenues as well as profitability as this year continues and we move into the next year.
On the gears business, the Make in India program has led to fantastic opportunities for our diverse engineered products and we're actively participating in several many indigenous development projects. We've seen fantastic growth in inquiries from the cement, energy, distillery, and steel sectors domestically and this augurs well. This is continuing, and in fact, heating up quite a lot. So it's very positive for the domestic order booking going forward. The defense segment again has done well and we have received strong orders in the areas of propulsion shafting. We believe that this is a long-term strength for this particular business.
The Water business, we're expecting robust order booking, as I mentioned briefly in the coming quarters. And there's a lot of visibility and value that will get finalized over the next 6 months or so. The domestic opportunities are increasing in the recycle and reuse of waste water. And the water business is equipped to handle this target market, which is a new and large revenue segment for the Water business.
Municipal business opportunities are looking very attractive in the states of Karnataka, Uttar Pradesh, Punjab, Telangana, and Maharashtra. And we are looking for other public private partnership model projects under the HAM model and we are keen on participating on those as -- over the coming few quarters.
Thank you very much. I'd like to now open up the floor for questions.
[Operator Instructions] The first question is from the line of Sanjay Manyal from ICICIdirect.
My first question is about the export contracts which you've done. If you can quantify the what exactly is the volumes we have contracted and what price?
Sanjay, firstly, thank you for asking the question. What I will say is that we have contracted for more than 50% at fantastic white sugar prices. So unfortunately at this particular point in time, I cannot disclose the total quantity nor the values, but they -- I can say that they are in substantial premium to domestic prices.
Okay. Okay. So just wanted to understand one thing. I believe if the government is going to come up with the second tranche of 3 million tonne, then you probably will get another 1 lakh tonne of quota. So what exactly is the price you are looking where you will execute the export contract because what I understand you haven't done export last year. So what exactly would be the price at above which you will be looking to sort of do the full contract?
So you've asked a brilliant question. So we have some portion from this 6 million tonnes that remains unpriced right now. And then of course there is the distinct possibility of a large second tranche coming about. For us, very simply, it's about looking at -- you see this is tradable. The most important thing to consider that in the wisdom of the government, they have created a fantastic platform, which is tradable. So we already know that the coastal millers would love to export and there is a very buoyant market for trading this quota as well. It's already extremely active as of this weekend.
As far as we're concerned, we will consider 3 things. We consider domestic sides, we consider what the tradable value is at that point in time and we will consider what the export price is. Now, the export price, Sanjay, comes in 3 forms. It is refined sugar, it is -- that is EEC Grade 2 sugar. Then there is refined sugar that we typically make in North India, which is slightly bolder grain sugar, which can't command the same premiums as LIFFE and then, of course, you have 150s and row sugars. I'm bucketing both those together that are sold at versus New York. Now, we will look at which opportunity gets the company the maximum amount of revenues and profitability and our decisions will be made purely on that basis.
Okay. So -- but you have the capacity of this 45 grade refined sugar, which is basically trading at INR 38 to INR 40 per kg in INR, means you have the -- you can export the entire 2 lakh or 3 lakh?
We don't have the entire quantity in terms of EEC Grade 2, I would say, but we're doing at the maximum that we can. Frankly speaking, this is not a product that we have made in 2 years' time. Last year because we didn't export, we didn't manufacture it and now that we are functioning on higher levels of operating efficiency, et cetera, we're trying to maximize it. So let me leave you rest assured that while I can't comment on how much of it will be pure small crystal white sugar exports, we are certainly trying to maximize it and we will be manufacturing it through the course of the season.
Okay, understood, sir. Understood. My second question is on the basically the crushing number. What exactly is the crushing number we are looking for the -- over the season? And if my calculations are wrong -- my calculations are right, then probably 2 lakh tonnes of export, our sales volume for FY '23 should be somewhere around 11 lakh tonnes?
Sorry, can you please repeat your question? Couldn't get it.
Firstly, the crushing number for the season. What exactly is the crushing number we are looking for Triveni? And if considering the 2 lakh tonnes of export and the current quota, would we be able to do 11 lakh tonnes of sugar sales volume for FY '23?
Let me just take the first portion of your question and say that, as I had mentioned, we expect that there is going to be a 4% increase in sugar production for the state and Triveni will be substantially higher than that. A lot is dependent on weather. Let me be honest with you, for me to give you a projection right now, it will -- we are very conservative, as you know. So we will give you something that we will consider some amount of inclement weather that's happening, but despite that we are going to be substantially higher than the state average. At this particular point in time, we're unable to share a total crush number, but it will be a record number for us.
For the second part of your question, I'll hand over to our CFO.
As Tarun has just now said that we have already contracted more than 50% of our quota, so obviously this sale of sugar will take place in this fiscal year itself.
Okay, understood. And just if you can also quantify what exactly is the premium we get in the pharma sugar in terms of realization and margin? And yes -- that's one question.
Certainly. So depending on the grade of pharma sugar we get anywhere between INR 2 and INR 4 per kilo.
Okay, understood. And do we hold the distillery number volume, which we mentioned last few quarters, which is INR 18 crore for FY '23 and INR 25 crores for '24 if I'm not wrong?
Yes. For this year, definitely INR 18 crores and for next year considering the new assets from the existing assets as we mentioned we are about INR 21 crore plus and from the new assets will be the remainder.
Okay. And just lastly, if...
[Operator Instructions] The next question is from the line of Nitin Awasthi from InCred Equities.
I would just like to ask whether the recent ethanol pricing puts any hindrance to investments with the industry we are going to make into the ethanol segment and the company also?
Sorry, you were literally muted. Could you repeat that question a little louder please, Nitin?
Yes. So I was asking whether the recent ethanol pricing, which the government has announced, because it's lower than what was expected, will it put any hindrance in the investments coming into the ethanol space by the industry and by the company?
Yes. So a very, very good question. Really excellent question. I have to say that, yes, these prices -- increases are muted. I think the industry has made representations to the government in terms of what it requires and nothing extraordinary, only to get a normalized rate of return. So I do think that industry-wide, there will certainly be an impact, because the cost of funds for the industry as a whole is much higher than what the cost of funds of Triveni is. So I appreciate that you've segregated the company from the remainder of the industry. I don't think that there is a negative impact and I'm sure the government in its wisdom will revise it.
As we know from last year, there was a mid-term correction of prices. And so I anticipate that the government could very easily consider a mid-term correction in order to further boost investments as we move towards EBP 20 and beyond. As far as the company is concerned, we had anticipated that something like this could very easily happen. It still meets our investment hurdle criteria. And so we will be moving ahead, but we'll be watching the situation closely. As you will remember that we are investing in dual feed facilities and therefore for our return, we will look at both grain as well as sugarcane juice as alternatives. And therefore, it gives us a little bit of an advantage in terms of meeting our return expectations.
Got it, sir. Sir, the second question was, you have put up a standalone grain distillery, which is quite different than the rest of the sugar industry, which has either gone for a flex or avoided this out. So what are the prices for ENA that you are realizing currently and now that you have the expertise in the sector, would you like to expand or aggressively in the ENA segment?
So, I presume you're talking about the grain-based ENA. So we have produced the quality of that. Our quality has been approved. We are looking at opportunities at the current levels. I mean, both grain-based ENA and grain-based ethanol are giving us the same margins and we have the flexibility of switching to production of either of them to 50% of the capacity of this plant.
Okay, sir. So any expansions in this direction?
I think we will look at it. The grain prices have yet to be announced. As and when the OMCs announce the new revised grain prices, we will have a look at those prices as well and look at investment decisions, but those have to first go to the Board. So at this particular point, I would say there is nothing that we are contemplating. The Board will have to evaluate these proposals first.
Got it, sir. And just a clarification on your previous comment. So ENA prices and grain ENA prices and ethanol prices are the same in the state of UP?
No, not prices. Margin.
Okay. Could you quantify the prices, please?
Well, it depends on a landed price of, let's say, for this on 18% GST. I mean, a large number of organizations are charging that at 5%. But if you are looking at 18% GST, which we believe is the correct way of taxation going forward, the numbers are anywhere between INR 62 to INR 64 landed for consumers or, let's say, ex-factory for the consumers situated in UP and you can work it backwards. And the GST comes to 18%, ethanol is 5%.
The next question is from the line of Rajesh Majumdar from B&K Securities.
I had one bookkeeping question. You have quantified the wage arrear figure as approximately INR 5 crore. What is the impact of the levy molasses increase in the quarter in terms of the one-time impact?
Yes. That impact is in the region of about INR 5 crores, INR 6 crores, which is a 2% reservation of molasses and as far as the wage arrears are concerned, let me clarify that most of the provision was made before -- in the financial year '21-'22 and that, as a result of the notification, incremental provision of about INR 5 crores was made in the quarter.
And what is the impact going forward on an annual basis of both the one-times, the wages as well as the levy molasses, the annual impact?
No, wage is finished. It's over. That was a chapter, now it has become a part of the recurring cost, basically because this arrear was the right from 2018 onwards. Now, as far as the reservation of molasses is concerned, it keeps on changing every year, so there would be a molasses policy for this year which will define what the reservations are going to be.
And the current change from 18% to 20%, so what is the annualized impact of this?
So the incremental impact is an impact of INR 5 crores. If you want the total impact, we can give you that figure offline.
Yes, yes, please, please.
On a comparative basis.
That's right. Because you would have had to make provision for the last 3 quarters as well, right, on the annualized basis.
You don't make provisions for it, because you're selling it at that particular price.
You don't need to make a provision. Depending upon what your bifurcation between levy molasses and free molasses are, you value your stocks accordingly.
Okay, got it. So it's more like an opportunity loss in terms of lack of sales of ethanol than anything else?
Correct. That is exactly correct. That's the way that we treat it.
Right, sir. And my second question was regarding the buyback, what is the time frame proposed for the buyback?
Time frame is immediate. So we will be going to our shareholders in the very, very near future. We're hoping to complete this entire arrangement by the end of -- by January.
By Jan. So around 3 months is correct figure?
No, we're already sort of well into November. I would say, look at 10 weeks or so.
Okay, sir. And sir, regarding the balance fund, we have a certain amount -- just one...
Sir, I will request you please join the queue...
It's a follow-up question. Yes. On the balance fund, basically we still have some amount of debt on our books, so will you able to retire some debt or what do we do with the rest of the cash?
No. I mentioned earlier our debt -- our cost of debt is 5.18%, it is quite low. In fact, our debt numbers are also declining quarter-on-quarter anyway that you would like to cut it or evaluate it. We will not be using these proceeds to retire debt per se. That's the answer to the question. And in terms of any other things to do with the funds, the Board will contemplate that in the future. And I'll get back to you once we have had that discussion at the Board level.
The next question is from the line of Anupam Goswami from B&K Securities.
Sir, my first question is on the -- I see your results for the half year, the EBIT per liter in the distillery segment is about INR 11.4. Now with the prices going up in ethanol, where do we see this and the mix now is coming from grain as well as juice, where do you see this EBIT margin per -- or EBIT per liter in the distillery segment?
So let me take the second question first, the second part of it. Most of the increase in our results will be coming in from increase in grain ethanol and if we find juice viable only, then we will be doing juice. So to that extent, it will pull down the EBIT numbers a little bit from what we are getting right now.
So to quantify it, right now in the first half, it's INR 11.4, now you say makes more grain, so it might come down to let's say INR 9.5 or INR 10?
No, first of all, I am not too sure if these are the EBIT numbers. These would include the excise duties of IML on PAT? You see, grain, just in a nutshell grain was utilized in the off-season. As we look forward to H2, the EBIT numbers will rise because we will be using B-heavy molasses. So the EBIT numbers for the remainder of the year will be at higher percentage. That is because there will be more B-heavy molasses used and no juice that was used in Q1 and limited amounts of grain.
Sir, on a total like financial or a sugar year, what would be our mix of B-heavy juice and grain? What are we aiming at?
I'm afraid that is something that is -- that we look at opportunistically, because we have that ability. So it's very difficult for us to give you any forward-looking estimates of how we will split that up. We -- because we have the ability to be able to change between the different feedstocks, it is a very nimble change, a decision-making process that happens from time to time.
Okay, sir. Okay, sir. And my last question is on the -- industry-wise, we see that next year -- this year we are diverting about 4.5 million tonne and with the current acreage also increasing, do you feel that 6 million tonne that the ISMA is projecting for the next season year diversion, do we break that maybe to 7 million or 7.5 million tonne diversion?
No, you see for even 6 million tonnes you need to have the distillery capacity in place. So I think that at present ethanol prices from juice, you are not going to see the same amount of distillery capacity come up. You are going to see it come up from, let's say, some of the larger players that is envisaged, but in terms of fresh incremental capacity to take us beyond 6 million tonnes, I don't see that happening unless we have a revision in ethanol prices. Even reaching 6 million tonnes is going to be a challenge.
And sir, even if we reach 6 million tonne diversion, what could be our blended -- blending percentage, right now that given 10%, where do we stand at if we divert 6 million tonnes?
So you can do the math. 15%, 16% is what you would get, because you have some contribution coming from grain. You also -- you see previously, the government had looked at 1,000 crore liters and said 6 million tonnes should come from sugarcane to meet the E20 number at 1,000 crore liters. However, 1,000 -- E20 now is being looked at between 1,300 crore and 1,400 crore liters. My personal view on this is not just look at 1 year forward, but look at a few years forward. I believe that the sugar industry can easily divert 10 million tonnes of sugar towards the ethanol blending program. So it is not just towards E20, but it is beyond E20 as well. And this is a number, given the type of productivity levels that we have in the industry today, that can easily be met.
There are 2 things to consider over here. The first thing, of course, is the willingness for the industry to do it, which I think is very, very, very high. Of course, the discussion on prices still exists. The second and vital element is that I am not talking about farm productivity levels. My fundamental view is that there is a lot of scope in the medium term to enhance sugarcane yields. Speaking just for Uttar Pradesh, there is tremendous possibility for work to be done and the fruits of that will come -- it doesn't come in 1 year. It comes in a couple of years, but there is tremendous possibility to enhance farm yields and that will lead to higher availability, which means that there is more surplus to be diverted towards ethanol as we go forward.
Such surplus is to be diverted, I feel like your sugarcane juice, ethanol prices has to be enhanced substantially again, a further enhancement is required?
I left the sugarcane price point aside because it is a sticky point. The industry does believe and I do believe that the prices are low and they will not attract additional investment at this price, because it is not just about Triveni setting up distilleries, it's about the rest of the countries setting up distilleries, because ethanol has to go far and wide across our nation. And it's important that we have other participants also in this mix.
The next question is from the line of Shailesh Kanani from Centrum Broking.
Sir, couple of questions from my side. One is outlook on domestic prices for the remainder of the year, you said that second quarter rates were disappointing and there has been some uptick. The uptick is by and large because of festive season and across industry the volume -- inventory levels were low. So how do you see for the remainder of the year and for next year as well?
Yes. So if I look at the next 11 months basically after the end of the sugar year, I actually am quite buoyant about these levels. And I will tell you exactly why. I think the government has made its intent very clear that it is going to be evacuating the sugar. So the first step was the announcement of this 6 million tonnes of export.
The next thing I do believe is that, in a timely manner, the government will come up with other tranches for exports, ensuring that our closing balance is thereabout similar to what our opening balance was. Given that, at this particular point in time, I think that augurs very, very well for the industry. And there was in the last quarter and even potentially in the last -- in the first half of this fiscal year, some amount of skepticism that will the government actually ensure the evacuation of the sugar. Now that, that uncertainty to a large part has been cleared, I do believe that we would come to a slightly higher sugar pricing levels as we move forward. Now it is slightly higher, I mean, to odd percent, broadly speaking. And -- but that is still certainly definitely better than the previous 12 months.
Okay. And sir, so primarily, the rates were not higher because of the skepticism in the system per se that you believe because that is the reason for the crop prices being subdued for the quarter, right? Is that right?
That is my explanation for Q2 that there was a certain amount of skepticism, there was a concern that will the policy get announced? How will it be announced? What is the format that the government will use. Last year, if you remember, it was OGL. This year, it is MIEQ. There were important questions that need to be answered. I think the government in a timely manner has taken care of those concerns and issues.
Okay, sir. Second question is on the expansion front. Can you little bit elaborate the time line of the 450 KLPD? Is it expected by first quarter FY '25 and the volumes we can achieve in FY '25?
So in terms of production, I think we're going to -- we've seen some stability in metal price increases. So these are good times in terms of placing orders, et cetera. And we are progressing with executing these projects during fiscal '24, towards the end of fiscal '24. And therefore, for 100% production to come into place, it will be in the subsequent fiscal year. You're absolutely right in that observation.
In terms of total spirit production from 1,110 KLPD, it would be -- on an annualized basis, it would be -- we have already mentioned about FY '24 that we should be doing INR 21 crores from the existing assets plus the assets coming on stream in the last quarter that would get added on to it. And therefore, definitely, we would be looking at in FY '25, we should be looking at 31 crore, 32 crore liters.
Okay, sir. Sir, last question from my side. I believe promoters will be fully participating in the buyback of shares or it's a partial patent division in a buyback?
That's right. That's right. Promoters will be participating.
The next question is from the line of Resham Jain from DSP Investment Managers.
Yes. So first of all, I think congratulations to the management for doing this unlocking of sneak sale from Triveni Turbine and also doing buyback along with it. I think very few Indian companies have been able to earnout value like this. So congratulations to the whole team. Sir, I have a couple of questions. So first one is, you mentioned in your opening remarks that the export realization has been much better right now and you've contracted also for the same. So is the margins for that is relatively better than the ethanol business also? Or how should one think about it?
So Resham, let me first thank you for your very complementary words. To answer your question, yes, the profit margins on a percentage basis are certainly -- while we're not disclosing what the contracted values are, whatever we have contracted are at margins that are better than our distributed business as well, of course.
Okay. Got it, sir. Sir, the second question is on the gear business, industrial gear business. So there, you have announced a CapEx in the last quarter and which will get commissioned maybe in the next 1 year or so. So how should one think about this division? It did around INR 200 odd crores of revenue. So let's say, 3 years, 4 years out, what kind of revenue one should look at from this specific investment which you have done?
So Resham, there's 2 parts to that question. Let me take the -- the second part first. Typically, we don't give forward-looking guidance. So it's tough to say, but the business is performing very well. Our clients are very happy with us. The new business opportunities that we've approved are bearing immediate fruit in terms of order booking and revenue recognition. The INR 80 crore CapEx that we have announced will be executed in the very near future.
It includes the establishment of a new facility in Mysore as well, plus a brand new aftermarket service base in our existing facility, which will ensure that we will be able to actually do our aftermarket businesses about 40% of our total business, very high margins. It will give us the opportunity to expand that business and also to increase the speed, which has a direct impact on the sale value of all aftermarket. So from that perspective, this CapEx will allow us to expand. It will allow us to meet our short- and medium-term requirements. It will also allow us to create new business opportunities as this gets rolled out. As far as the business is concerned, I think we're looking at very healthy and respectable growth, and that is evident in our order booking as it increases.
The next question is from the line of Nimis Sheth from GT Advisory.
Just a follow-up question on the INR 460 crore CapEx, the 2 new distilleries, basically, you have indicated that you have not yet placed the orders for the plant and machinery that you're in the process. So in that case, will the distilleries be up and running in the next 12 months in time for sugar season or ethanol season '23-'24?
So yes...
We're not looking at 100% utilization. I'm saying will they be up and running?
Yes. Let me just answer your question by giving you our past experience. The 2 distilleries that we had established was set up from the go date in a period of 9 to 10 months. And so we have those engineering capabilities. And plus, we're not reinventing the model. We're looking at all of our plants, frankly speaking, the same sort of cookie-cutter model. And so from an engineering and design perspective and working with vendors, we are acutely aware of who we have to work with and what capabilities are.
So I think because we're not setting up something that is 3x the size or 5x the size or half the size, something like that, something that is odd in terms of engineering, both the internal team, our consultants and potentially new vendors because we will be looking far and wide in terms of who we'll be replacing these orders to, we'll be able to execute on time. And I think because we've moved away from the vast amount of vacillation that we had in metal prices, people are offering more realistic delivery rates.
The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
I just have one question. Sir, do you see any probability of government increasing the sugar MSP in the coming months?
I would hope that they would, but I -- the industry association has made continuous representations to increase the MSP. I don't know it's on the cards, to be perfectly honest. Frankly speaking, I think we have -- the industry has actually managed quite well with the existing MSP, although we wouldn't want that back stock, we wouldn't want that price to increase, whether it will or not, it's still a very open question mark. To have prices that prevail at higher levels than MSP is something that has been proven for the last 30 months.
As there are no further questions, I would now like to hand the conference over to management for closing comments.
Ladies and gentlemen, thank you very much for joining us for Q2 fiscal '23 results for Triveni Engineering & Industries Limited. I look forward to speaking to you in approximately 3 months' time when we are about halfway through the course of the historic sugar season, where India produces the largest quantum of sugar and potentially Triveni produces the largest contribution -- produces the largest amount of sugar in our history. It is an exciting time for our distillery business, and it is an extremely exciting time for our engineering businesses as well as we come up towards Q3 and Q4. And the future does look very bright. So thank you very much. I look forward to speaking to you in January. Goodbye.
Thank you. On behalf of Triveni Engineering, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.