Rahul Arora, CEO at Nirmal Bang Institutional Equities is of the view that one can buy Swaraj Engines.
Rahul Arora, CEO at Nirmal Bang Institutional Equities told CNBC-TV18, "If you look at the tractor industry over the last 18-24 months, it has degrown by about 18-20 percent. Swaraj Engines has degrown only in single digits. This is a company that is basically a captive for the erstwhile Punjab Tractors Ltd (PTL), which later got acquired by the Mahindra."
"So, Swaraj Tractors used to have an 8 percent market share in FY08, which has gone up to 16 percent now. So it has been one of the biggest market share gainers. The erstwhile Punjab Tractors used to operate in 20-30 HP, 30-40 HP, 40-50 HP where 30-40 and 40-50 used to make up 80 percent of Swaraj Engines catering. Now, PTL is going into 54,60 and 65 HP. So that is one aspect to the business that opens up for them. The other is gaining market share and third as we are all hoping and praying you have a good monsoon," he said.
"So, we are factoring in about a 17-18 percent volume growth over the next two years. Even the worst of times, this company is giving you 25 percent ROEs, ROCs which we are expecting to go to about 35 percent in two years, 330 bps expansion in margin and very strong management pedigree. You are starting to see the tractor numbers bottom out, this is a growth stock with very strong return ratios coming to about 11-12 times FY18 P/E."
"I think it is a great investment to be made. The most important thing is coming to you at more than 4 percent dividend yield. So I would definitely buy in Swaraj Engines every time it goes to Rs 820-830. Even at these prices I am not too fast about it because it is a very steady state long-term story," he added.