Buy Swaraj Engines; target of Rs 2300: Centrum

Centrum's research report on Swaraj Engines

Swaraj Engines (SWE) reported a decent volume growth on the back of a strong growth in the India tractor industry during 1QFY19. However, considering strong growth reported by M&M’s tractor division, this performance was slightly below our estimates. 1QFY19 EBITDA/PAT improved 13.4%/7.3% YoY, on the back of 14.8% growth in volumes, 5.3% rise in blended realization and 103bps YoY contraction in EBITDA margin.

Outlook

We expect SWE’s return ratios to improve in the years ahead. We value SWE on our differentiated AOCF/EV methodology and arrive at a TP of Rs2,300 (26.9x FY20E EPS) which indicates a 27.7% upside from current levels. Hence, we maintain our Buy rating on the stock.