Swaraj Engines - First Cut - Microsec

Swaraj Engines Ltd has announced its Q4FY13 and FY13 results on 23rd April, 2013.

Quarterly Performance: Swaraj Engines Ltd arrived at quarterly figures showing a fall in net sales by 8.25% and 3.28% on YoY and QoQ basis due to lower demand, which lead to contraction in the engines sold by 4.12% and 10.48% on YoY and QoQ basis. The company registered dramatic fall in the EBITDA to INR16.43 crore i.e. a decline of 10.61% and 9.68% on YoY and QoQ basis. The EBITDA Margin thus declined to 14.34% reflecting the impact of slower volume growth for the quarter. The company registered a marginal increase of 1.31% and 3.87% in PAT on YoY and QoQ basis.

Annual Performance: The company's annual results came in line with our expectations. The company has a direct linkage with the tractor industry and more particularly with demand from its major customer - Mahindra & Mahindra. Despite the overall demand contraction in the tractor industry, the net sales was up by 6.65% to INR474.3.7 crore. The EBITDA for the year was up by 3.06% to INR71.49. The EBITDA Margin was down by mere 54bps. The company registered a growth of 4.88% in PAT to INR55.4 crore.

Hence, capacity expansion to improve volume growth from Q2FY14e, increased demand from M&M, its presence in all HP segments, softening of commodity prices and dependence on agriculture industry bodes well for the SEL's fortune. These factors are expected to help the company witness higher sales growth, with margin also improving as higher capacities get increasingly utilized.

At the CMP of INR447, with a discounted P/E multiple of 10x on FY2014E EPS of INR54.10, we recommend a BUY to the stock with the target price of INR541.

Source : Equity Bulls

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