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UBS Investment Research
Triveni Engineering & Industries
Deep value post demerger
„ Triveni Engineering (TREI) demerged its turbine division
Triveni Engineering and Industries (TREI) demerged its turbine division. We
change the price target to reflect the demerger. The demerged Triveni Turbines is
not listed yet. We expect it to be listed within the next two to three months. Post
the demerger, the listed TREI comprises of the sugar, water treatment, and high
speed gear divisions, and has a 21.8% stake in Triveni Turbines.
„ We hosted Triveni Engineering at our mid-cap conference
TREI management expressed confidence about the prospects for all its engineering
divisions. The water division continues to experience robust demand and should
benefit from key project completions, in our view. The turbine division is receiving
robust enquiries from the export markets and through the GE JV. We think this
should counter any potential slowdown in the domestic market.
„ Sugar—weak year, however robust cash flows
Indian sugar prices have been weak during FY2011. However, we expect TREI to
generate Rs1.9bn EBITDA and reduce its sugar division’s debt by Rs1.5bn.
„ Valuation: raise price target from Rs61.63 to Rs85
We derive our price target from a sum-of-the-parts-based methodology, using a
multiples-based approach. We value the engineering division at 14x 2012E PE and
the sugar business at 1x 2011E P/BV.
Takeaways from the conference
We hosted Triveni Engineering during our first mid-cap conference held in
Mumbai on 6-7 June 2011. Management is confident of growth in all its
engineering divisions.
Turbine division
The turbine division continues to receive robust order inflow and enquiries.
Export order inflow has been strong and the GE JV is pursuing opportunities
worth US$200m. Management is confident of a CAGR of 20-25% in revenue
over the medium to long term.
Water division
The water division is in advanced stages of negotiation for a few large orders.
The company is also about to complete the Rs1.5bn sewage treatment order in
Agra (149,000 M3/day plant) within the next two to three months. The
completion of this project should provide TREI with a prequalification to bid for
larger water treatment projects, in our view.
Gear division
The gear division is benefiting from the extended geographic scope (expanded
beyond India to include SE Asia) and extended product scope post the extension
of the technology tie-up with Lufkin to include high-speed gear technology for a
range of high speed gears (from high speed gears for turbines up to 25MW).
The company is witnessing increased enquiries as a result.
Sugar division to continue to deleverage
We estimate that TREI will generate EBITDA of Rs1.9bn during FY11 and its
debt will decline from Rs9.3bn in September 2010 to Rs7.3bn in September
2011. Of this, a decline of Rs0.6bn will be driven by the separation of Triveni
Turbines’ debt while a decline of Rs1.4bn will be driven by the sugar, gear and
water divisions, in our view.
Incremental capital deployment
The company plans to explore Build Own Operate Transfer (BOOT)
opportunities in water treatment. We expect the sugar division to continue to
deleverage and generate Rs1.2bn+ cash flow even during FY11. We estimate the
sugar and engineering divisions (water and gear) to generate average operating
cash flow of Rs2.5bn over FY12-FY15. TREI is already providing water
treatment solutions to power plants as well as municipalities. It intends to pursue
opportunities in BOOT projects in water treatment—both in providing water
treatment plants to power plants as well as to municipalities on BOOT basis.
This should provide an attractive opportunity for the company to deploy its
capital and also grow the attractive water treatment business.
Valuation
We continue to value Triveni Engineering on a SOTP basis. We value the sugar
division at 1x 2011E P/B and the engineering division at 14x 2012E PE.
Q Triveni Engineering & Industries
Triveni Engineering & Industries, an engineering and sugar manufacturing
company in India, operates two divisions. The engineering division
manufactures small turbines, high-speed gearboxes and executes water treatment
projects. The sugar division operates sugar mills, cogeneration power plants and
distilleries in the northern state of Uttar Pradesh.
Q Statement of Risk
We believe TREI faces several risks including: limited liquidity for TREI once it
spins off Triveni Turbines; a slowdown in industrial capex, which could have an
adverse impact on TREI’s revenue growth rate as would volatile sugar prices.
TREI is also exposed to the cyclicality of sugar production—its FY10 EPS fell
YoY because of this.
Q Analyst Certification
Each research analyst primarily responsible for the content of this research
report, in whole or in part, certifies that with respect to each security or issuer
that the analyst covered in this report: (1) all of the views expressed accurately
reflect his or her personal views about those securities or issuers and were
prepared in an independent manner, including with respect to UBS, and (2) no
part of his or her compensation was, is, or will be, directly or indirectly, related
to the specific recommendations or views expressed by that research analyst in
the research report.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Triveni Engineering & Industries
Deep value post demerger
„ Triveni Engineering (TREI) demerged its turbine division
Triveni Engineering and Industries (TREI) demerged its turbine division. We
change the price target to reflect the demerger. The demerged Triveni Turbines is
not listed yet. We expect it to be listed within the next two to three months. Post
the demerger, the listed TREI comprises of the sugar, water treatment, and high
speed gear divisions, and has a 21.8% stake in Triveni Turbines.
„ We hosted Triveni Engineering at our mid-cap conference
TREI management expressed confidence about the prospects for all its engineering
divisions. The water division continues to experience robust demand and should
benefit from key project completions, in our view. The turbine division is receiving
robust enquiries from the export markets and through the GE JV. We think this
should counter any potential slowdown in the domestic market.
„ Sugar—weak year, however robust cash flows
Indian sugar prices have been weak during FY2011. However, we expect TREI to
generate Rs1.9bn EBITDA and reduce its sugar division’s debt by Rs1.5bn.
„ Valuation: raise price target from Rs61.63 to Rs85
We derive our price target from a sum-of-the-parts-based methodology, using a
multiples-based approach. We value the engineering division at 14x 2012E PE and
the sugar business at 1x 2011E P/BV.
Takeaways from the conference
We hosted Triveni Engineering during our first mid-cap conference held in
Mumbai on 6-7 June 2011. Management is confident of growth in all its
engineering divisions.
Turbine division
The turbine division continues to receive robust order inflow and enquiries.
Export order inflow has been strong and the GE JV is pursuing opportunities
worth US$200m. Management is confident of a CAGR of 20-25% in revenue
over the medium to long term.
Water division
The water division is in advanced stages of negotiation for a few large orders.
The company is also about to complete the Rs1.5bn sewage treatment order in
Agra (149,000 M3/day plant) within the next two to three months. The
completion of this project should provide TREI with a prequalification to bid for
larger water treatment projects, in our view.
Gear division
The gear division is benefiting from the extended geographic scope (expanded
beyond India to include SE Asia) and extended product scope post the extension
of the technology tie-up with Lufkin to include high-speed gear technology for a
range of high speed gears (from high speed gears for turbines up to 25MW).
The company is witnessing increased enquiries as a result.
Sugar division to continue to deleverage
We estimate that TREI will generate EBITDA of Rs1.9bn during FY11 and its
debt will decline from Rs9.3bn in September 2010 to Rs7.3bn in September
2011. Of this, a decline of Rs0.6bn will be driven by the separation of Triveni
Turbines’ debt while a decline of Rs1.4bn will be driven by the sugar, gear and
water divisions, in our view.
Incremental capital deployment
The company plans to explore Build Own Operate Transfer (BOOT)
opportunities in water treatment. We expect the sugar division to continue to
deleverage and generate Rs1.2bn+ cash flow even during FY11. We estimate the
sugar and engineering divisions (water and gear) to generate average operating
cash flow of Rs2.5bn over FY12-FY15. TREI is already providing water
treatment solutions to power plants as well as municipalities. It intends to pursue
opportunities in BOOT projects in water treatment—both in providing water
treatment plants to power plants as well as to municipalities on BOOT basis.
This should provide an attractive opportunity for the company to deploy its
capital and also grow the attractive water treatment business.
Valuation
We continue to value Triveni Engineering on a SOTP basis. We value the sugar
division at 1x 2011E P/B and the engineering division at 14x 2012E PE.
Q Triveni Engineering & Industries
Triveni Engineering & Industries, an engineering and sugar manufacturing
company in India, operates two divisions. The engineering division
manufactures small turbines, high-speed gearboxes and executes water treatment
projects. The sugar division operates sugar mills, cogeneration power plants and
distilleries in the northern state of Uttar Pradesh.
Q Statement of Risk
We believe TREI faces several risks including: limited liquidity for TREI once it
spins off Triveni Turbines; a slowdown in industrial capex, which could have an
adverse impact on TREI’s revenue growth rate as would volatile sugar prices.
TREI is also exposed to the cyclicality of sugar production—its FY10 EPS fell
YoY because of this.
Q Analyst Certification
Each research analyst primarily responsible for the content of this research
report, in whole or in part, certifies that with respect to each security or issuer
that the analyst covered in this report: (1) all of the views expressed accurately
reflect his or her personal views about those securities or issuers and were
prepared in an independent manner, including with respect to UBS, and (2) no
part of his or her compensation was, is, or will be, directly or indirectly, related
to the specific recommendations or views expressed by that research analyst in
the research report.
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