ICICIDirect's research report on Swaraj EnginesSwaraj Engines (SEL) reported a muted Q3FY16 performance primarily on the back of prior build-up of inventory at its key customer i.e. M&M resulting in subdued topline and profitability Sales volumes (engines) for the quarter came in at 12845 units (up 5.7% YoY) primarily normalising the robust sales in Q2FY16 Net sales in Q3FY16 came in at | 105.1 crore (up 3.8% YoY). EBITDA for the quarter came in at | 12.8 crore with corresponding EBITDA margins at 12.1%. PAT in Q3FY16 was at | 8.4 crore SEL has a lean balance sheet with net cash of | 182 crore (FY15). Average RoCEs and RoEs in the last five years (FY11-15) were at 35% and 28%, respectively. SEL also has good payout ratios with average payout in the last three years at 72.7% with FY15 dividend at | 33/share (dividend yield ~4%). On the back of muted Q3FY16 numbers and FY16E being a washout year for the domestic tractor industry, we have downward revised our sales and profitability estimates for SEL over FY16E-17E while introducing numbers for FY18E. We expect engines sales at SEL to grow at a CAGR of 12.1% in FY16E-18E to 79260 units in FY18E (63079 units in FY16E). We expect sales and PAT to grow at a CAGR of 12.9% and 16.4%, respectively, in FY16E-18E. We have valued SEL at | 1110 i.e. 22x P/E on FY17E and FY18E average EPS of | 50.4 with a BUY recommendation on the stock. The company is essentially a quality play and should be held in one’s portfolio with a long term investment horizon. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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