Initiating Coverage Swaraj Engines Ltd. - Religare Online · Swaraj Engines Ltd. Religare...

Swaraj Engines Ltd.

Religare Investment Call

October 03, 2016

Incorporated in 1985, Swaraj Engines Ltd (SEL) is a JV between Punjab Tractors Ltd (acquired by M&M in FY08, which holds 33.2% stake in SEL) and Kirloskar Oil Engines (17.4%). SEL is engaged in manufacturing of engines for fitment into M&M’s "Swaraj" tractors. It also supplies hi-tech engine components to SML Isuzu, for assembly of CV engines. SEL derives 96.8% revenues from sale of engines. With a manufacturing facility in Mohali and an installed capacity of 1.05 lacs engines (p.a.), SEL's product line includes 7 major models with 30+ variants of engines catering to tractors in 20-50hp segment.

The domestic tractor industry, which was underperforming over the last two years, impacted by deficient monsoon and muted agri growth, seems to be back on its growth path. After five consecutive quarters of decline, the industry sales volumes have witnessed a meaningful revival in growth (YoY) over the last two quarters (+7.9% in Q4FY16, +14.8% in Q1FY17). With normal monsoon in 2016, government's increasing thrust on agri growth and low tractor penetration, we expect the industry to register a healthy double digit growth over the next two years.

SEL caters to 85% engine requirements of M&M's Swaraj brand tractors. The uptick in the domestic tractor industry should result in improved demand for tractor engines from M&M and drive SEL's engine sales volume growth going forward. SEL has outperformed the industry growth consistently since FY09, thus reflecting strong brand recall and rising demand for Swaraj tractors.

M&M's leadership position (market share gain of ~1,160bps during FY08-16), its renewed focus on Swaraj tractors with plans to launch new variants and strong relationship with SEL strengthens SEL's growth prospects. We expect SEL's engine sales volumes to grow by 14.5% CAGR over FY16-18E. SEL has started developing engines catering to >50hp segments, which should boost its growth prospects.

To meet the rising demand, SEL has expanded its engine capacity from 0.75 lacs p.a. to 1.05 lacs p.a. We feel this should be sufficient for SEL to meet any future upswing in the demand (at least over the next 2-3 years) and drive its engine sales volumes.

After two years of subdued performance, SEL's revenue growth is likely to improve to 14.4% CAGR over FY16-18E (largely volume led), led by demand revival in the domestic tractor industry, new launches and favourable base. Improved mix, operating leverage and benign input cost should result in EBIDTA margin gains of 266bps (at 16.7%) over FY16-18E. At CMP of Rs 1,184, SEL is trading at 19.3x FY18E EPS. The company deserves better valuations given its bright prospects, strong relationship with M&M, cash rich and debt-free status, superior return ratios and high and consistent dividend payouts. Valuing at 25x FY18E EPS, we recommend a BUY on the stock with a target price of Rs 1,535.

Financial Summary

Auto Ancillary

CMP (Rs)

Target Price (Rs)

Potential Upside

Sensex

Nifty

Key Stock data

BSE Code

NSE Code

Bloomberg

Shares o/s, mn (FV 10)

Market Cap (Rs Cr)

3M Avg Volume

52 week H/L

Shareholding Pattern

(%)

Promoter

FII

DII

Others

1 Year price performance

1,184

1,535

29.6%

27,866

8,611

500407

SWARAJENG

SWE IN

1.2

1,471

6,577

1,294 / 762

15-Dec

50.6

5.0

9.9

34.5

16-Mar

50.6

5.0

9.7

34.7

16-Jun

50.6

5.0

10.3

34.1

Analyst

Mehernosh K. Panthaki [email protected]+91 - 22 - 67288053

Investment rationale:

Initiating Coverage

Outlook and valuation:

Particulars, Rs cr FY14

FY15 FY16 FY17E FY18E

Source : Company; RSL Research

Net Revenues

EBIDTA

EBIDTA margin (%)

APAT

APATM (%)

EPS (Rs)

RoCE (%)

RoE (%)

608.3

89.5

14.7

67.8

11.1

54.6

39.8

33.6

539.7

74.7

13.8

51.8

9.6

41.7

29.2

24.6

525.9

73.6

14.0

51.2

9.7

41.2

28.1

24.0

594.4

91.5

15.4

60.3

10.2

48.6

34.7

27.8

687.8

114.5

16.7

76.3

11.1

61.4

42.6

33.3

60708090

100110120130140150

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Swaraj Engines Ni�y

Year Monsoon Rainfall

(as % of LPA)

Nature Agri Growth (%)

Domestic Tractor Industry Sales Volumes

Growth (%)

FY09

98

Normal

0.1

3,04,622 0.6

FY10

77

Deficient

0.8

4,02,586 32.2

FY11

102

Normal

8.6

4,82,286 19.8

FY12

101

Normal

5.0

5,36,891 11.3

FY13

92

Below normal 1.5

5,27,768 (1.7)FY14 106 Above normal 4.2 6,34,151 20.2FY15 88 Deficient (0.2) 5,51,463 (13.0)FY16 86 Deficient 1.2 4,93,764 (10.5)

(Source: Crisil, CSO, IMD)

Normal monsoon, government initiatives, low penetration to boost the domestic tractor demand

FY15 and FY16 were disappointing years for domestic tractor industry, which de-grew by 13% & 10.5% respectively. Two straight years of deficient monsoon, draught conditions in several parts of the country followed by crop damage due to unseasonal rains and subdued crop prices had impacted the agriculture growth, which contracted 0.2% in FY15 and grew marginally by 1.2% in FY16. Muted farm income impacted the demand for tractors.

However, the worst seems to be over and the industry growth is likely to be back on track. As per IMD's latest forecast, monsoon is expected to be 'normal'. While IMD has cut its monsoon forecast from above normal (at 106% projected earlier), we expect the domestic tractor industry growth to revive strongly under scenario of normal monsoon as well. In FY11 & FY12, where monsoon was normal, India's agri growth stood at 8.6% and 5% respectively and domestic tractor industry witnessed healthy double digit growth of 19.8% and 11.3% respectively (as indicated in the table below). In FY14, India witnessed above normal monsoon, which resulted in 6.3% agri growth and 20.2% growth in tractor industry sales volumes. FY10 was an exception, wherein despite deficient monsoon, the agri growth was marginally higher by 0.8% and the domestic tractor industry grew sharply by 32.2%. This was largely due to farm loan waiver implemented by the erstwhile UPA government during the year.

While analysing the quarterly trends, we observed that the domestic tractor industry sales volumes have witnessed YoY improvement over the last two quarters (grew by 7.9% in Q4FY16 and 14.8% in Q1FY17) after five straight quarters of de-growth (-21.8% in Q3FY15, -29.9% in Q4FY15, -16.4% in Q1FY16, -24.8% in Q2FY16 and -1.6% in Q3FY16). With good monsoon, we expect the industry to end with double-digit growth in FY17. Besides good monsoon, other positive growth drivers for the tractor industry over the next two years include government's increasing thrust on agri sector with enhanced budget allocation, low tractor penetration in India (which is ~1hp per hectare compared to 3-4hp per hectare in developed countries), increasing focus on agri-mechanization (use of machinery and technology in farming, which helps to overcome the growing labour shortage especially during the sowing season, boost production and productivity), generating rural employment opportunities through various schemes, shortened replacement cycle, healthy credit availability and momentum in infrastructural projects (which would increase tractor demand for commercial usage).

SEL to benefit immensely from uptick in tractor sales volumes

SEL manufactures engines for fitment into "Swaraj" tractors being manufactured by M&M (which holds 33.2% stake in SEL) at its Swaraj Division. The engine sales contribution to the total revenues stood at 96.8% in FY16. The Company also supplies hi-tech engine components to SML Isuzu Ltd., for assembly of commercial vehicle (CV) engines, which accounts for the balance 3.2% revenues.


Initiating Coverage

Investment rationale

Swaraj Engines Ltd.Auto Ancillary

As per IMD's revised forecast, monsoon rainfall is expected to be normal this year

G o o d m o n s o o n , g o v e r n m e n t initiatives, low penetration should drive the growth of domestic tractor industry

The growth in SEL's engine sales volumes exhibits direct co-relation with growth of domestic tractor sales volumes. SEL's engine sales volumes declined by 12.8% and 0.8% in FY15 and FY16 respectively, impacted by slowdown in the domestic tractor industry. The uptick in the domestic tractor industry should result in improved demand for tractor engines from M&M and drive SEL's engine sales volume growth going forward. After four straight quarters of de-growth, SEL's sales volumes have witnessed healthy revival in growth over the last three quarters (+5.7% in Q3FY16, +13.2% in Q4FY16 and +13.7% in Q1FY17), which is encouraging. Interestingly, SEL has outperformed the industry growth consistently since FY09 (as shown in the charts below), thus reflecting strong brand recall and rising demand for Swaraj tractors. M&M's dominant position, its increasing focus on Swaraj tractors and demand revival strengthens our view that this outperformance in growth should continue going forward.

M&M's dominant position, rising market share of Swaraj tractors provides SEL competitive advantage

While SEL manufactures engines solely for M&M's Swaraj brand tractors, the other listed engine manufacturers like Greaves Cotton, Kirloskar Oil Engines and Cummins are engaged in manufacturing of engines catering to various other segments like industrial (which include construction, mining, compressor, marine, rail, agriculture machinery, pumps, oil & gas, power generation and defense) and automotive (three wheelers and four wheelers). Hence, SEL cannot be compared directly with these players. SEL's revenue and profit growth is directly correlated to growth in M&M's tractor business. Hence, it is logical to look at the extent of competition faced by M&M in tractors business, especially the Swaraj brand tractors.


Initiating Coverage Swaraj Engines Ltd.

M & M ' s d o m i n a n t p o s i t i o n , i t s increasing focus on Swaraj tractors with plans to launch new variants augurs well for SEL

SEL has outperformed the industry growth consistently since FY09

SEL's engine sales volume growth is witnessing revival over the last three quarters

4,0

2,5

86

4,8

2,2

86

5,3

6,8

91

5,2

7,7

68

6,3

4,1

51

5,5

1,4

63

4,9

3,7

64

-20

-10

0

10

20

30

40

0

1,00,000

2,00,000

3,00,000

4,00,000

5,00,000

6,00,000

7,00,000

FY10 FY11 FY12 FY13 FY14 FY15 FY16

Sales Volumes (nos) - LHS Growth (%) - RHS

39

,14

3

47

,41

3

55

,23

9

57

,37

7

74

,06

2

64

,59

5

64

,08

8

73

,06

0

84

,01

9

-20

-10

0

10

20

30

40

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Sales Volumes (nos) Growth (%)

Domestic tractor industry sales volumes

Industry volumes reviving over past few quarters SEL's engine volumes have also revived

SEL's engine sales volumes have outperformed

1,7

0,4

65

1,4

1,6

51

1,4

2,1

47

97

,20

0

1,4

2,5

10

1,0

6,4

78

1,3

9,8

81

1,0

4,8

95

1,6

3,5

35

-35-30-25-20-15-10-505101520

-

20,000

40,000

60,000

80,000

1,00,000

1,20,000

1,40,000

1,60,000

1,80,000

Q1

FY1

5

Q2

FY1

5

Q3

FY1

5

Q4

FY1

5

Q1

FY1

6

Q2

FY1

6

Q3

FY1

6

Q4

FY1

6

Q1

FY1

7

Sales volumes (nos) - LHS Growth (%) - YoY - RHS

20

,04

4

20

,05

4

12

,15

3

12

,34

4

18

,38

3

18

,89

0

12

,84

5

13

,97

0

20

,91

0

-40

-30

-20

-10

0

10

20

-

5,000

10,000

15,000

20,000

25,000

Q1

FY

15

Q2

FY

15

Q3

FY

15

Q4

FY

15

Q1

FY

16

Q2

FY

16

Q3

FY

16

Q4

FY

16

Q1

FY

17

Sales Volumes (nos) - LHS Growth (%) - RHS


Source : Company; RSL ResearchSource : Company; RSL Research


Auto Ancillary

M&M has leadership in the domestic tractor market, commanding 41.3% market share (in FY16). Its next largest peers 'TAFE and Escorts' have market share of 23.1% and 13.5% respectively. Over the years, M&M has managed well to sustain its leadership position with market share gains of ~1,160 bps from 29.7% in FY08, which is impressive. The growth in the tractor volumes has been driven by organic as well as inorganic initiatives (acquired Punjab Tractors in FY08, which owned the Swaraj brand earlier). M&M dominates its market position across all segments of tractors (i.e. up to 30hp, 31-40hp, 41-50hp and above 50hp categories).

More interestingly, the 'Swaraj' brand tractors have outperformed the industry volume growth consistently over the years, thus registering steady market share gains of ~430 bps from 11% in FY09 to 15.3% in FY16. This bodes well for SEL, since it fulfils 85% of M&M's engine requirements for its Swaraj tractors (85% is assumed to be constant since FY08 while calculating Swaraj tractor volumes). With experience and expertise, investor friendly management, sound balance sheet and dominant position in the domestic tractor industry, M&M is likely to be a key beneficiary of a cyclical upturn anticipated in the domestic tractor industry. We feel its focus on the Swaraj brand tractors and it's strong and long lasting relationship with SEL would continue. This places SEL in a comfortable position to leverage its strength and drive its engines' sales volume growth and market share gains going forward.

Capacity addition, new launches, demand uptick to boost sales growth over FY16-18E

SEL's revenue growth is likely to improve to 14.4% over FY16-18E, better than 7.8% CAGR over FY09-16, likely to be driven by demand revival in the domestic tractor industry (which would drive the sale of tractor engines), new launches and favourable base (revenues de-grew by 11.3% in FY15 and 2.6% in FY16). We expect SEL's engine sales volumes to grow by 14.5% CAGR over FY16-18E. Realisations are expected to remain stable.

As per reports, M&M has plans to launch new tractor variants over the next 3-4 years, including variants of Swaraj tractors, which should boost the engine requirements from SEL. Further, while SEL has strong presence in developing engines across 20-50hp segment of Swaraj tractors, it has recently started developing engines in above 50hp category. Over a period of time, the medium and higher HP segments have become the most popular and fastest growing segments in India. All this should result in continued market share gains and healthy volume growth of engines for SEL in the domestic market.

In order to meet the rising demand, SEL has steadily expanded its capacity of engines by nearly 3x from 36,000 units p.a in FY09. The capacity utilization, which was 99.7%% in FY14 on installed capacity of 0.75 lacs units has now reduced to around 61.2% on expanded capacity of 1.05 lacs units in FY16 (CAPEX incurred was ~Rs 40cr). This expansion would be sufficient for SEL to meet any future upswing in the demand (at least over the next 2-3 years) and drive its engine sales volumes.

41.6 41.6 42.2 41.8 40.6 41.0 40.3 41.3

22.2 22.1 20.4 23.4 25.0 24.8 24.4 23.1

13.5 13.2 13.2 11.4 11.6 10.7 10.4 13.5

8.9 8.7 8.6 8.3 9.6 10.3 12.1 11.9 6.0 7.0 8.0 7.4 5.7 5.9 5.3

6.1 7.8 7.4 7.6 7.7 7.5 7.3 7.4 4.1

0

10

20

30

40

50

60

70

80

90

100

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

%

M&M TAFE Escorts Interna�onal Tractors Johndeere Others



M&M has leadership position across all segments of domestic tractor market (overall market share: 41.3% in FY16)

Swaraj tractors is witnessing steady rise in market share (+430bps over FY09-16)

SEL's engine sa les volumes are estimated to grow by 14.5% CAGR over FY16-18E.

Domestic market share of tractor manufacturers – M&M leads the show

Swaraj tractors witnessing steady gains in market share

Source : Company; RSL Research Source : Company; RSL Research

Auto Ancillary

11.0 11.4 11.6

12.1 12.8

13.7 13.8

15.3

8

9

10

11

12

13

14

15

16

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Market Share of Swaraj tractors (%)

Operating leverage, improved mix, soft RMs to aid in margin expansion

SEL's EBIDTA is estimated to grow by 24.7% with EBITDA margin gains of 266bps (at 16.7%) over FY16-18E, likely to be driven by operating leverage (higher volume growth), improved mix (we expect the sale of engines catering to higher HP category tractors to increase, which should improve realisations and margins) and benign input cost (steel prices).

Apart from higher EBITDA margins, low CAPEX requirement over the next 2-3 years is likely to keep the depreciation cost under control, which would boost the bottomline. We expect the PAT to grow by 22.1% over FY16-18E, while PAT margins are likely to improve by 135bps over FY16-18E.

Enriching shareholders wealth with healthy dividend payouts

SEL has a good track record of enriching its shareholders' wealth with healthy dividend payouts since the start of commercial operations in FY90. The dividend payments have increased significantly from Rs 12.4cr in FY11 to Rs 41cr in FY16, while the average dividend payouts (in % terms) over the last five years (FY12-16) stood at 66%. The stock offers decent dividend yield of 2.8% at CMP (on dividend paid in FY16). With cash rich and debt free status and low CAPEX requirements, we expect strong cash flow generation to continue. This should keep the dividend payouts healthy and consistent going forward.

69

.4

71

.5

89

.5

74

.7

73

.6

91

.5

11

4.5

12

13

14

15

16

17

0

20

40

60

80

100

120

140

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7E

FY1

8E

EBITDA (Rs cr) - LHS EBITDA margins (%) - RHS



Revenues are likely to grow by 14.4% CAGR over FY16-18E, likely to be driven by new launches and demand uptick

Operating leverage, better mix and lower input cost should result in 266bps expansion in EBITDA margins over FY16-18E

36

,00

0

45

,00

0

45

,00

0

60

,00

0

75

,00

0

75

,00

0

75

,00

0

1,0

5,0

00

1,0

5,0

00

1,0

5,0

00

79.8 87.2

106.7

91.8

76.5

99.7

85.3

61.2 69.8

80.3

0

20

40

60

80

100

120

0

20,000

40,000

60,000

80,000

1,00,000

1,20,000

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7E

FY1

8E

Installed capacity (units p.a.) - LHS Capacity U�liza�on (%) - RHS

Steady Capacity additions

EBITDA margins to improve by 266bps over FY16-18E PAT growth to be robust at 22.1% over FY16-18E

Revenues to grow by 14.4% CAGR over FY16-18E



Auto Ancillary

52

.8

55

.4

67

.8

51

.8

51

.2

60

.3

76

.3

8

9

10

11

12

0

20

40

60

80

100

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7E

FY1

8E

PAT (Rs cr) - LHS PAT margins (%) - RHS

44

8.6

47

9.0

60

8.3

53

9.7

52

5.9

59

4.4

68

7.8

-15

-5

5

15

25

35

0

100

200

300

400

500

600

700

800

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7E

FY1

8E

Revenues (Rs cr) - LHS Growth (%) - RHS

Cash rich, debt free status, healthy return ratios, efficient working capital

SEL is a cash rich and a debt free company with cash and cash equivalents (including current investments) of Rs 185cr as on March 31, 2016, which has increased steadily from Rs 134cr in FY11. The average Operating cash flows (OCFs) generation over FY12-16 stood at Rs 66.4cr, while free cash flows (FCFs) stood at Rs 43cr. With revival in revenue and profit growth, we expect this trend to continue going forward. This coupled with low CAPEX requirements should ensure the sustenance of debt-free status and a meaningful improvement in free cash flows.

SEL enjoys superior return ratios with ROCE of 28.1% and ROE of 24% in FY16. After declining for two straight years (impacted by profit de-growth), we expect a sharp uptick in the return ratios over FY16-18E, likely to be driven by expected turnaround in profits. ROCE and ROE are likely to improve to 42.6% and 33.3% respectively by FY18E.

Post the acquisition by M&M in FY08, SEL's working capital efficiency has improved significantly. The company operates on negative working capital cycle (WCC) since FY14. WCC in FY16 stood at negative 13 days, which we expect to improve steadily going forward. With prudent capital management, we expect cash flow generation to remain healthy.



We expect dividend payouts to remain healthy and consistent with strong cash flow generation

SEL is a cash rich and debt free company. This status is likely to remain with low CAPEX requirements and strong OCFs

SEL operates on negative working capital cycle. We expect this trend to continue

12

.4

16

.1

41

.0

43

.5

41

.0

41

.0

44

.7

49

.7

0

10

20

30

40

50

60

70

80

90

-

10.0

20.0

30.0

40.0

50.0

60.0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7E

FY1

8E

Dividend (Rs cr) Dividend Payout (%)


Dividend payouts to remain healthy going forward

Improving free cash flows Working capital efficiency improving consistently

32

.4

34

.5 61

.6

48

.5

39

.3

63

.3

83

.0

0

20

40

60

80

100

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7E

FY1

8E

FCFs (Rs cr)

1.6 3.6

(2.9)(5.5)

(13.0) (14.0) (14.8)

-20

-15

-10

-5

0

5

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

E

FY

18

E

Working capital cycle (no of days)


Auto Ancillary

Company Background

Swaraj Engines Ltd (SEL) is a JV between Punjab Tractors Ltd (PTL) and Kirloskar Oil Engines, which was set up primarily to manufacture engines for supply to PTL. The Company was incorporated in 1985 under the management control of PTL to manufacture and market diesel engines. PTL got acquired by Mahindra & Mahindra (M&M) in FY08 and thereafter got merged with M&M in FY09. M&M holds 33.2%, while Kirloskar Industries holds 17.4% stake in SEL.

SEL is engaged in manufacturing of engines for fitment into "Swaraj" tractors being manufactured by Mahindra & Mahindra (M&M) at its Swaraj Division. The Company also supplies hi-tech engine components to SML Isuzu, for assembly of commercial vehicle engines. The company derives 96.8% of its revenues from sale of engines, while Engine components / spares contribute the balance. SEL's first engine was rolled out in 1989-90. With a manufacturing facility located in Mohali and an installed capacity of 1.05 lacs engines p.a, SEL currently has a comprehensive product line including 7 major models with 30+ variants. The company manufactures engines catering largely to tractors in 20-50hp segment, thus meeting 85% of engine requirements of M&M's Swaraj tractors. Recently it has started developing engines catering to >50hp segments. Since the start of commercial operations, SEL has supplied around 7.2 lacs engines for Swaraj tractors.



Turnaround in profit growth should result in meaningful improvement in return ratios

SEL manufactures engines for fitment into M&M's "Swaraj" tractors (fulfilling 85% of M&M's requirements).

The company derives 96.8% revenues from sale of engines

10

15

20

25

30

35

40

45

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7E

FY1

8E

ROCE (%)

10

15

20

25

30

35

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

E

FY

18

E

ROE (%)

ROCE likely to improve to 42.6% by FY18E ROE likely to improve to 33.3% by FY18E


Engines96.8%

Engine components

/ spares3.2%

Segmental revenues breakup: Engine Sales dominate


Auto Ancillary

SEL's current product line

Risks & Concerns

Erratic / deficient monsoons could impact the farm income, thus resulting in slowdown in demand for tractors. This could impact SEL's engine sales volumes and profitability, as witnessed in the past (during times of deficient / below normal monsoon).

Difficulty in availability of agricultural credit due to macro problems could hamper the tractor industry growth prospects, thus impacting SEL's engine sales volumes.

Sharp rise in the steel prices (pig iron, iron castings, metal sheets, stampings are key inputs for engines) could impact SEL's margins in the event of company's failure to pass on the input cost inflation.

The company is dependent on single client "M&M" for its growth. Any dispute (though unlikely) with or slowdown in M&M's business operations (especially demand for Swaraj brand tractors) going forward could impact SEL's financial performance.

Despite leadership in domestic tractors market and improving market share of Swaraj brand tractors, M&M continues to face competition from other established tractor manufacturers like TAFE, Escorts, International Tractors, Johndeere, VST Tiller, Force Motors, etc. Increase in competition could impact the sales of 'Swaraj' tractors and hamper the engine sales volumes and profit growth of SEL.



SEL's product line includes 7 major models with 30+ variants.

Key risks include i) erratic / deficient monsoon, ii) sharp rise in the input cost, iii) high dependency on single client and iv) increasing competition

HP Cylinder No of Models<20HP

Single

1

20-40HP

Two

1Three 2

40-50HP Three 2>50HP Three 1


Auto Ancillary

Initiating Coverage


Particulars, Rs cr

FY14 FY15 FY16 FY17E FY18E

Net Revenues

Growth (%)

Material Expenses

Employee Expenses

Other Operating Expenses

EBIDTA

EBIDTA Margin (%)

EBIDTA Growth (%)

Depreciation

EBIT

Other Income

Interest

PBT

Tax

RPAT

RPAT Growth (%)

EO items (net of tax)

APAT

APAT Growth (%)

EPS

EPS Growth (%)

608.3

27.0

462.3

27.7

28.8

89.5

14.7

25.2

9.1

80.4

17.5

-

97.8

30.8

67.0

20.9

(0.8)

67.8

22.4

54.6

22.4

539.7

(11.3)

409.1

30.8

25.1

74.7

13.8

(16.5)

13.2

61.5

16.3

-

77.8

26.0

51.8

(22.6)

-

51.8

(23.5)

41.7

(23.5)

525.9

(2.6)

395.7

31.9

24.7

73.6

14.0

(1.5)

13.8

59.8

16.3

-

76.1

24.9

51.2

(1.2)

-

51.2

(1.2)

41.2

(1.2)

594.4

13.0

443.4

33.9

25.6

91.5

15.4

24.4

16.0

75.5

17.0

-

92.4

32.1

60.3

17.8

-

60.3

17.8

48.6

17.8

687.8

15.7

509.0

36.8

27.5

114.5

16.7

25.1

17.0

97.5

18.7

-

116.2

40.0

76.3

26.4

-

76.3

26.4

61.4

26.4

P&L Account




SOURCES OF FUNDS

Share Capital

Reserves

Total Shareholders Funds

Long Term Debt

Short Term Debt

Total Debt

Net Deferred Taxes

Long Term Provisions & Others

TOTAL SOURCES OF FUNDS

APPLICATION OF FUNDS

Net Block

CWIP

Investments

LT Loans & Advances and Others

Total Non-Current Assets

Inventories

Trade Receivables

Cash & Equivalents

ST Loans & Advances and Other Current Assets

Total Current Assets

Trade Payables

Other Current Liabilities & Provisions

Total Current Liabilities

Net current Assets

TOTAL APPLICATION OF FUNDS

Particulars, Rs cr


12.4

197.5

209.9

-

-

-

6.9

1.8

218.6

84.1

1.7

72.2

3.8

161.8

46.4

7.9

104.9

13.2

172.4

59.2

56.3

115.5

56.8

218.6

12.4

199.7

212.1

-

-

-

6.3

2.2

220.6

83.9

4.8

42.0

5.9

136.6

33.1

6.9

139.9

8.9

188.8

48.2

56.6

104.8

84.0

220.6

12.4

201.6

214.1

-

-

-

7.6

2.6

224.2

101.9

0.2

10.4

4.2

116.7

27.8

7.5

174.3

10.4

219.9

54.0

58.4

112.4

107.5

224.2

12.4

208.3

220.7

-

-

-

7.6

2.9

231.2

97.9

0.2

15.6

4.8

118.4

30.1

8.1

189.9

11.8

239.9

61.1

66.0

127.1

112.8

231.2

12.4

225.0

237.4

-

-

-

7.6

3.3

248.3

92.9

0.2

23.4

5.5

121.9

33.9

8.9

217.8

13.6

274.2

70.7

77.1

147.8

126.4

248.3

Balance sheet

Initiating Coverage





Particulars FY14

FY15 FY16 FY17E FY18E

PROFITABILITY (%)

GPM

EBITDA Margin

EBIT Margin

APAT Margin

RoE

RoCE

EFFICIENCY

Tax Rate (%)

Fixed Asset Turnover (x)

Inventory (days)

Debtors (days)

Payables (days)

Cash Conversion Cycle (days)

Debt/Equity (x)

Net Debt/Equity (x)

PER SHARE DATA

EPS

CEPS

BV

Dividend

VALUATION

P/E (x)

P/BV (x)

EV/EBITDA (x)

Dividend Yield (%)

24.0

14.7

13.2

11.1

33.6

39.8

31.5

4.0

27.8

4.7

35.5

(2.9)

-

(0.8)

54.6

61.9

169.0

35.0

21.7

7.0

14.5

3.0

24.2

13.8

11.4

9.6

24.6

29.2

33.4

3.3

22.4

4.7

32.6

(5.5)

-

(0.9)

41.7

52.4

170.7

33.0

28.4

6.9

17.3

2.8

24.8

14.0

11.4

9.7

24.0

28.1

32.7

2.7

19.3

5.2

37.5

(13.0)

-

(0.9)

41.2

52.3

172.3

33.0

28.7

6.9

17.5

2.8

25.4

15.4

12.7

10.2

27.8

34.7

33.0

2.9

18.5

5.0

37.5

(14.0)

-

(0.9)

48.6

61.5

177.7

36.0

24.4

6.7

13.8

3.0

26.0

16.7

14.2

11.1

33.3

42.6

33.0

3.2

18.0

4.8

37.5

(14.8)

-

(1.0)

61.4

75.1

191.1

40.0

19.3

6.2

10.7

3.4

Key ratios

Initiating Coverage




Reported PBT

Non-operating & EO items

Interest Expenses

Depreciation

Working Capital Change

Tax Paid

OPERATING CASH FLOW ( a )

Capex

Free Cash Flow

Investments

Non-operating income

Others

INVESTING CASH FLOW ( b )

Debt Issuance / (Repaid)

Interest Expenses

FCFE

Share Capital Issuance, QIP proceeds

Dividend

Others

FINANCING CASH FLOW ( c )

EO items

NET CASH FLOW (a+b+c)

Closing Cash

Particulars, Rs cr


97.8

11.2

-

9.1

7.3

30.8

72.2

(10.7)

61.6

2.0

12.0

(0.7)

2.5

-

-

61.5

-

(50.9)

1.1

(49.8)

(0.8)

24.2

104.9

77.8

10.9

-

13.2

7.8

26.0

62.0

(13.5)

48.5

30.2

10.9

(9.1)

18.4

-

-

48.5

-

(49.2)

(0.2)

(49.4)

-

30.9

139.9

76.1

11.0

-

13.8

10.9

24.9

65.0

(25.7)

39.3

31.6

11.0

(5.3)

11.6

-

-

39.2

-

(49.2)

1.7

(47.6)

-

29.0

174.3

92.4

11.4

-

16.0

10.3

32.1

75.3

(12.0)

63.3

(5.2)

11.4

(0.5)

(6.4)

-

-

63.3

-

(53.7)

0.3

(53.3)

-

15.6

189.9

116.2

12.5

-

17.0

14.3

40.0

95.0

(12.0)

83.0

(7.8)

12.5

(0.7)

(8.0)

-

-

83.0

-

(59.6)

0.4

(59.2)

-

27.9

217.8

Cash Flow Statement

Initiating Coverage




Before you use this research report , please ensure to go through thedisclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulat ions , 2014 and Research Disc la imer at the fol lowing l ink : http://old.religareonline.com/research/Disclaimer/Disclaimer_RSL.htmlSpecific analyst(s) specific disclosure(s) inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 is/are as under:Statements on ownership and material conflicts of interest , compensation– Research Analyst (RA) [Please note that only in case of multiple RAs, if in the event answers differ inter-se between the RAs, then RA specific answer with respect to questions under F (a) to F(j) below , are given separately]

S. No. Statement Answer

Tick appropriate

I/we or any of my/our relative has any financial interest in the subject company? [If answer is yes, nature of Interestis given below this table]

I/we or any of my/our relatives, have actual/beneficial ownership of one per cent. or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance?

I / we or any of my/our relative, has any other material conflict of interest at the time of publication of the research report or at the time of public appearance?

I/we have received any compensation from the subject company in the past twelve months?

I/we have managed or co-managed public offering of securities for the subject company in the past twelve months?

I/we have received any compensation for brokerage services from the subject company in the past twelve months?

I/we have received any compensation for products or services other than brokerage services from the subject company in the past twelve months?

I/we have received any compensation or other benefits from the subject company or third party in connection with the research report?

I/we have served as an officer, director or employee of the subject company?

I/we have been engaged in market making activity for the subject company?

YES NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

Nature of Interest ( if answer to F (a) aboveis Yes : …………………………………………………………………………………………………………………………………………………............................................Name(s)with Signature(s)of RA(s).[Please note that only in case of multiple RAs andif the answers differ inter-se between the RAs, then RA specific answer with respect to questions under F (a) to F(j) above , are given below]

SS.No Name(s) of RA Signatures of RASerial Question of question which the signing RA needs

to make separate declaration / answer YES NO

Copyright in this document vests exclusively with RSL. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose, without prior written permission from RSL. We do not guarantee the integrity of any emails or attached files and are not responsible for any changes made to them by any other person.

Disclaimer: www.religareonline.com/research/Disclaimer/Disclaimer_RSL.html

Initiating Coverage Swaraj Engines Ltd.Auto Ancillary

Initiating Coverage Swaraj Engines Ltd. - Religare Online · Swaraj Engines Ltd. Religare...

Documents

Transcript of Initiating Coverage Swaraj Engines Ltd. - Religare Online · Swaraj Engines Ltd. Religare...