Dhruv Sawhney (37-K '59) company strengthens sugar business
Triveni Engineering is strengthening its businesses of sugar and engineering to emerge stronger, finds out Dilip Maitra. IT needs a lot of guts to ask investors to buy shares of a company at a premium if it is in the commodity business like sugar which suffers from near stagnation in price, slow growth in consumption and no product differentiation opportunity.
But, for Mr Dhruv Sawhney, chairman and managing director of Triveni Engineering and Industries Limited, such shortcomings are no discouragement to his lofty plans.
Triveni Engineering, one of the top three sugar companies in the country, in the next few years will invest Rs 270 crore for expanding its sugar capacity (segment contributes 80 per cent of the revenues) and other businesses. The Rs 1,021 crore (turnover in 2004-05) company plans to issue 5 crore shares through a public issue towards the end of July to part finance its capital expenditure.
Emphasised Mr Sawhney, The business of sugar can be very exciting if you know how to reduce costs, improve yield and ensure high utilisation of your production facilities.
Surely, the 61-year old Sawhney, who has spent three decades in the sugar and engineering industry and has a master degree in engineering from University of Cambridge, UK and a MBA from the Wharton School of Pennsylvania, U.S.A., should know. His approach is certainly different as he has transformed the 70-year old company following a de-risking model.
In short, Triveni can be best described as a technology-focused, sugar-plus company. Besides sugar, it is into co-generation of power, steam turbines, high speed gears and water treatment plants. The diversified portfolio helps the company spread the risk, but sugar being the most important of all, let us first find out how he is making this business sweeter.
First of all, the financial figures for 2004-05 depict good profitability. During the year the turnover increased by 60 per cent to Rs 1,021 crore largely because of a 69 per cent increase in sugar sales. Trivenis post tax profit at Rs 99.50 crore was more that five times of last years Rs 17.78 crore.
Proactive thinking
How did the company manage to get such a big jump? Such increases in sales and profits would have never happened had we not got down to doing one of the most challenging things in any business: investing during the down years in patient anticipation of the better, explained Sawhney.
Triveni started expanding its sugar capacity about three years ago when the market was down and sugar producers, including Triveni, were in red. But now when market is on an upswing, it is reaping the benefits of larger sales volume. Triveni now has three sugar plants, all in UP, with a combined cane crushing capacity of 25,250 tonnes crushed per day (TCD).
The commodity nature of sugar business, which does not allow higher price through branding, calls for a strategy to become more cost efficient. That is why Triveni is expanding its sugar capacity in a big way. It is setting up new sugar mills in the state of Uttar Pradesh and modernising and expanding the crushing capacity of its existing sugar mill at Khatauli from 11,750 TCD to 16,000 TCD. The company has acquired land and have received government approvals for a new sugar mill in Sabitgarh in Western UP with a crushing capacity of 7,000 TCD. The production is expected to commence by December 2005. It is also also exploring sites for setting up two or more sugar mills of similar crushing capacity by 2007.
Locational advantage
Success in sugar heavily depends on the quality of cane, timely supply and adequate irrigation. On this count too Triveni is lucky as its manufacturing facilities are located in well-irrigated sugarcane-growing areas in UP. The company also benefits because rates of sugar recovery in western UP is one of the highest in the country. Triveni also maintains good relationship with sugarcane farmers by making timely payments to them. To help the farmers in all their needs Triveni has created agro centres named Khusali (meaning happiness) in many cane growing villages. Here farmers can buy seeds, pesticides, fertilisers or hire tractors or avail credit from banks. As of now we have 30 such one-stop stores and this will double by the end of next financial, said Sawhney.
Supply-demand
Despite all these can Triveni be above the notorious cyclicality that the sugar industry suffers from? Sawhney thinks that from now onwards, the cyclicality will be less pronounced for a number of reasons: the government did not permit the import of white sugar during the last two years even when a shortage was evident, but quite pragmatically allowed the import of raw sugar under an Advance License scheme with corresponding export obligations. This will ensure that the surplus sugar production in the future, if any, will be offset by such exports. He thinks that the sugar situation will remain stable as production in the country at 22 million tones is expected to be little more than estimated domestic demand of around 20 million tones by 2007.
De-risking model
By putting its eggs into different baskets, Triveni has planned diversifications into areas linked with its core strength. Since bagasse is a by-product of a sugar mill and has high calorific value, it is often used to produce electricity through the co-generation route. While Triveni had captive power plants in their sugar mills for a number of years, it started the co-generation of electricity with the commissioning of a 22 MW co-generating plant in Deoband in UP in December last year.
The surplus electric power is being sold to the state electricity board and 2004-05, this plant generated Rs 19 crore of revenues in four months. Following this favourable experience, Triveni is now setting up a 23 MW module in another plant at Khatauli. When fully commissioned, these two plants together may generate Rs 180 crore worth of revenues in a full year from power. Argued Sawhney Since co-generation will generate a return completely insulated from the fortunes of the sugar industry, we will be mitigating the cyclical impact on this business.
Turning on turbines
Two of Triveni's engineering units, steam turbine and high speed gears, are located at Bangalore and Mysore, respectively. Triveni makes small turbines since mid 1960s and is one of the leading producer of small steam turbine (i.e., turbines generating up to 15 MW) in India. The total capacity of the small steam turbines manufactured by it in fiscal 2005 was 224.7 MW. The company has an order book of over 450 MW as on May 2005. Encouraged by good demand the company is doubling its turbine capacity to 550 turbines a year and is also planning to offer turbines of much higher capacity. We are capable of offering solutions up to 50 MW by packaging steam turbines of Skoda Power, a company based in Czech Republic, said Sawhney. Turbines generated Rs 164 crore revenue for the company in last financial.
Gear and water
Triveni is also a leading manufacturer of high speed gears and gearboxes that go with turbines for producing power. Currently, the business comprises of the design, manufacture and marketing of gears and gearboxes with a capacity of up to 70 MW and speeds up to 50,000 rpm. The company has a technology tie up with Lufkin of USA, a reputed international manufacturer of gears and gearboxes.
Triveni is also a leading player in the water and waste water treatment sector in India. Its water business, which is based in Noida, UP, provides equipment and solutions for water and waste water treatment applications.
Trivenis diversification strategy is clearly based on future sustainability because sugar, power generation, power generation equipments and water treatment plants will be perpetually in demand. Thus Trivenis business, perhaps, will never go out of fashion retaining the smile on Sawhneys face.