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Analyst Meet / AGM - Analyst Meet

In FY 18, the company has added capacity by 15000 to 1.2 lakh units of engine, which will increase to 1.5 lakh engine units in next 2 years

Swaraj Engines

12-Mar-2018, 11:21
In interaction with Mr. Subhash Mago, CEO of Swaraj Engines (SE) on 9th Mar 18.

Key Highlights

Roughly around 50% revenue comes from 31-40 HP, 40% revenue from 41-60 HP, and less than 30 HP remaining 10 % of revenue

Swaraj Tractors' overall market share in domestic tractor sales is 16% in FY 17 vs. 10.6% in FY 09. The increase in market share of Swaraj has been largely on account of strong acceptance of 41 -60 HP tractors.

Swaraj Tractors 735FE and 744 FE models are in the 41-60 HP segment and are well accepted in the market. M&M has consistently maintained its market share at 41-42% over FY 09-17, supported by continuous launches of a new range of tractors and a rising share of Swaraj in the mix.

Swaraj brand has grown at CAGR of 14.2% from FY'09 to FY 17 as compared to industry at 8.4%.

Swaraj Tractors which sources ~88% of its engines from SE, has recently launched Swaraj 963FE, a 60-75 HHP line of tractors. Swaraj 963 FE will be available in Punjab, AP, Telangana , Tamil Nadu and Chhattisgarh to begin with and will be rolled out pan India by the end of 2018 in a phased manner .

Swaraj Tractors, has a market share of 8 - 9 % in the 60 HP segment. With this launch, the company is targeting to enhance it to over 11 - 12 % by the end of first year of the launch. This new launch will further augment SEL's premium priced engine sales volumes.

Tractors are gaining traction as multipurpose vehicle. Tractors are used for construction accessories such as front-end shovels, bulldozers etc. Higher HP tractors preferred for short - range transport of building materials such as sand, stone chips, cement, etc

The company has negative working capital cycle and does not have any debts on its book.

In FY 18, the company has added capacity by 15k at cost of Rs 25 crore making total capacity to stand at 1.2 lakh units of engine. Company will spend around Rs 50 crore, to further increase the capacity to 1.5 lakh engine units in next 2 years.

The new capacity addition is coming cheap, with payback of well under 3 years

Despite capacity addition from internal accruals, company will generate healthy cash flows which will be used for dividends and buybacks. Management sees buyback a strong way of overall increase in wealth of shareholders and Promoters stake increase.

Volume for SE should see a 10-12% CAGR in next 3 years. Additional benefits from good monsoon, government spending etc can lead to higher volume growth.

Budget 2018 is more rural centric; raises MSPs, increases allocation to MGNREGA, crop insurance, and irrigation. Historically tractor sales growth is strong in the run-up to the general elections; FY 19 being an election year provides strong near-term volume growth visibility. Rising rural spend by govt (and buoyant rural confidence), increasing infra development, set the stage for SEL to grow volumes over next 3 - 4 years.