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Triveni Engineering Eyes Margin Growth with Ethanol Norms Change

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Synopsis:

 Triveni Engineering forecasts margin expansion following new ethanol norms, with the government's decision to lift the sugar diversion cap. The impact will be gradual, benefiting long-term profitability.

Triveni Engineering and Industries is set to experience margin expansion after the government’s recent decision to revise ethanol production norms. With the government lifting the cap on sugar diversion for ethanol production for the upcoming ethanol supply year (ESY) 2024-25, beginning November 1, 2024, the company is optimistic about the financial benefits that lie ahead.

Government lifts cap on sugar diversion

On August 29, 2024, the Indian government made a significant policy shift by lifting the cap on the amount of sugar that can be diverted towards ethanol production. Under the revised norms, sugar mills can now utilise cane juice, syrup, and both B-heavy and C-heavy molasses to produce ethanol. This policy change aligns with India’s broader strategy to increase the use of renewable energy and reduce reliance on fossil fuels.

Triveni Engineering’s outlook

Tarun Sawhney, Vice Chairman and Managing Director of Triveni Engineering and Industries expressed optimism about the potential for margin expansion in the upcoming year. "I see margin expansion very much on the cards as we move into the next ethanol supply year. A big and definitive change from the previous year, or the supply year that will end at the end of October," he said.

While the margin growth is anticipated, Sawhney cautioned that the impact on the company’s bottom line will be gradual. The new pricing levels for ethanol, expected to be announced before the start of the next supply year, will play a critical role in boosting the margins of producers like Triveni Engineering.

Positive implications for the ethanol sector

The policy shift is expected to benefit not only Triveni Engineering but also the broader ethanol production sector. The ability to use various forms of sugar derivatives for ethanol production increases operational flexibility and efficiency for mills. Moreover, the government’s decision to allow the sale of up to 2.3 million tonnes of rice from the Food Corporation of India (FCI) further supports the ethanol supply chain, providing raw materials for ethanol production.

As Triveni Engineering prepares for the upcoming ethanol supply year, the revised government norms offer a promising outlook for margin expansion. The gradual impact on the bottom line, combined with the expected new ethanol pricing levels, positions the company for sustained growth. With the central government’s focus on renewable energy, the ethanol sector is poised to play a crucial role in India’s energy strategy, benefiting key players like Triveni Engineering in the process.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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