Swaraj Engines Sees Muted Dec 2012 Performance

Swaraj Engines (SEL), which manufactures and supplies engines to the Swaraj division of Mahindra & Mahindra, announced its Dec 2012 quarter results on Jan 21, 2013. As expected, SEL’s performance has been quite dismal, with only a marginal increase in the topline and a modest decline on the net profit front. The company posted a topline of Rs 124.57 crore and a bottomline of Rs 13.76 crore as against Rs 117.58 crore and Rs 14.08 crore respectively in the Dec 2011 quarter. This shows a YoY topline growth of 5.90% and a slide of 2.30% on the net profit front. The financial performance has been similar on the sequential basis too, with the topline increasing marginally by 2.30% and the bottomline taking a decline of 1.70%.

The primary reason behind the dismal performance for the quarter is the decline on the realisations front, which has fallen to Rs 80934 per unit from the levels of Rs 81906 per unit in the Dec 2011 quarter. On the volumes front, SEL sold 15258 units in the Dec 2012 quarter as against 14243 units in the previous year same quarter.

Following the lower realisations, the operating margins have slid to 13.05% from 14.61% in the Dec 2011 quarter and 14.16% in the Sept 2012 quarter. Another noticeable factor is the increased depreciation cost, which has gone up by 50% (QoQ) to Rs 2.12 crore. This clearly points at the capacity expansion being carried out by the company. In its press release too, the company has mentioned that the “Second phase of expansion is now almost complete and the total available engine capacity stands at 75000 engines per annum”. Earlier, the capacity stood at 60000 units in FY12 on a double-shift basis.

With a lull being seen in the commercial vehicles market, the volumes growth has been quite low, and this has impacted the performance of SEL. We do not expect any improvement on an immediate basis, and expect the margins of the company to remain under pressure even for the next quarter. Thus, we recommend that investors avoid the counter at the current levels.