Swaraj Engines - 2QFY2016 Result Update - Angel Broking

For 2QFY2016, Swaraj Engine Ltd (SEL)'s results have come in line with our estimates. The top-line continued to be under pressure given the downtrend in the tractor industry. Given the subdued top-line and higher depreciation and taxation, the net profit dipped in double digits.

Top-line growth declines by ~8%: During the quarter, SEL's revenues dipped by 8% yoy to Rs. 152.5cr. Tractor supplies to Mahindra & Mahindra (M&M) continued to be impacted, declining by 6%. Realisation/tractor declined marginally, mainly reflecting pricing pressures.

Subdued top-line and higher depreciation & taxation impact profitability: For the quarter, SEL's net profits declined by 12% yoy to Rs. 15.5cr. Apart from the subdued top-line, higher depreciation (grew 6% yoy) due to commissioning of a new capacity, impacted profitability. Also, higher taxation expenses (up 350bp yoy) put further pressure on profitability.

Outlook and valuation: The tractor industry is poised for recovery from 2HFY2016 given the low base of the previous slowdown and government efforts to increase farm productivity. We expect SEL revenues to grow at 8% CAGR over the FY2015- 2017 period. Further, given the volume improvement, SEL margins are likely to expand and we estimate SEL to clock earnings CAGR of 13% over the next two years. However, the stock currently trades at 19.7x and 16.3x its FY2016 and FY2017 earnings respectively, factoring in most of the positives. Thus, we maintain our Neutral rating on the stock.

Shares of SWARAJ ENGINES LTD. was last trading in BSE at Rs.906 as compared to the previous close of Rs. 879.75. The total number of shares traded during the day was 3533 in over 259 trades.

The stock hit an intraday high of Rs. 994 and intraday low of 878.5. The net turnover during the day was Rs. 3201018.

Source : Equity Bulls

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