Swaraj Engines Ltd, the supplier of M&M and SML ISUZU, announces a generous dividend

[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. Both will be removed from the site in the future.]

(Source: www.bseindia.com, and company press release)

Swaraj Engines Ltd. (BSE:500407), manufacturer of tractor engines for Mahindra & Mahindra, and high- tech  components for  SML ISUZU, recently announced a huge dividend of 330% for fiscal year 2012 – 2013.

In its filings with the stock exchanges, the company stated that its board of directors recommended a dividend of 130 per cent (Rs 13 per share of face value Rs 10) for the financial year ended March 31, 2013. In addition to this regular dividend, SEL said, “following its investor-friendly approach and keeping in view the company’s surplus cash position”, the board has recommended a special dividend payment of 200 per cent (Rs 20 per share of face value Rs 10), taking the total dividend to 330 per cent (Rs 33 per share of face value 10) . On account of this generous payout the shares of Swaraj Engine Ltd spurted by around 8% in the National Stock Exchange to close at 445 rupees in a single day. (Present market price is around 477 rupees).


The Swaraj Engines limited was promoted by Punjab Tractors Ltd, in 1986; in technical and financial collaboration with Kirloskar Oil Engines Ltd. (KOEL), for manufacture of diesel engines for the tractors. It developed and manufactured five types of engines from the range of 20HP to 50HP to Punjab Tractors Limited, later on , acquired by Mahindra & Mahindra ltd, one of the largest multinational vehicle manufacturers in India. In addition to engines, SEL also manufactures high-tech engine components for Swaraj Mazda, later on renamed as SML Isuzu. Swaraj Mazda was promoted by Punjab Tractors, in collaboration with Sumitomo of Japan. During 2006, Isuzu became a collaborator for SML Isuzu.

Swaraj Engines Ltd.has been pursuing a substantial expansion of its capacity from 55,000 engines to 75,000 engines per year. The additional capacity is available for production during FY 2013 – 14.

Being an engine supplier to Swaraj Division of Mahindra & Mahindra Limited (M&M), Company’s income is linked with the fortunes of tractor industry, which depends on monsoon and the income of the farmers. Particularly its fortunes are linked with demand from its key customer – M&M, a leader in automotive and farm equipment business. M&M holds 32% equity in Swaraj Engines, which is the key strength of the company.

Despite the overall demand contraction in the tractor industry during FY 2012-13, the Company was able to register an increase of 4% in engine supplies over previous year to reach 57,377 units (previous year 55,239 units).

Consequently, the Company’s net revenue  stood at Rs. 4790 millions as against previous year’s 4486 millions – an increase of 7%. Despite the higher depreciation, due to a focus on cost control and better use of surplus funds SEL could achieve a PBT of Rs. 795 million as against previous year’s profit of Rs. 773 million. Profit after Tax was Rs. 554 million for the year (previous year Rs. 528 million) and EPS of Rs. 44.61 (last year-Rs. 42.53).


Q4 ended 31.03.2013 Q3 ended 31.12.2012 Q4 ended 31.03.2012 Audited  FY 2012 – 13 Audited FY 2011 – 12
Net income 1145.4 1245.7 1183.9 4790.3 4486
depreciation 22.4 21.2 1.33 71.6 42.6
Tax including deferred amount 60.0 60.0 68.3 241.0 244.5
Net profit 139.4 137.6 134.2 554.0 528.20
E P S  (face value Rs 10) Rs 11.22 Rs 11.08 Rs 10.80 Rs  44.61 Rs 42.53

(Indian rupees in millions)

Equity:  Rs 124.2 million. Reserves:  Rs. 1813.1 million

Market capital Rs 5920 million rupees.   Market price range 52 weeks 382 – 528

P E Ratio: 10.68

Industry PE: 17

Future prospects for Swaraj Engines Ltd

Considering the capacity hike of  around 50%,  the conservative EPS projections for FY 2013 – 14 could be  Rs 50  and FY 2014 – 15 could be Rs 55 – 60. Considering the possible economic revival by FY 2014 -2015, and strong leadership of Mahindras, Swaraj Engines Ltd appears to be a good buy for long term, at a price of 450 – 455, where price could stabilize now. (Election year may offer good shares at 10 to 20 % discount.)  Target price should be around 550 – 650.