Swaraj Engines Ltd Management Discussions

COMPANY PROFILE

Swaraj Engines Ltd. ("SEL") is primarily manufacturing diesel engines for fitment into "Swaraj" tractors being manufactured by Mahindra & Mahindra Ltd. ("M&M"). SEL is supplying diesel Engines in the range of 20 HP to 65 HP. Since the start of commercial operations in 1989-90, your Company has supplied 1.76 million engines for fitment into "Swaraj" tractors.

FINANCIAL ANALYSIS (2024-25)

The Companys operations have been characterised by a lean organisation structure, continuous improvement in process efficiencies and optimised resource utilisation.

The financial statements have been prepared in accordance with Ind AS as per the Companies (Indian Accounting Standards) Rules, 2015 as amended and notified under section 133 of the Companies Act, 2013 ("the Act") and other relevant provisions of the Act. While details of financial position and performance are available in the Balance Sheet, Statement of Profit & Loss, alongwith related notes, key aspects are highlighted in the following paragraphs:

(A) Statement of Profit & Loss Income:

Total revenue for the year was Rs. 1698.30 crores (previous year - Rs. 1433.60 crores) with the following breakdown:

(Rs. in Crores)

	2024-25	2023-24
Engines	1640.81	1379.53
Engine Spares/Parts	33.10	33.21
Scrap etc.	7.98	6.50
Net Revenue from Operations	1681.89	1419.24
Other Income	16.41	14.36
Net Total Revenue	1698.30	1433.60

The Companys engines supply during fiscal 2025 stood at 1,68,820 units against 1,38,761 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

Material cost as a percentage of net revenue from operations was 78.9% against previous years 79.0%.

• Personnel Cost

Personnel cost for the year at Rs. 48.17 crores against Rs. 43.00 crores of previous year.

• Other Expenses

Despite the normal inflation, higher CSR expense, hire & service charges and R&D expense, the other expenses as percentage of net operating revenue remained at previous years level of 4.7%.

• Depreciation and Amortisation

Depreciation and amortisation for the year was Rs. 20.34 crores against previous years Rs. 17.31 crores.

Reflecting the above, Profit before tax for the year stood at Rs. 223.05 crores (previous year - Rs. 184.97 crores) -up 20.6%. While profit after tax (excluding other comprehensive income) was Rs. 165.98 crores (previous year -Rs. 137.87 crores), the total comprehensive income (net of tax) stood at Rs. 165.79 crores against previous years Rs. 137.92 crores - up 20.2%.

(B) Balance Sheet Equity

The Companys net worth on 31st March, 2025 stood at Rs. 419.20 crores (previous year - Rs. 368.57 crores) comprising of an Equity Share Capital component of Rs. 12.15 crores and Other Equity of Rs. 407.05 crores - a book value of Rs. 345 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 13.7% and in net profit by 20.4%, the Return on Net Worth as on 31st March 2025 stood at 39.6% against 37.4% of previous year. The Promoter holding as on 31st March 2025 was 52.12%.

Non-Current Assets

Out of the total non-current assets of Rs. 193.76 crores (previous year - Rs.135.71 crores), 59% is represented by property, plant and equipment (including capital work-in-progress) and 34% 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. 78.35 crores (previous year - Rs. 70.80 crores) and in terms of number of days, it remained at 17 days against last years level of 18 days.

Trade Receivables

The year-end trade receivables were Rs.177.22 crores (previous year - Rs. 120.19 crores) and in terms of number of days, it stood at 38 days against previous years 31 days.

Trade Payables

The year-end total trade payables stood at Rs. 220.88 crores (previous year - Rs. 158.40 crores). In terms of number of days, it stood at 61 days against last years level of 52 days of purchases.

(C) Key Ratios

The key financial ratios are given below:

	Unit	2024-25	2023-24	Change over previous year
Debtors Turnover	Times	11.31	11.43	-1.05%
Inventory Turnover	Times	22.55	20.22	11.5%
Current Ratio	Times	1.96	2.34	-16.24%
Debt Equity Ratio	Times	–	–	–
Interest Coverage Ratio	Times	–	–	–
Operating Profit (EBIDTA) Margin	%	13.52	13.26	0.26%
Net Profit Margin	%	9.87	9.71	0.16%

Notes:

1. Debtors Turnover Ratio - This ratio is used to quantify a Companys effectiveness in collecting its receivables. It is calculated by dividing turnover by average trade receivables.

2. Inventory Turnover Ratio - Inventory Turnover is the number of times a Company sells and replaces its inventory during a period. It is calculated by dividing turnover by average inventory.

3. Current Ratio - Current Ratio is a liquidity ratio that measures a Companys ability to pay short-term obligations, due within one year. It is calculated by dividing the current assets by current liabilities.

4. Debt Equity Ratio & Interest Coverage Ratio - Not applicable in view of NIL borrowings.

5. Operating Profit (EBIDTA) Margin - Operating Profit Margin is a profitability or performance ratio used to calculate the percentage of profit a Company produces from its operations. It is calculated by dividing the EBIDTA by operating revenue.

6. Net Profit Margin - Net Profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing the profit for the year by operating revenue.

7. There is no significant change (> 25%) in the above ratios over previous year.

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 proprietary, 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 amendment of 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 accounts 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.

Permanent employee strength (excluding apprentice) as on 31st March, 2025 stood at 289 (31st March, 2024 - 297).

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.

The Indian tractor industry is characterized by a well-organized structure dominated by few key domestic players alongside the presence of international companies. Catering to the diverse needs of Indian farmers, the industry offers a wide range of tractors from low-horsepower models suitable for small farms to high-horsepower variants designed for large-scale mechanized farming. The sector has witnessed significant developments, including an increase in farm mechanization, driven by rising rural incomes, growing awareness among farmers, and government support through subsidies and financing schemes. Advancements in technology are reshaping the industry, with innovations such as GPS-enabled systems, IoT-connected tractors etc. gradually gaining traction. Despite challenges such as dependence on monsoons and fluctuating input costs, the Indian tractor industry continues to evolve as a critical contributor to agricultural modernization, rural development, and overall economic growth. The domestic tractor industry for FY25 at 9,39,700 units registered a growth of 7.3% over last years 8,75,700 units.

OUTLOOK AND OPPORTUNITIES

The Indian tractor industry medium term outlook remains robust, driven by strong demand for agricultural mechanization and supportive government initiatives. As the worlds largest tractor market, India is expected to benefit from rising rural incomes, expected favourable monsoons, and increased allocation to rural infrastructure projects such as irrigation and roads. Farmers are likely to show a growing preference for Medium & higher horsepower tractors to cater to larger landholdings and modern farming techniques, while compact tractors may gain traction in horticulture and niche applications. Advancements in technology, including GPS-enabled and IoT-integrated systems, are set to transform the industry. While dependence on monsoons and rising input costs may pose some challenges, government subsidies, financing schemes, and sustainable farming practices will continue to drive growth, positioning the Indian tractor industry as a key contributor to the nations agricultural development. As the tractor industry expected to grow in medium to long term, the engine business of the company is also likely to move in tandem with the 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.

CAUTIONARY STATEMENT

Statement in the Management Discussion and Analysis Report describing companys objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.