India Research

May 14, 2009

Morning Note
CMP (Rs): 62.1 Mkt Cap (Rs Bn): 16.01 Mkt Cap ($ Mn): 326.5

FOCUS OF THE DAY: TRIVENI ENGINEERING & INDUSTRIES LTD.

Key Highlights
Synergistic Business Model

The company generates income from direct revenue streams including sugar, distillery, cogen and engineering, enhancing its profitability in good market conditions while protecting the downside during troughs. The company has comparatively low volatility in its earnings due to the healthy order book in its engineering business and higher realization in the sugar segment. Lower debt and RoCE and RoE to improve We expect a significant reduction in the companys debts due to healthy earnings and cash flows from its operations in SY09E and SY10E and repayment of the debt. The debt-to-equity ratio is expected to fall from 1.49x in SY08 to 1.07x, and 0.55x in SY09E and SY10E respectively. We expect the RoE and RoCE ratios to improve from 14.2% and 12.7% in SY08 to 18.5% and 17.7% in SY09E and 18.9% and 20.2% in CY10E due to improvement in net profit margins.

Outlook and Valuation

The company is well positioned to take advantage of rising sugar prices due to the substantial inventory in hand. This will ensure better margins and profitability in the coming period. Moreover, the strong order book in the engineering business will help the company post a robust growth in both top line and bottom line. At the current market price of Rs. 62, the stock is trading at 9.4x SY09E EPS of Rs. 6.6and 7.7x SY10E EPS of Rs. 8.05. We have valued the stock on 5x EV/ EBITDA on SY10E basis. We have based our valuation on a) Revenue from different business segments that helps to protect the margins of the company b) The up-trend in the sugar cycle and substantial inventory in hand c) Healthy net profit growth at a CAGR of 29% in SY08-10E d) Significant improvement in the debt-equity ratio of the company on the back of strong cash flows from operations. Since the stock price has run up, we are downgrading our recommendation to Market performer from Buy earlier.

Financial Snapshot
YE Sept (Rs Mn) Net Sales Total Expenses EBITDA % Margin PBT PAT % Margin EPS % Chg YoY PE(X) RoE EV/EBITDA BVPS D/E *18 Months period 2006 11920 9808 2112 17.7% 1612 1315 11.0% 5.9 23% 10.6 24.8% 8.4 23.7 0.8 Source: HDFC Sec. Research estimates 2007* 19072 16626 2447 12.8% 807 754 3.9% 2.9 -50% NM 11.2% 10.5 26.8 1.4 2008 15930 12688 3242 20.3% 1346 1115 7.0% 4.3 48% 14.4 14.2% 8.5 30.4 1.5 2009E 16725 12509 4217 25.2% 2198 1714 10.2% 6.6 54% 9.3 18.5% 5.9 35.9 1.1 2010E 19637 15331 4306 21.9% 2667 2080 10.6% 8.1 21% 7.7 18.9% 5.0 42.8 0.6

HDFC Securities Ltd., Trade World, C. Wing, 1st Floor, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai 400 013 Phone: (022) 66611700 Fax: (022) 2496 5066

Institutional Research
Key assumptions
YE Sept Cane crushed (Lac tonnes) Sugar Bagged (LMT) Sugar Sold (LMT) Cane cost/ton (Landed) Avg Sugar prices (Rs/kg) Recovery (%) Distillery Sales ( Mn ltrs)* Power Unit Sold (Mn Kwh) 2009E 37.3 3.35 4.13 1538 21.6 8.9% 36.0 155 2010E 41.0 4.06 4.78 1688 22.7 9.9% 37.8 166

Income Statement
YE Sept (Rs mn) Net Sales % Change y-o-y Total Income % Change y-o-y Raw Material Cost Incr/decr in stock Manufacturing expenses other expenses Operating expenditure % Change y-o-y EBITDA % Change y-o-y EBITDA Margin(%) Interest D &A PBT Taxation EO item PAT % Change y-o-y PAT Margin(%) *18 Months period 2006 11920 24.0% 11984 24.2% 7622 423 615 1148 9808 24.1% 2112 23.5% 17.7% 230 288 1612 297 0 1315 32% 11.0% Source: HDFC Sec. Research estimates 2007* 19072 60.0% 19135 59.7% 13409 166 1333 1718 16626 69.5% 2447 15.8% 12.8% 731 863 807 151 -21 754 -43% 3.9% 2008A 15930 -16.5% 16002 -16.4% 10689 -1021 1256 1764 12688 -23.7% 3242 32.5% 20.3% 982 840 1346 352 0 1115 NM 7.0% 2009E 16725 5.0% 16771 4.8% 8935 338 1254 1982 12509 -1.4% 4217 30.1% 25.2% 1038 873 2198 483 0 1714 54% 10.2% 2010E 19637 17.4% 19688 17.4% 10433 1265 1473 2160 15331 22.6% 4306 2.1% 21.9% 609 900 2667 587 0 2080 21% 10.6%

HDFC Securities Ltd., Trade World, C. Wing, 1st Floor, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai 400 013 Phone: (022) 66611700 Fax: (022) 2496 5066

Institutional Research

BSE Close Change 52 Week High / Low 12020 -138.38 17497/7697

NIFTY 3635 -45.85 5167/2253

BSE Sectoral Indices

Consumer Durables Healthcare Auto Consumer Goods

Days close 1934 3117 3679 8474 2278 2295

Previous close 1932 3131 3696 8522 2298 2318

% Change 0.09 -0.45 -0.46 -0.56 -0.85 -0.96

Other Markets
Dow Jones FTSE 100 Nasdaq

Close 8285 4331 1664

Change -184.22 -94.17 -51.73

Teck Realty

ADR / GDR
Infosys ICICI Bank Wipro Tata Motors Dr. Reddys HDFC Bank

Latest 30.36 20.99 10.10 7.17 11.33 73.89

Previous 31.85 22.50 10.52 7.84 11.68 78.8

Change -1.49 -1.51 -0.42 -0.67 -0.35 -4.91

Trade Data 24/03

Turnover (Rs. bn) Change Adv/ Dec/ Unchanged

BSE 96.78 47.34 8/22/0 Buying

NSE 161.1 5.55 18/32/0 Selling 20.49 4.20

FIIs (Rs. bn) 13/05 MFs (Rs. bn) 12/05

25.43 7.20

Commodity Prices
Crude ($/Bbl) Copper ($/tn) Gold Std (Rs/10GM) Silver (Rs/Kg) Aluminium ($/tn) Zinc ($/tn)

Close 57.67 4507 14805 22840 1483 1430

Change -0.35 -119 155 30 -36 -122

Interbank Closing
Rs/US $ Rs/UK Rs/EURO

Close 49.69 75.13 67.57

Change -0.36 0.42 -0.11

10 year G-Sec yield : 6.37%

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HDFC Securities Ltd., Trade World, C. Wing, 1st Floor, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai 400 013 Phone: (022) 66611700 Fax: (022) 2496 5066