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Centrum Broking
Swaraj Engines (Buy)
CMP: ₹2,076.65
Target: ₹2,402
Swaraj Engines Ltd is engaged in manufacturing engines for fitment into Swaraj tractors, which is manufactured by Mahindra & Mahindra at its Swaraj Division. The company is also supplying high-technology engine components to SML Isuzu for assembly of commercial vehicle engines.
Despite a strong growth in the India tractor industry, Swaraj Engines (SWE) reported a moderate volume growth. Considering stellar growth reported by M&M’s tractor division, this performance was below our estimates. Fourth quarter EBITDA/PAT improved 19.0 per cent/17.0 per cent y-o-y on the back of 9.8 per cent growth in volumes and 49 bps y-o-y expansion in EBITDA margin.
SWE’s EBITDA and PAT were below our expectations on account of a slower than expected volume growth, affecting the topline. We acknowledge that SWE is poised to leverage the continued good growth momentum in tractor industry, with higher return ratios. Considering growth momentum in tractor industry, we maintain our ‘Buy’ rating on the stock, with a target price of ₹2,402.
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