Swaraj Engines - Upside from rising volumes - Microsec

We recommend Swaraj Engines Ltd (SEL) a "BUY". We had earlier recommended SEL a BUY with a target price of INR529 in our report dated 23rd November, 2012, which has got achieved on 10th December, 2012. Hence, the stock is poised for Re-Rating based on its strong volume growth which is likely to be seen in FY14e from its capacity expansion to 75000 engines per annum.

Other factors like increased demand from M&M, presence in all HP segments, softening of commodity prices and dependence on agriculture industry bodes well for the SEL's fortune as not only will it witness higher sales growth, but the margin will also improve as higher capacities get increasingly utilized.

At the CMP of INR465, the stock discounts its FY13E EPS of INR43.73 by 10.63x and its FY14E EPS of INR54.10 by 8.59x. Given such strong earnings, incremental production, leading supplier to M&M, we have assigned a discounted P/E multiple of 10x on FY2014E EPS of INR554.10 per share and arrived at a target price of INR541 per share for the company i.e. an upside of 16%.

Source : Equity Bulls

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