Triveni Engineering & Industries Limited

January 30, 2019

Summary of rating action

Previous Rated Current Rated
Instrument* Rating Action
Amount(Rs. crore) Amount(Rs. crore)
Fund based -Term Loan 111.66 82.66 [ICRA]AA- (Stable), Reaffirmed
Fund based - Working Capital Facilities 1526.50 1550.00 [ICRA]AA- (Stable), Reaffirmed
Non-fund Based - Working Capital
437.94 443.44 [ICRA]A1+, Reaffirmed
Facilities
Commercial Paper 200.00 50.00 [ICRA]A1+, Reaffirmed
*Instrument details are provided in Annexure-1

Rationale
The rating reaffirmation factors in the continued support to the sugar industry from the Government. The production
subsidy has increased to Rs. 13.88/quintal for SY2019 (from Rs. 5.5/quintal for SY2018) against sugar exports by the
Central Government. This should result in higher exports and in turn lead to lowering of domestic sugar stock. Recently,
the Government of Uttar Pradesh (GoUP) approved sugarcane subsidy (Rs 4.5/quintal for SY2018) and low-cost soft
loans for expediting sugarcane payments. While the GoI’s measures are likely to expedite exports and support sugar
prices in the near term, the latter would provide liquidity support in FY2019. These measures are likely to support
the profitability and cash accruals in FY2019 as well. In June 2018, the Government of India approved a cash subsidy for 3
million metric tonnes (MT) of buffer stock and fixed the minimum sugar price (MSP) at Rs. 29,000/MT, which helped in
sugar price recovery.

The ratings continue to factor in TEIL’s efficient operations in the business of manufacturing sugar and its by-products.
Moreover, TEIL’s forward integration into cogeneration and distillery as well as its presence in the engineering
businesses continue to provide alternate revenue streams and cushion it from the cyclicality of the sugar business to a
certain extent (profitability of water business, however, remains subdued). TEIL’s long tenured debt and cushion in
drawing power provide comfort for the assigned ratings.

ICRA notes that the profitability of the UP-based sugar mills will remain vulnerable to the GoUP’s policy on sugarcane
prices, the Central Government’s policies on import duties as well as the cyclical nature of the sugar industry, agro-
climatic risks related to sugarcane production and counterparty credit risk associated with the sale of power to the
utilities in the state.

Outlook: Stable
ICRA expects sugar prices to be supported by the recent Government initiatives. The outlook may be revised to Positive if
the sugar production estimates for SY2019 are lowered and the recently announced exports under minimum indicative
export quota (MIEQ) are implemented successfully, resulting in favourable supply-demand dynamics and consequently,
higher sugar prices. The outlook may be revised to Negative if the sugar production estimate is considerably higher than
the anticipated consumption for SY2019, resulting in a crash in sugar prices.

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Key rating drivers

Credit strengths
Third largest sugar producer in India with efficient operations; sustained improvement in recovery rates - With 61,000
TCD of sugar capacity, TEIL continues to have one of the largest sugar manufacturing capacities in the country. The total
sugar production increased by 33.8% in SY2017-SY2018 backed by a 30.8% increase in crushing and improvement in
recovery rate to 11.38% from 11.06%. A high recovery rate helps in bringing down the cost of production significantly
and is a strong differentiator from other operationally inefficient sugar mills.

Forward integration into cogeneration and distillery provide buffer against volatile sugar operations - TEIL has a co-
generation capacity of 104.5 MW and a distillery capacity of 160 KLPD (kilo litres per day), which provide additional
revenue streams and help buffer against cyclicality in the sugar industry. To further increase its integration, TEIL is setting
up distillery capacity of 160 KLPD at its Sabitgarh unit, which will become operational from April 2019. Thus, the total
distillery capacity will increase to 320 KLPD, resulting in complete integration in terms of molasses.

Strong order book position of engineering businesses; improved profitability of gear business but water business
continues to report losses - Strong order intake in H1 FY2019 in both the businesses has resulted in a much better order
book of Rs. 1,586 crore as on September 30, 2018. Further, the gear business profitability has improved after sustained
decline for two years till FY2017. The water business, however, remains subdued. These businesses provide additional
buffer against volatility in the sugar business and hence the improved performance/outlook of the same is a positive for
the company.

Improvement in financial profile with lowering of long-term debt level, low cost loans made available by Government
for sugarcane dues – The Government support measures have provided stability to sugar prices. In addition, higher
sugarcane crush in SY2018 has resulted in strong contribution from distillery and co-generation businesses, resulting in
healthy cash accruals and reduction in long-term debt levels. The company has availed sugarcane loan (for clearing dues
for SY2018 before November 2018) which is essentially low cost (effective rate of interest 5%), long-term working capital
funding and will provide additional liquidity to the company.

Credit challenges
Profitability of UP-based sugar mills continue to depend on GoUP policy on sugarcane prices - The sugarcane price is
determined by the GoUP at the start of the crushing season. Thus, the performance of the company can be impacted by
disproportionate increase in sugarcane price in any particular year. Nonetheless, the recent measures taken by the
Central Government and the GoUP have supported sugar prices and the liquidity of the sugar mills.

Profitability of sugar mills remain vulnerable to industry cyclicality, agro-climatic risks and counterparty credit risk -
Being an agricultural product, the sugarcane crop is dependent upon weather conditions and is vulnerable to pests and
diseases that may not only impact the yield per hectare but also the recovery rate. These factors can have a significant
impact on the company’s profitability. In addition, the cyclicality in sugar production results in significant volatility in
sugar prices which crashed from a peak of Rs. 36 per kg in FY2018 to Rs. 25–26 per kg in March 2018.

Liquidity position
TEIL has maintained an average cushion of around Rs. 330 crore in the 12-month period ended November 2018. In
addition, the liquidity profile is supported by long tenured long-term debt. The company is expanding its distillery
capacity by 160 KLPD at a capital expenditure of ~Rs. 200 crore in FY2019 (total capex of ~Rs. 225.0 crore, including
maintenance capex), which is expected to be substantially funded through debt. However, the effective interest rate is
expected to be ~5% (post subvention from the Government) and the repayment schedule of low cost loans (including

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loan for timely sugarcane payments) is spread over the next six years, resulting in moderate repayment and interest
burden in any year.

Analytical approach
Analytical Approach
Applicable Rating Methodologies
Parent/Group Support
Consolidation / Standalone
Comments
Corporate Credit Rating Methodology
Rating Methodology for Entities in the Sugar Industry
Not Applicable
For arriving at the ratings, ICRA has consolidated the financials of the various
group entities (as mentioned in Annexure-2) given the close business, financial
and managerial linkages among them

About the company

TEIL is predominantly an integrated sugar manufacturing company, which is also involved in the manufacture of high
speed gears and project implementation in the fields of water and waste water treatment and pollution control. It is the
third largest domestic sugar manufacturer with a combined capacity of 61,000 TCD, power cogeneration of 104.5 MW
and distillery capacity of 160 KLPD spread across seven locations in UP. The company also runs engineering businesses
that include a gear division in Mysore involved in manufacturing of high speed gears. It also has a water business division
in Noida, which is in the business of water treatment equipment and plants.

In FY2018, the company, on a consolidated basis, reported a net profit of Rs. 119.1 crore on an operating income (OI) of
Rs. 3370.7 crore compared with a net profit of Rs. 253.0 crore on an OI of Rs. 2824.6 crore in the previous year.

Key financial indicators (audited)

FY2017 FY2018
Operating Income (Rs. Crore) 2824.6 3370.0
PAT (Rs. Crore) 253.0 119.1
OPBDIT/OI (%) 18.7% 8.3%
RoCE (%) 17.8% 10.6%

Total Debt/TNW (times) 2.1 1.3

Total Debt/OPBDIT (times) 3.3 4.4
Interest coverage (times) 4.2 3.3

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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 Rating history for last three years
Current Rating (FY2019) Chronology of Rating History for the Past 3 Years
Date & Rating in FY2018 Date &
Amount Amount Date & Date & Rating in Rating in
Rated Outstan Rating FY2017 FY2016
(Rs. ding (Rs. December December August May April June May April
Instrument Type Crore) Crore) January 2019 2017 2017 2017 2017 2017 2016 2016 2015
1 Fund based- Long 76.50* [ICRA]AA- [ICRA]AA- [ICRA]AA- [ICRA]A+ [ICRA]A+ [ICRA]A [ICRA]A [ICRA]A- [ICRA]A-
Term 82.66 (Stable) (Stable) (Stable) (Stable) (Stable) (Stable) (Stable) (Positive) (Negative)
Term Loan
2 Fund based- Long - [ICRA]AA- [ICRA]AA- [ICRA]AA- [ICRA]A+ [ICRA]A+ [ICRA]A [ICRA]A [ICRA]A- [ICRA]A-
Working Term (Stable) (Stable) (Stable) (Stable) (Stable) (Stable) (Stable) (Positive) (Negative)
1550.00
Capital
Facilities
3 Non-fund Short - [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1 [ICRA]A1 [ICRA]A2+ [ICRA]A2+
based- Term
Working 443.44
Capital
Facilities
4 Commercial Short 0.0* [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1 [ICRA]A1 [ICRA]A2+ [ICRA]A2+
Term 50.00
Paper

*as on November 30, 2018

Complexity level of the rated instrument

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Date of Amount
Issuance / Coupon Maturity Rated Current Rating and
ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook
Fund-based - Working
NA - - - 1550.00 [ICRA]AA-(Stable)
Capital Facilities
Non-fund Based-Working
NA - - - 443.44 [ICRA]A1+
Capital Facilities
NA Commercial paper - - - 50.0 [ICRA]A1+
November December
NA Term Loan 1 - 5.00 [ICRA]AA-(Stable)
17, 2014 1, 2019
October 30, December
NA Term Loan 2 - 3.00 [ICRA]AA-(Stable)
2013 12, 2018
June 10, June 30,
NA Term Loan 3 - 33.33 [ICRA]AA-(Stable)
2016 2019
November December
NA Term Loan 4 - 16.59 [ICRA]AA-(Stable)
17, 2014 1, 2019
November May 10,
NA Term Loan 5 - 3.67 [ICRA]AA-(Stable)
19, 2014 2019
NA Term Loan - Unallocated - - - 21.08 [ICRA]AA-(Stable)
Source: Triveni Engineering & Industries Limited

Annexure-2: List of entities considered for consolidated analysis

Company Name Ownership Consolidation Approach
Triveni Engineering Ltd 100.00% Full Consolidation
Triveni Energy Systems Limited 100.00% Full Consolidation
Svastida Projects Limited 100.00% Full Consolidation
Triveni Entertainment Limited 100.00% Full Consolidation
Triveni Industries Limited 100.00% Full Consolidation
Triveni Sugar Limited 99.99% Full Consolidation
Triveni Turbine Limited 21.82% Equity Method
Aqwise-Wise Water Technologies Limited 25.04% Equity Method

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ANALYST CONTACTS
Sabyasachi Majumdar
+91 124 454 304
sabyasachi@icraindia.com

Siddhartha Kaushik
+91 124 4545 323
siddhartha.kaushik@icraindia.com

RELATIONSHIP CONTACT
L Shivakumar
+91 22 6169 3300
shivakumar@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
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For more information, visit www.icra.in

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ICRA Limited
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