Buy Swaraj Engines; target of Rs 458: Firstcall Research

“Swaraj Engines Ltd. (SEL) is a joint venture between erstwhile Punjab Tractors Ltd. (PTL), which has since been merged with Mahindra & Mahindra Ltd. (M&M) and Kirioskar Oil Engines Ltd. (KOEL). Originally set up to manufacture engines for PTL, in recent years, SEL has also been a supplier of hi-tech engine components to Swaraj Mazda Ltd. (SML). Since start of commercial operations in 1989-90, SEL has supplied around 3,57,000 engines for fitment into “Swaraj” tractors. SEL’s engine business currently constitutes some 93% of Company’s product revenue. Balance 7% represents value of hitech engine components being supplied to SML for assembly of commercial vehicle engines.”

“Swaraj Engines Ltd disclosed results for the quarter ended Sep 2011. Net sales for the quarter moved up 19% to Rs.1028.90 million as compared to Rs.862.00 million during the corresponding quarter last year. During the quarter, the company has reported Net Profit increased to Rs.117.80 million from Rs.108.20 million in previous year same quarter. The Basic EPS of the company stood at Rs.9.48 for the quarter ended Sep 2011. Net profit of the company has increased at 18% yoy Rs.439.10mn from Rs.373.50mn of same period of last year. Total revenue for the year stood at Rs.3606.30 mn from Rs.2824.40 which is 28% increased than that of a year ago. EPS for the year stood at Rs.35.35 per equity share of Rs.10.00 each. Operating profit of the company stood at Rs.630.80mn. OPM for the year stood at 17.49%. Expenditure of the company increased 29% YoY to Rs.2999.20 mn. Interest expenses for the year stood at Rs.57.30mn.”

“At the current market price of Rs.405.00, the stock is trading at 9.89 x FY12E and 8.67 x FY13E respectively. Price to Book Value of the stock is expected to be at 2.48 x and 1.93 x respectively for FY12E and FY13E. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.40.97 and Rs.46.70 respectively. The Company's principal activity is to manufacture and supply of engines and hi-tech engine components for tractors and other commercial vehicles. Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 16% over 2010 to 2013E respectively. During the quarter, the company has reported Net Profit increased to Rs.117.80 million from Rs.108.20 million in previous year same quarter. On the basis of EV/EBITDA, the stock trades at 7.11 x for FY12E and 6.26 x for FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 458 for medium to long term investment,” says Firstcall Research report.       

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