Swaraj Engines Ltd Management Discussions

The Companys engines supply during fiscal 2024 stood at 1,38,761 units against 1,37,005 units sold in previous year. Other income primarily includes interest and return on mutual funds etc. on the surplus funds. The fund position also remained comfortable during the year.

Expenditure:

Material cost as a percentage of net revenue from operations was 79.0% against previous years 79.7%. The same was lower primarily due to softening in prices of related commodities.

Personnel cost for the year at Rs. 43.00 crores against Rs. 43.71 crores of previous year.

Reflecting the normal inflation, higher CSR expense, hire & service charges and R&D expense on almost flat operating revenue, the other expenses as percentage of net operating revenue stood at 4.7% against previous years level of 4.1%.

Depreciation and amortisation for the year was Rs. 17.31 crores against previous years Rs. 18.54 crores.

Reflecting the above, Profit before tax for the year stood at Rs. 184.97 crores (previous year - Rs. 179.74 crores) - up 3%. While profit after tax (excluding other comprehensive income) was Rs. 137.87 crores (previous year - Rs. 133.61 crores), the total comprehensive income (net of tax) stood at Rs. 137.92 crores against previous years Rs. 133.52 crores - up 3%.

(B) Balance Sheet Equity

The Companys net worth on 31st March, 2024 stood at Rs. 368.57 crores (previous year - Rs. 342.21 crores) comprising of an Equity Share Capital component of Rs. 12.15 crores and Other Equity of Rs. 356.42 crores - a book value of Rs. 303 per share. The total equity is inclusive of two Bonus Issues made in 1997 (1:1) and 2005 (2:1) and net of buy-back of 2,94,746 equity shares during FY 2017-18. With increase in net worth by 7.7% and in net profit by 3.2%, the Return on Net Worth as on 31st March, 2024 stood at 37.4% against 39.0% of previous year. The Promoter holding as on 31st March, 2024 was 52.12%.

Non-Current Assets

Out of the total non-current assets of Rs. 135.71 crores (previous year - Rs.147.44 crores), 83% is represented by property, plant and equipment (including capital work in progress) and 7% is represented by Fixed Deposits having maturity period more than 12 months.

Inventories

Total inventory including work-in-progress and finished stock at the end of the financial year stood at Rs. 70.80 crores (previous year - Rs. 69.61 crores) and in terms of number of days, it remained at last years level of 18 days.

Trade Receivables

The year-end trade receivables were Rs.120.19 crores (previous year - Rs. 128.09 crores) and in terms of number of days, the same improved to 31 days against previous years 33 days.

Trade Payables

The year-end total trade payables stood at Rs. 158.40 crores (previous year - Rs. 166.08 crores). In terms of number of days, it stood at 52 days against last years level of 53 days of purchases.

(C) Key Ratios

Notes:

INTERNAL CONTROL SYSTEM AND ADEQUACY

There are established procedures for internal control on a Company-wide basis. Policies and procedures have been laid down to provide reasonable assurances that assets are safeguarded from risks of unauthorised use / disposition and transactions are recorded and reported with propriety, accuracy and speed. These aspects are regularly reviewed during internal audit and statutory audits. The Company has also laid down adequate internal controls for financial reporting. During the year, such controls were tested and no material weakness in their operating effectiveness was observed. Finance and Accounts function is well staffed with experienced and qualified personnel. This team participates in the preparation & monitoring of budgets. Internal Audit Reports are reviewed by the Audit Committee of the Board from time to time. The use of SAP ERP system also helps to strengthen the controls. Further, as mandated under the recent amendment under Companies (Accounts) Rules, 2014, effective 1st April, 2023, the SAP ERP System also has feature of recording an Audit Trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

HUMAN RESOURCES

The Company continued with its practice of a lean organisation manned by involved and motivated employees with team orientation. The atmosphere encourages learning and informal communication.

The Company is having Performance Management System (PMS) to objectively measure the performance of the individual and the organization. The overall remuneration structure is linked with PMS.

To further increase the competency level of the employees, systematic and structured training is provided at different levels. Such trainings cover aspects related to leadership development, communication effectiveness and team building etc. This has made a significant contribution to the Companys business.

Industrial relations remained cordial throughout the year under review.

Regular employee strength (excluding apprentice) as on 31st March, 2024 stood at 299 (31st March, 2023 - 310).

INDUSTRY STRUCTURE AND DEVELOPMENTS

Since Companys principal business is selling diesel engines for tractors manufactured by M&M-Swaraj Division, it would be appropriate to take note of developments in the tractor industry.

Indian tractor industry (the worlds largest by volume) has a mix of Indian origin and international manufacturers and is traditionally segmented by horsepower broadly - the low horsepower upto 30 HP segment, the mid segment of 30 HP - 50 HP, and the higher segment of above 50 HP. While most of the major players cater to all three segments, their relative strengths and market positions differ from segment to segment. Over a period of time, the medium and higher HP segments have become popular owing to tractor versatility and the evolution of farming practices, especially for farmers with large land holdings. Further, the growing horticultural segment in the country also offers good opportunities to increase tractor penetration in the lower HP market segment with cost-effective products.

The domestic tractor industry for FY24 at 8,75,700 units registered a degrowth of 7% over last years 9,45,300 units mainly because of erratic and uneven rainfall distribution that impacted kharif output, coupled with the high industry base of FY23.

OUTLOOK AND OPPORTUNITIES

The factors like increasing affordability with adequate availability of financing, growing demand for farm mechanization due to increased scarcity of labour, emergence of newer technologies in the farming sector are likely to support to sustain the tractor demand momentum. Further, continued focus of the Government on improving the state of agriculture in India and several initiatives taken by it to drive higher rural incomes through periodic revision in minimum support price (MSP), monetary support to marginal farmers, crop insurance, encouraging diversification towards high value crops, agriculture accelerator fund to promote technological advancement in agriculture etc., will augurs well for the industry to grow in medium to long term. In this backdrop, engine business of the Company is likely to move in tandem with industry.

THREATS, RISKS & CONCERNS

As a supplier to M&M, your Company would be directly affected by factors impacting tractor industry. These would include issues like the rain-dependent nature of our agriculture, Government policy on procurement, credit availability, commodity price trends, new regulations for tractors etc.