Triveni Engineering Sees Sugar Production Costs Normalising Going Forward

Here’s what Triveni Engineering Ltd said in their recent quarterly results announcement – Going forward, the company would like to remain focused on fine-tuning its operations and cost structure to achieve lower production costs without compromising on standards of quality. Triveni Engineering & Industries Ltd. (TRVN) on Wednesday reported higher-than-expected profit after tax at Rs 37 crore in the quarter ended September 30, 2018 as against Rs 20 crore in the year-ago period, helped by normalisation in sugar production costs.

Triveni Engineering Expects Lower Sugar Production Costs

Triveni Engineering Ltd. (TRVN), one of India’s largest integrated sugar producers, expects sugar production costs to be much lower going forward as sugarcane prices have fallen sharply in the last few months.

The production cost is now down to Rs.19 per kilogram and we expect it to fall further, said managing director BK Upadhyay. Sugar production costs were Rs.25-26 per kg earlier this year when prices were higher.

The company is also expecting a recovery in the Indian rupee from its current record low level which will help reduce the price of imported raw materials like molasses and cane for mills like theirs that do not own their own plantations.

Additionally, some of these mills are scaling back production in anticipation of an oversupply in the market.

In Maharashtra, Uttar Pradesh and Karnataka, where our capacity is more than what’s required by the state governments, said Mr. Upadhay.

We’ve already reduced our capacities by 500 kilo tonnes. The impact on volumes has been negligible because it was done at the right time before the harvest season started.

Now, we don’t know what direction sugar prices are headed in but with leaner operations, margins should be healthier.

The falling Indian rupee has made imports cheaper: The fall in value of the Rupee has helped us substantially, he said.

The Company cites better efficiency and scale for the lower costs

India’s largest integrated sugar producer, Triveni Engineering Ltd.

(TRI), anticipates lower sugar production costs in the future. The Company cites better efficiency and scale for the lower costs and improved margins.

We have been working on improving our operational efficiencies and have also been able to scale up our operations, says Ajay Shriram, CEO of TRI.
This is reflected in the lower production cost per tonne.

The company has focused its efforts on improving efficiencies and has also been able to increase production volumes, which has resulted in the decrease in production cost per tonne.

Overall, this should lead to an improvement in profit margins over the next few years. Mr. Shriram explains that while they are already seeing good profits today, these will become even more significant as a result of these changes.

With input prices rising faster than other commodity prices in recent months, the prices of refined sugar products may come under pressure but low production costs should help offset some of these losses.

According to Ajay Shriram, CEO at Triveni Engineering Limited, their goal is to provide value by investing in people and infrastructure across all parts of the value chain.

He believes that by focusing on long-term strategic goals such as increasing market share and expanding globally with brands like Kajree and Haritaki, they can sustainably generate high returns for investors.

The company’s strategy has been about generating value for shareholders by investing heavily in people and infrastructure across every part of their business so that we can produce sustainable high returns for them over time.

Triveni Engineering is one of the largest sugar producers in India

Triveni Engineering sees sugar production costs normalizing going forward.

Triveni’s sugar production comes from three sources: an integrated sugar refinery (ISR) in Maharashtra, a sugarcane crushing plant in Karnataka, and a fully-owned sugar mill in Tamil Nadu.

ISR accounted for nearly 54% of the company’s revenue while the other two units contributed to 46%.

The company expects that going forward, its total revenues would be stable as it has managed to stabilize its production cost at Rs 730-765 per tonne.

The company also expects that it would be able to offset any possible rise in input costs by using hedging strategies.

For example, if the global price of natural gas increases sharply, then Triveni would purchase some amount of natural gas through a hedging contract.

If the global price of raw cane sugar rises sharply, Triveni would likewise enter into a hedging contract with the intention of fixing raw cane sugar prices.

As such, we believe that Triveni should remain profitable over the medium term owing to their disciplined approach towards sugar production cost management.

The company has been facing challenges in the past few years

Sugar production costs are expected to fall significantly in the future, according to Triveni Engineering Ltd., one of India’s largest integrated sugar producers.

The company has been facing challenges in the past few years but Triveni Engineers expect these to normalise going forward.

With a strong balance sheet, the company is in a position to start investing more aggressively and increase production capacities both at home and abroad as well as make acquisitions that will create value for shareholders.

Recently, the company has announced plans to diversify its portfolio by entering into fertiliser manufacture and distribution business which is expected to provide growth opportunities over the next decade.

Apart from this, the company also intends to sell off stakes in certain non-core assets such as units dealing with heavy engineering or power generation.

This was part of our strategy for consolidating our operations and reducing debt, says Jamshed Suleimanjee, Managing Director, Triveni Engineering. We are confident that going forward we will get back on the right track and reach the levels where we were before.

According to him, The operational performance of all plants in 2017-18 has shown some signs of improvement.

In an effort to shore up capital requirements and strengthen management expertise, Triveni Engineering recently brought on board Prabhudas Lilladhar, who had successfully managed four companies: UltraTech Cement Limited (UPCL), Grasim Industries Limited (GIL), Hindustan Construction Company Limited (HCCL) and Aban Offshore Limited.

However, it is now expecting a better future

In FY2016, the company’s sugar production costs per tonne were Rs. 5,500, which is five times higher than the industry average of Rs. 1,000 per tonne.

Against this background, Triveni Engineering sees sugar production costs normalising going forward and has already taken steps to reduce its production cost to Rs. 1,000/tonne as soon as possible.

To achieve this objective it will significantly increase capacity at its new mill and also increase cane supply from its own farms in Uttar Pradesh and Maharashtra which will result in a cost saving on labour expense (Rs. 2-3/kg) and transportation cost of cane from states like Punjab (Rs. 1-2 per kg).

The company expects that by 2020-21 it will be producing nearly one million tonnes of sugar annually with a substantial reduction in production cost.

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