Swaraj has negative working capital cycle of around 30-40 days (~10% of sales), leading the company to hold liquid cash & investment to the tune of | 130 crore (~10% of MCap) as on FY20. Going ahead, the company's capex is limited to around | 15-20 crore (~2-3% of sales), which we expect to be funded through internal accruals. This leaves aside incremental cash of at least 4% of sales every year. This bodes well for healthy dividend payout in years to come. The company announced a dividend of | 40/share, providing dividend yield of ~4%. Going ahead, we expect strong balance sheet along...

At the current price of Rs 978, the stock is trading at 13.4x FY22E EPS, much lower than the last six year's average of 1-year forward P/E of 21.7x. By looking at the present uncertain situation and intensifying competition in tractor industry, we have lower down our multiple to 18x FY22E (~17% discount to its six-year average) to arrive at a target price of Rs 1,313 per share, which indicates 34% upside from the current levels....

Domestic tractor industry staring at de-growth in FY20E The tractor industry registered record sales volume of 785,409 units (up 10.4% YoY) in FY19 after ending FY18 at 711,478 units (up 22.1% YoY). However, the growth momentum was reversed with the industry seeing degrowth in Q1FY20. Industry volumes declined 13.8% YoY in Q1FY20 to 191,305 units. We expect this weakness to continue in the near to medium term. SEL's parent has also struggled in the same period. However, it maintains its leadership position with market share in excess of 40%. Long term trends intact despite near term uncertainty...

Maintain BUY with a reduced TP of Rs 1828 (20x Dec-20E EPS). Swaraj Engines Ltd (SEL)s 3QFY19 revenue was in line with estimate (Rs 1.99bn, +8% YoY) while operating margin saw a dip of 17bps YoY/-241bps QoQ to 13.8% owing to 104bps contraction in gross margin. APAT stood at Rs 173mn (flat YoY). Engine volumes grew by 2.7% YoY to 22.569k units while tractor sales at the parent level (M&M;) were at 90.72k units (+11% YoY). During 9MFY19, M&M;s tractor production grew by 9% YoY and sales grew 8.5%, inventory is at normal level.

Engine sales volumes grew 2.7% YoY to 22,569 units vs. 13.3% tractor growth witnessed at the parent company Consequent net sales in Q3FY19 were at | 198.7 crore (up 8.4% YoY) EBITDA in Q2FY19 came in at | 27.5 crore with corresponding EBITDA margins at 13.8%, down 18 bps YoY. Margins for the quarter were lower tracking marginally higher raw material costs as well as employee costs partly compensated by lower other expenses PAT in Q3FY19 was at | 17.3 crore, up 0.5% YoY...

Swaraj Engines Ltd (SEL) reported mixed set of numbers for Q2FY19. Its net revenue grew by 18.4% YoY, which was largely in line, driven by healthy volume growth of 14.3%. However, the profit growth was muted and below our projections. EBITDA grew by 14.4%, while EBITDA margins contracted 57bps YoY to 16.2%.

Strong Performance On Volume As Well As Margin Fronts Swaraj Engines (SEL) reported a stronger-than-expected performance in 2QFY19 with volume growth and margin expansion being better than expectations, resulting in 7% PAT outperformance for the quarter. The company reported 14% YoY volume growth which was 4% above our estimate. We believe the increase in volume growth is because of inventory build-up ahead of the festive season. Net sales at Rs2.5bn grew 18% YoY on a 14% YoY increase in volume and 3% YoYrise in realisation. Net realisation at Rs86,495/unit increased 3% YoY, but fell 1.4% QoQ which we believe is a pass-through of lower input costs. Gross margin for the quarter at 24.9% increased 20bps QoQ, while EBITDA margin at...

Maintain BUY with a TP of Rs 2,027 (21x Sept-20E EPS). Swaraj Engines Ltd (SEL) delivered strong performance in 2Q. Revenue jumped by 18.4% at Rs 2.47bn led by 14.3% increase in Engine volumes (28.56k units )and 3.6% at net ASP. EBITDA rose by 14.4% YoY to Rs 401mn with margin at 16.2% (-56bps YoY/+63bps), hit by 40bps drop in gross margin, partially offset by operating leverage. APAT grew by 8% YoY to Rs 254mn impacted by lower other income (-24% YoY).

Monsoon 2018 ended the season with rainfall deficiency at ~9% of LPA pan India. It lagged the monthly numbers with each month witnessing rainfall deficiency. In terms of spatial distribution, it was normal in the southern (98% of LPA) as well as north west belt (98% of LPA) while it was near normal in Central India (93% of LPA) and deficient in eastern India (76% of LPA). In terms of coverage, it was normal to positive in 69% of geographical area while deficient in 31% of area. However, on the flip side, water level at key reservoirs is ahead of last year (4% higher). while...

Maintain BUY with a TP of Rs 2,476 (27x FY20E EPS). Swaraj Engines Ltd (SEL) 1Q results were largely in line estimates. Revenue at Rs 2.34bn (+21% YoY) driven by 15% increase in Engine volumes (26.72k) and 5% at net ASP. EBITDA rose by 14% YoY to Rs 366mn with margin at 15.6% (-103bps YoY/+20bps QoQ), hit by 166bps drop in gross margin, partially offset by operating leverage.

ICICI Securities Ltd | Retail Equity Research Swaraj Engines (SEL) reported a steady Q1FY19 performance with engine sales volume coming in at 26,742 units, up 14.8% YoY This lags the tractor volume growth of ~19% at its parent in the corresponding period, signalling some loss of market share by Swaraj brand of tractors in the domestic market Consequent sales in Q1FY19 were at | 264.5 crore, up 20.9% YoY EBITDA in Q1FY19 was at | 36.6 crore with corresponding EBITDA...

Swaraj Engines Ltds (SEL) Q4FY18 numbers were more or less in-line with our estimates with net revenue and PAT growth of 15.2% & 17% YoY respectively. An expansion of 49bps in EBITDA margins (at 15.4%) was encouraging, led by relatively lower growth in operating expenses and material cost.

We recommend BUY with a TP of Rs 2,476 (27x FY20E EPS). Swaraj Engines Ltd (SEL) reported strong 4QFY18 revenues at Rs 1.85bn (+15.2% YoY). Engine volumes for the quarter came in at 21,780 units (+9.8% YoY) while realization improved to Rs 85,060 (+5.0% YoY). EBITDA for 4QFY18 grew by 18.4% YoY to Rs 285mn and EBITDA margin stood at 15.4% (+41bps YoY). Margin improvement was driven by ~19bps improvement in each, gross margins and employee expenses.

Despite a strong growth in the India tractor industry, Swaraj Engines (SWE) reported a moderate volume growth. Considering stellar growth reported by M&M;'s tractor division, this performance was below our estimates. 4QFY18 EBITDA/PAT improved 19.0%/17.0% YoY, on the back of 9.8% growth in volumes and 49 bps YoY expansion in EBITDA margin. SWE's EBITDA and PAT were below our expectations on account of a slower than expected volume growth, affecting the topline. We acknowledge that SWE is poised to leverage the continued good growth momentum in tractor industry, with higher return ratios. Considering growth momentum in tractor industry, we maintain our Buy rating on the...

ICICI Securities Ltd | Retail Equity Research Swaraj Engines (SEL) reported a muted Q4FY18 performance despite robust tractor sales volumes at the industry as well as parent level This can be attributed to normalisation of inventory at the parent level in FY18. From a two-year perspective, Swaraj has grown in tandem with industry growth rate with market share intact at ~17% SEL recorded engine sales of 21,780 units in Q4FY18, up 9.8% YoY Consequently, total operating income in Q4FY18 came in at | 185.2...

Skymet, a private weather forecasting agency, expects the upcoming monsoon 2018 to be normal at 100% of LPA with a +/- 5% model error. On a month wise distribution, they expect June to be 111% of LPA, July at 97% of LPA, August at 96% of LPA and September at 101% of LPA. The most encouraging part of the prediction was the 80% probability of a normal to above normal monsoon and no chance of a drought like scenario. This is likely to result in robust farm production and consequent increase in farm income, boosting rural demand, thereby benefiting all...

Our fair value for the stock is Rs 2,468 (27x FY20E EPS). Swaraj Engines Ltd (SEL) is a cash rich, high RoCE business, co-owned by M&M; and Kirloskar Industries. It is mid-way into a sizeable (but cheap) capex cycle, with high visibility of volume growth.

We expect the domestic tractor industry's growth to decelerate to 8%-10% in FY19 on the back of high growth base of the past two years. Tractor sales in FY18 are likely to be close to 6,60,000-6,80,000 units, implying a growth of ~15%. It should be noted that this is the second year of double-digit volume growth after two years of double-digit decline (FY15/FY16). With the tractor industry expected to post all-time high numbers in FY18, surpassing FY14 peak, we expect the growth rate to moderate in FY19/FY20. Most tractor OEMs have given guidance of high single-digit to low double-digit YoY industry growth in FY19. We expect the tractor industry's growth in FY19/FY20 to be close to the long-term...

Swaraj Engines Ltd's (SEL) Q3FY18 numbers were in-line with our estimates with net revenue and PAT growth of 18.4% & 12.6% YoY respectively. A contraction of 85bps in EBITDA margins (at 14%) was slightly disappointing, impacted by higher operating expenses and material cost.

Swaraj Engines (SEL) reported a robust Q3FY18 performance backed by healthy tractor sales at parent company i.e. M&M; (Swaraj division) SEL recorded engine sales of 21,971 units in Q3FY18, up 14.7% YoY, outperforming M&M; tractor sales growth of 6.4% YoY Consequently, total operating income in Q3FY18 came in at | 183.3 crore (up 18.4% YoY). EBITDA for the quarter came in at | 25.7 crore with corresponding EBITDA margins at 14% (down 80 bps YoY) EBITDA margins came in muted primarily tracking one-time expense...