Swaraj Engines (SEL) is a unique company. It was set up by the Punjab government’s industrial development arm in 1986, in technical and financial collaboration with Kirloskar Oil Engines Ltd (KOEL). It was to manufacture diesel engines for sole supply for tractors to be manufactured by Punjab Tractors (PTL), another pioneering venture. After several rounds of ownership changes, both PTL and Swaraj Engines are now controlled by India’s largest tractors company, Mahindra and Mahindra (M&M). SEL supplies five types of engines—from 20HP range to 50HP range. In addition, SEL also manufactures high-tech engine components for Swaraj Mazda. As on date, more than 200,000 Swaraj Tractors fitted with engines produced at SEL are in the field.
SEL’s total engine supply for fiscal 2012 touched 55,239 compared to 47,413 engines sold during the previous fiscal. As a result, the company’s operating revenues for the year reached Rs448.6 crore against Rs361.0 crore in the previous year—up 24%. For the year ended 31 March 2012, net profit was Rs52.8 crore (previous year Rs43.9 crore), which translates into an earnings per share of Rs42.53 (previous year Rs35.35). For the quarter ended 31 March 2012, the company’s net operating revenue registered a growth of 21% and reached Rs118.4 crore. This growth has been achieved on the strength of increased sales—of 14,274 engines during Q4—compared to sales of 12,239 engines during the corresponding quarter of last year. Its net profit for the quarter increased to Rs13.4 crore against Rs11.1 crore in the same quarter in the previous year.
The future plan of action includes improvement in fuel efficiency and design upgradation of the RB series engines. No technology has been imported by the company for the past five years. The company had undertaken an expansion project to increase its annual capacity to 75,000 engines, in two phases. While the first phase of the expansion project—to increase the capacity to 60,000 engines per annum is almost complete barring some equipment which is still under installation—the second phase is expected to be completed by the end of the current calendar year.
Over the past five quarters, the company’s average growth in revenues and operating profit was 25% and 15%, respectively. Its average operating profit margin is an excellent 15% and return on net worth is very attractive at 28%. Its market-cap to revenues is 1.06, while its market-cap to operating profit is 6.90 times. SEL has cash earnings per share of Rs45.96 as of 31 March 2012. The stock is currently trading at around Rs407 on the Bombay Stock Exchange. Its 52-week high on the BSE was Rs496 on 14 September 2011. Its 52-week low on the BSE was Rs349 on 21 December 2011. SEL has informed the BSE that the company’s board of directors at its meeting held on 25 April 2012 has recommended a dividend of Rs13.00 per equity share of Rs10 each. The stock is an attractive buy at the current price.