Swaraj Engines (Q4 FY14)

India Infoline News Service | Mumbai |

Swaraj Engines during Q4 FY14 reported revenues of Rs1.6bn which represented a growth of 39.1% yoy and 6.1% qoq.

CMP Rs680, Target Rs800, Upside 17.6% 
  • Net sales surge 39.1% yoy driven by 40.8% yoy jump in volumes while realizations fell 1.2% yoy, sequentially revenues were higher by 6.1% led by 4% qoq rise in volumes and 2.1% qoq rise in realizations

  • OPM at 15.1% was better than our expectations of 14.2% and was at highest level since Q2 FY13, OPM was higher by 75bps yoy and 58bps qoq

  • PAT was at Rs175mn was better than estimates and was higher by 25.3% yoy and 4.6% qoq

  • Growth in volumes was on account of robust increase in tractor volumes of M&M and particularly Swaraj brand tractors 

  • Company has declared a final dividend of Rs15 per share and a special dividend of Rs20 per share, at CMP dividend yield is 5.1%

  • We assign a BUY rating as tractor volumes in the continue are expected to remain strong given strong rural consumer sentiment and government's impetus on agricultural growth

Result table
(Rs m) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Volumes 19,265 13,686 40.8 18,530 4.0
Realisation (Rs/unit) 82,720 83,691 (1.2) 81,047 2.1
Net sales 1,594 1,145 39.1 1,502 6.1
Material costs (1,208) (866) 39.5 (1,147) 5.3
Personnel costs (76) (56) 37.4 (71) 8.1
Other overheads (69) (59) 15.8 (66) 4.4
Operating profit 241 164 46.4 218 10.4
OPM (%) 15.1 14.3 75bps 14.5 58bps
Depreciation (25) (22) 13.4 (22) 13.4
Interest (0) (0) - - -
Other income 40 58 (29.9) 42 (2.7)
PBT 256 199 28.1 237 7.8
Tax (81) (60) 34.8 (70) 15.4
Effective tax rate (%) 31.7 30.1 - 29.6 -
Adjusted PAT 175 139 25.3 167 4.6
Adj. PAT margin (%) 11.0 12.2 (121)bps 11.1 (16)bps
Extra ordinary items - - - (12) -
Reported PAT 175 139 25.3 156 12.3
Ann. EPS (Rs) 56.2 44.9 25.3 50.1 12.3
Source: Company, India Infoline Research

Net sales growth of 39.1% yoy, better than expectations

Swaraj Engines during Q4 FY14 reported revenues of Rs1.6bn which represented a growth of 39.1% yoy and 6.1% qoq. Volumes and revenue were better than our expectations. The growth in revenues was on the back of 40.8% yoy surge in volumes while realizations were lower by 1.2% yoy. On a sequential basis, volumes were higher by 4% while realizations rose 2.1%. Growth in volumes was on the back of strong growth in tractor volumes for Swaraj Engines parent company M&M. During Q4 FY14 M&M reported a 11.5% yoy increase in volumes and predominantly Swaraj brand tractors. Volumes at 19,265 units for Q4 FY14 represent 102% utilization on annual capacity of 75,000 units.

OPM better than expectations driven by benefits of operating leverage

During Q4 FY14, OPM for Swaraj Engines came in at 15.1% v/s our expectations of 14.2%. While operating profit surged 46.4% yoy it was higher by 10.4% qoq. OPM increased 75bps yoy while it rose by 58bps qoq. Better than expected performance was owing to benefits of operating leverage which is reflected in 6bps yoy and 87bps yoy decline in personnel costs and overheads respectively. Total material costs were up by 18bps yoy as a percentage of sales. On a sequential basis, while raw material costs declined 60bps and overheads fell 7bps, personnel costs were higher by 9bps.

PAT jumps 25.3% yoy

The company reported a PAT of Rs175bn which was better than our expectations of Rs163mn. PAT growth was at 25.3% yoy as compared to operating profit growth of 46.4%. The underperformance was owing to higher depreciation as the increased capacity came into operations during the year. Other income was also lower by 29.9% yoy.


Cost analysis
As a % of net sales Q4 FY14 Q4 FY13 bps yoy Q3 FY14 bps qoq
Material costs 68.8 68.6 19 68.2 58
Purchases 2.8 2.4 41 2.8 1
Personnel Costs 5.7 5.3 35 6.0 (32)
Other overheads 16.3 18.3 (202) 17.0 (71)
Total costs 93.6 94.6 (107) 94.0 (43)
Source: Company, India Infoline Research

Recommend BUY with a price target of Rs800

Over the past six months Swaraj Engines stock has surged 39% on the back of strong growth in tractor volumes. With continued increase in MSPs, expected recovery in infrastructure spend and government's impetus on agricultural growth we expect tractor volumes to continue on a strong footing. To meet the possible increase in demand Swaraj Engines is expanding its capacity from 75,000 currently to 105,000 units over the next 12-18 months. We expect 12.4% revenue CAGR over FY14-16E and 60bps expansion in margins will entail 16.2% earnings CAGR. With zero debt balance sheet, RoE of 30%+ and strong free cash flow generation, we find P/E valuations of 9.3x on FY16E EPS of Rs72.8 attractive. The company has declared final dividend of Rs15 share and a special dividend of Rs20 per share taking the total dividend to Rs35 per share. At CMP of Rs680 per share dividend yield works out to attractive 5.1%. We recommend BUY with a target price of Rs800.


Financial summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 4,790 6,083 6,782 7,683
yoy growth (%) 6.8 27.0 11.5 13.3
Operating profit 715 906 1,031 1,191
OPM (%) 14.9 14.9 15.2 15.5
Pre-exceptional PAT 554 670 792 904
Reported PAT 554 670 792 904
yoy growth (%) 4.9 20.9 18.2 14.2
         
EPS (Rs) 44.6 53.9 63.8 72.8
P/E (x) 15.2 12.6 10.7 9.3
Price/Book (x) 4.4 4.0 3.2 2.6
EV/EBITDA (x) 10.7 8.1 6.6 5.4
Debt/Equity (x) 0.0 0.0 0.0 0.0
RoE (%) 29.2 33.2 33.5 30.8
RoCE (%) 40.9 47.5 47.2 43.6
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

Advertisements

  • Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
  • Now Save Rs.3150 on your Demat Account ...Click here
  • Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
  • Get the most detailed result analysis on the web - Real Fast!
  • Actionable & Award-Winning Research on 500 Listed Indian Companies.