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
|(Rs m)||Q4 FY14||Q4 FY13||% yoy||Q3 FY14||% qoq|
|Effective tax rate (%)||31.7||30.1||-||29.6||-|
|Adj. PAT margin (%)||11.0||12.2||(121)bps||11.1||(16)bps|
|Extra ordinary items||-||-||-||(12)||-|
|Ann. EPS (Rs)||56.2||44.9||25.3||50.1||12.3|
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.
|As a % of net sales||Q4 FY14||Q4 FY13||bps yoy||Q3 FY14||bps qoq|
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.
|Y/e 31 Mar (Rs m)||FY13||FY14||FY15E||FY16E|
|yoy growth (%)||6.8||27.0||11.5||13.3|
|yoy growth (%)||4.9||20.9||18.2||14.2|