Swaraj Engines (SWAENG) | 1400

October 30, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Upbeat sales volume, to normalise in H2FY19

Swaraj Engines (SEL) reported a robust Q2FY19 performance

Engine sales volume grew at a robust pace of 14.3% YoY to 28,560

units vs. 4.5% tractor de-growth witnessed at the parent company

Consequent net sales in Q2FY19 was at | 247.0 crore (up 18.4% YoY)

EBITDA in Q2FY19 came in at | 40.1 crore with corresponding

EBITDA margins at 16.2%, down 60 bps YoY. Margins for the quarter

were lower tracking higher raw material costs as well as other

expenses partly compensated by lower employee costs

PAT in Q2FY19 was at | 25.4 crore, up 8.0% YoY

The robust Q2FY19 performance is against expectation. It largely

seems to be an attempt by the parent to procure engines before the

festive period, the trend of which should normalise over H2FY19

Monsoon 2018 ends at 91% of LPA, reservoir levels healthy

Monsoon 2018 ended the season with rainfall deficiency at ~9% of LPA

pan India. It lagged the monthly numbers with each month witnessing

rainfall deficiency. In terms of spatial distribution, it was normal in the

southern (98% of LPA) as well as north west belt (98% of LPA) while it

was near normal in Central India (93% of LPA) and deficient in eastern

India (76% of LPA). In terms of coverage, it was normal to positive in 69%

of geographical area while deficient in 31% of area. However, on the flip

side, water level at key reservoirs is ahead of last year (4% higher). while

in tandem with 10 year averages, sowing acreages ended marginally

down 2% YoY. However, initial estimates point to healthy food grain

production (141.2 million tonne) for Kharif 2018. This should support farm

income and consequent tractor sales domestically, benefitting Swaraj

brand of tractors and, in turn, SEL.

Tractor industry growth to taper in FY18-20E post robust play in FY16-18

The domestic tractor industry has been at the forefront of farm

mechanisation in India. The tractor industry saw record sales volume of

711,478 units (up 22.1% YoY) in FY18 after ending FY17 at 582,853 units

(up 18% YoY). We expect growth momentum to loosen a bit tracking high

base. In YTD FY19, industry tractor sales domestically were at 407,519

units, up 12%. As per industry sources, domestic tractor industry growth

rate in FY19E is estimated at ~12-14% while same at FY20E is expected

at <10%. SEL’s parent, however, is growing strong and maintains its

leadership position with market share in excess of 40%. In the long term,

tractor industry is expected to grow at ~8-10% CAGR. Domestic tractor

sales are also supported by robust infrastructure activity that accounts for

~30% of total sales, primarily meant for haulage purposes.

Capital efficient business model, healthy B/s provides margin of safety!

SEL possess a capital efficient business model, thereby realising ~4x

asset turnover, healthy ~15% margins and works with negative working

capital cycle thereby realising high return ratios to the tune of ~50%. On

the b/s front, SEL has a healthy balance sheet with cash surplus of ~| 180

crore as of FY18. The company also has high dividend ratio (~75%),

thereby offering high dividend yield of ~4%. It has also been a consistent

cash flow generator with average CFO of | 110 crore in FY18-20E with

CFO yield of 6.5%. Revising estimates, we expect engine sales to grow at

a CAGR of 9.8% in FY18-20E to 1.11 lakh units in FY20E (0.9 lakh units in

FY18). Consequently, we expect sales, EBITDA & PAT to grow at a CAGR

of 11.9%, 12.7% & 10.3%, respectively, in FY18-20E. We build in EBITDA

margins at ~16%. We value SEL at | 1450 i.e. 18x P/E on FY20E EPS of

| 80.4 with a HOLD rating on the stock.

Swaraj Engines (SWAENG) | 1400

Rating matrix

Rating : Hold

Target : | 1450

Target Period : 12-18 months

Potential Upside : 4%

What’s changed?

Target Changed from | 1900 to | 1450

EPS FY19E Changed from | 74.0 to | 72.4

EPS FY20E Changed from | 82.8 to | 80.4

Rating Unchanged

Quarterly performance

(| crore) Q2FY19 Q2FY18 YoY (%) Q1FY19 QoQ (%)

Revenue 247.0 208.7 18.4 234.5 5.3

EBITDA 40.1 35.1 14.2 36.6 9.6

EBITDA (%) 16.2 16.8 -59 bps 15.6 63 bps

PAT 25.4 23.5 8.0 23.1 9.8

Key financials

| Crore FY17 FY18 FY19E FY20E

Net Sales 666.2 771.2 893.4 965.2

EBITDA 104.6 121.7 139.6 154.4

Net Profit 68.8 80.1 87.8 97.5

EPS (|) 55.4 66.1 72.4 80.4

Valuation summary

FY17 FY18 FY19E FY20E

P/E 25.3 21.2 19.3 17.4

Target P/E 26.2 21.9 20.0 18.0

EV / EBITDA 14.0 12.4 10.7 9.5

P/BV 6.1 7.4 7.0 6.5

RoNW 24.3 35.1 36.1 37.4

RoCE 31.2 45.9 49.4 51.4

Stock data

Stock Data | crore

Market Capitalization 1,697.5

Total Debt (FY18) 0.0

Cash & Investments (FY18) 182.9

EV 1,514.6

52 week H/L 2208 / 1320

Equity capital | 12.1 crore

Face value | 10

MF Holding (%) 12.6

FII Holding (%) 2.6

Price performance

Return % 1M 3M 6M 12M

Swaraj Engines -11.2 -20.5 -33.0 -30.7

Kirloskar Oil Engines -1.9 -9.1 -34.3 -39.0

Research Analyst

Chirag J Shah

[email protected]

Shashank Kanodia, CFA

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Standalone Numbers Q2FY19 Q2FY19E Q2FY18 YoY (%) Q1FY19 QoQ (%) Comments

Sales 247.0 193.3 208.7 18.4 234.5 5.3 Sales value came in ahead of estimates primarily tracking a build-up of

inventory at parent on account of upcoming festive period

Other Operating Income 0.0 0.0 0.0 0.0

Total Operating Income 247.0 193.3 208.7 18.4 234.5 5.3

Total Raw Material Expenses 185.4 145.5 155.8 19.0 176.6 5.0 RM to sales increased 50 bps to 75.1%

Employee Cost 10.0 8.7 8.9 13.2 9.6 4.6

Other operating expense 11.4 10.1 8.9 28.3 11.7 -2.1 Other expenses increased to 4.6% of sales, up 30 bps

Total Expenditure 206.9 164.3 173.6 19.2 197.9 4.5

EBITDA 40.1 29.0 35.1 14.2 36.6 9.6

EBITDA Margin (%) 16.2 15.0 16.8 -59 bps 15.6 63 bps Margins were ahead of estimates and also supported by lower employee

costs incidence, down 20 bps YoY

Depreciation 4.8 4.2 4.2 13.5 4.7 1.3

Interest 0.0 0.0 0.0 0.1

Non Operating Expenses 0.0 0.0 0.0 0.0

Other Income 3.9 3.7 5.1 -24.3 3.9 -1.0 Other income was on expected lines

PBT 39.2 28.5 36.0 8.9 35.7 9.8

Taxes 13.8 10.0 12.5 10.6 12.6 9.8 Tax rate came in at its usual run rate of 35%

PAT 25.4 18.6 23.5 8.0 23.1 9.8

Key Metrics

Engine Sales Volume (units) 28,560 22,236 24,984 14.3 26,742 6.8 Sales volume came in ahead of estimates

Engine Realizations (|/unit) 86,495 86,928 83,533 3.5 87,697 -1.4 Realisations were largely on expected lines

Source: Company, ICICI Direct Research

Change in estimates

(| Crore) Old New % Change Old New % Change Comments

Revenues 901.3 893.4 -0.9 988.3 965.2 -2.3 Largely maintained our estimates for FY19E & FY20E. Expect engine sales volume

to grow at a CAGR of 9.8% over FY18-20E

EBITDA 140.2 139.6 -0.5 156.6 154.4 -1.4

EBITDA Margin (%) 15.6 15.6 2 bps 15.8 16.0 20 bps Maintained estimates for FY19E. However upgraded the estimates for FY20E

primarily tracking robust profitability in H1FY19

PAT 89.7 87.8 -2.1 100.4 97.5 -2.9

EPS (|) 74.0 72.4 -2.1 82.8 80.4 -2.9 Marginal decline in PAT estimates over FY18-20E

FY19E FY20E


Assumptions

FY16 FY17 FY18 FY19E FY20E FY19E FY20E Comments

Engine Sales Volume

(units)

64088 82297 92022 102765 110986 103734 112033 Marginally revised downward our sales volume estimates for FY19E,

FY20E

Engine Net Sales

Realization (|/unit)

79157 78363 81235 84484 84907 84484 86174 Largely maintained our sales realisation estimates for FY19E

EarlierCurrent



Company Analysis

SEL is a joint holding of Kirloskar Industries (KIL) (17.4% stake) and

leading tractor player (33.2% stake) with leading tractor players the main

promoter consequent to its acquisition of Punjab Tractors in 2007-08. The

Government of India originally set up the company in 1985 for

manufacturing diesel engines for Punjab Tractors, which marketed their

products under the Swaraj brand. SEL commenced production at its

facility in Mohali in 1988 and has been a profitable entity since then. Since

inception, the company also had a technical collaboration with KIL that

also bought ~17% stake in SEL, thereby partnering with SEL in all its

technical, designing and functional needs. However, from 2005-06, the

company ended its technical collaboration with KIL and developed in-

house capability and facilities for modernisation and technological

upgradation of its products.

SEL serves the engine requirements of the Swaraj brand of tractors. The

company manufactures engines catering to tractors in the 20-50 hp

segment and caters to ~85-88% of the total engine requirement at

parent’s Swaraj tractor division. SEL has a current installed capacity to

manufacture 120,000 units of engines. SEL also manufactures hi-tech

engine components for commercial vehicles for SML Isuzu (erstwhile

Swaraj Mazda). The contribution to the topline, however, remains limited

(<3%).

Exhibit 1: Engine sales; hp break-up

<=30 hp

10%

31-40 hp

50%

41-50 hp

40%


As far as segmental sales are concerned, SEL manufactures ~10%

engines catering to the <=30 hp tractor segment, ~50% engines catering

to the 31-40 hp tractor segment and ~40% engines catering to the 41-50

hp tractor segment. SEL’s margins vary across the hp segment with

margins more accretive in the higher hp segment.

Exhibit 2: Sales segmentation (FY18)


Net sales

| 771 crore in FY18

Engines

| 748 crore in FY18

(97%)

Spare and others

| 21.0 crore in FY18

(2.5%)

Engine components

| 3.5 crore in FY18

(0.5%)


Domestic tractor market on strong footing; penetration set to increase

The domestic tractor industry has been at the forefront of farm

mechanisation in India with tractor sales increasing at a CAGR of 7.4% in

FY10-18 to ~7.1 lakh units in FY18 (~4.0 lakh units in FY10). Within

segments, main growth was witnessed in the segment of 41-50 hp, which

has grown at a CAGR of 17.2% to 3.4 lakh units over FY10-18 (94

thousand units in FY10). This reflects the preference towards tractors for

farming as well as other allied services like haulage of construction

material and personnel. On the other hand, sales of small hp tractors i.e.

<= 30 hp & 31-40 hp, which are primarily meant for agricultural activities,

have grown at a CAGR of -0.2% & 3.4%, respectively, in FY10-18.

Exhibit 3: Domestic tractor sales

Category FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

FY 10-18

CAGR

<= 30 hp 68477 71721 82224 54506 70811 59866 53136 54114 67617 -0.2

31-40 hp 194488 214348 244431 233397 223302 202497 180972 201856 254768 3.4

41-50 hp 94183 137180 143102 199130 308810 256270 226818 285261 335607 17.2

>=50 hp 45438 59037 67134 40735 31228 32830 32838 41613 53486 2.1

Total 402586 482286 536891 527768 634151 551463 493764 582844 711478 7.4

Source: Crisil, ICICI Direct Research

Exhibit 4: Domestic tractor sales (segmental share)

17.0 14.9 15.310.3 11.2 10.9 10.8 9.3 9.5

48.344.4 45.5

44.235.2 36.7 36.7

34.6 35.8

23.428.4 26.7 37.7

48.7 46.5 45.948.9 47.2

11.3 12.2 12.57.7 4.9 6.0 6.7 7.1 7.5

0

20

40

60

80

100

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

%

<= 30 hp 31-40 hp 41-50 hp >=50 hp

Source: Crisil, ICICI Direct Research

In terms of composition, robust growth was seen in the 41-50 hp segment

leading to significant market share gains of 2380 bps to 47.2% in FY18

from 23.4% in FY10. On the other hand, a maximum drop in market share

was observed in the 31-40 hp segment wherein the percentage share

dropped 1250 bps to 35.8% in FY18 from 48.3% in FY10.

Going forward, on the back of the central government’s thrust on

augmenting the farm income through both increases in productivity and

better farm realisations, we expect the domestic tractor industry to

witness healthy double digit growth in FY19E. Long term growth of the

domestic tractor industry is, however, pegged at 8-10% (as per industry

estimates) primarily on the back of the government’s thrust on increasing

crop yields through greater farm mechanisation, increasing penetration of

tractors in low tractor density states mainly southern & western regions,

replacement demand from high tractor density states (mainly the

northern region) and a pick-up expected in domestic construction

industry. This will increase tractor demand for haulage/commercial

usages (non-farm usage comprises ~30% of tractor demand

domestically).


SEL: Expanding capacity; sales & profitability to follow

Post acquisition by parent (i.e. post FY08), SEL has always operated at

optimal capacity utilisation levels with utilisation levels at 88% (average)

in FY10-18. During the aforesaid period, the company has consistently

undertaken five expansion programmes from its first increase in capacity

from 36,000 units to 42,000 units in FY11, to finally augment its capacity

to 120,000 units in FY19E.

Exhibit 5: SEL: Capacity, production & capacity utilisation trend

60000

75000

75000

75000

105000

105000

105000

120000

135000

55099

57348

74786

63994

64256

81989

92475

102765

110986

91.8

76.5

99.7

85.3

61.2

78.1

88.185.6

82.2

0

20

40

60

80

100

120

0

20000

40000

60000

80000

100000

120000

140000

160000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

%

units

Capacity Production Capacity Utilization


Going forward, we expect sales volumes to grow at a CAGR of 9.8% in

FY18-20E to 110,986 units in FY20E vs. 92,022 units in FY18. The

company is expected to augment its capacity to 120,000 units in FY19E

incurring a capex of ~| 25 crore, funded through internal accruals.

Furthermore, SEL plans to further augment its capacity to 135,000 units.

Working capital - key hallmark of SEL!

SEL, after being acquired, has drastically improved its working capital

cycle with net working capital days reducing from 42 days in FY08 to four

days in FY09. Thereafter, the net working capital has either been

marginally negative or zero, thereby implying prudent capital

management. This has resulted in strong cash flow generation for the

company with five-year average CFO: EBITDA at 1.1x in FY14-18.

Exhibit 6: SEL: Net working capital days (break-up)

2730

28

22

19

14 15 15 15

107

5 5 57 7

10 10

43

38 3836

42 42

50

45 45

0

10

20

30

40

50

60


days

Inventory Days Debtor Days Creditor Days


Exhibit 7: SEL: Net working capital days

-6

-1

-5

-9

-18

-21

-28

-20 -20

-30

-25

-20

-15

-10

-5

0


no o

f days


NWC days further improved to negative 28 days in FY18 from negative 21

days in FY17. Going forward, we conservatively build in a negative

working capital cycle of 20 days over FY19-20E.

SEL also undertakes continuous innovation and technology

upgradation to meet the changing engine requirements at

the Swaraj division. The company is also developing

engines in the >50 hp segment that will further help

augment sales at SEL. All expenses for the aforesaid

expansion were undertaken from internal accruals

All capacity additions were undertaken under the

supervision of the main promoter group as and when the

parent sensed the greater demand for the Swaraj brand of

tractors


Superior return ratios; high dividend payouts!

The return ratio profile of SEL has been superior with five-year average

RoCEs and RoEs at 34% and 27%, respectively, in FY14-18. Going

forward, post the blip in FY16 (volume de-growth of 1%) on the back of a

pick-up in tractor (Swaraj) demand/capacity expansion and consequent

engine sales, we expect return ratios to inch up in FY18-20E. The core

return ratio i.e. RoICs has, however, been above 100% post acquisition

with five-year average RoICs at 194% in FY14-18.

Exhibit 8: RoIC, RoCE & RoE trend

29.0

22.7 31.2

45.9

49.4

51.4

24.4

19.4

24.3 3

5.1

36.1

37.4

204

84

183

230

268 440

0

50

100

150

200

250

300

350

400

450

500

0

10

20

30

40

50

FY15 FY16 FY17 FY18 FY19E FY20E

%%

RoCE RoE RoIC


Exhibit 9: EPS, DPS & dividend payout

41.7

41.2 55.4

66.1

72.4

80.4

33.0

33.0

43.0

50.0

55.0

60.0

79.280.1

77.6 75.776.0 74.6

0

20

40

60

80

100

0

10

20

30

40

50

60

70

80

90


%

|/share

EPS DPS Payout Ratio


Dividend payout has been excellent with the company’s average dividend

payout in the last five years (FY14-18) at ~75%. SEL has increased its

dividend per share from | 33/share in FY14 to | 50/share in FY18. We

expect this healthy dividend to continue, going forward. Dividend/share is

expected at | 55/share in FY19E, | 60/share in FY20E, thereby offering an

attractive dividend yield of ~4%.

Revenues to grow at 11.9% CAGR in FY18-20E

We expect SEL to clock modest revenue growth at 11.9% CAGR in FY18-

20E to | 965.2 crore in FY20E (| 771.2 crore in FY18). We expect sales

volumes of engines to grow to 110,986 units in FY20E (92,022 units in

FY18). On the realisations front, we expect realisations to grow at a CAGR

of 2.2% over FY18-20E (accounting for increase in steel price).

Exhibit 10: Sales trend

539.7 525.9

666.2

771.2

893.4

965.2

-

200

400

600

800

1,000

1,200

FY15 FY16E FY17 FY18 FY19E FY20E

| crore


Exhibit 11: Sales volume and realisation trend

64595

64088

82297

92022

102765

110986

8134479157

78363

81235

8448484907

74000

76000

78000

80000

82000

84000

86000

0

20000

40000

60000

80000

100000


|/unit

units

Sales Volume Realization


For full year FY18, SEL reported volume growth of 12% at 92,022 units.

Going forward, amid the government’s thrust to augment farm income;

we expect sales volume growth of 9.8% CAGR in FY18-20E.


This would primarily be on the back of good brand recall of Swaraj

Tractors, increasing sales of Swaraj Tractor in low tractor density regions

and new product launches by parent under the Swaraj brand. In the

recent past, SEL has developed and started supply of 54 hp engine to

Swaraj tractors thereby upgrading its capabilities. Hence, it is well poised

to encash on the underlying growth in the tractor industry domestically.

EBITDA, PAT to grow at 12.7%, 10.3% CAGR, respectively, in FY18-20E

We expect EBITDA to grow at a CAGR of 12.7% in FY18-20E to | 154.4

crore in FY20E (| 121.7 crore in FY18), primarily on the back of sales

growth (11.9% CAGR) and nearly flat EBITDA margin profile at ~16% (20

bps improvement in FY18-20E). On the PAT front, we expect PAT to grow

at a CAGR of 10.3% in FY18-20E to | 97.5 crore in FY20E (| 80.1 crore in

FY18).

Exhibit 12: EBITDA & EBITDA margins trend

74.7

73.6

104.6

121.7

139.6

154.4

13.8

14.0

15.7 15.8 15.6

16.0

13

13

14

14

15

15

16

16

17

-

20

40

60

80

100

120

140

160

180


%| crore

EBITDA (| crore) EBITDA Margin (%)


Exhibit 13: PAT & EPS trend

51.8

51.2

68.8

80.1

87.8

97.5

41.7 41.2

55.4

66.1

72.4

80.4

-

10

20

30

40

50

60

70

80

90

-

20

40

60

80

100

120


|/share

| crore

Net Profit (| crore) EPS (|)


Consequent EPS is expected at | 72.4/share in FY19E & | 80.4/share in

FY20E vs. | 66.1/share in FY18.


Outlook and valuation

SEL possesses a capital efficient business model, thereby realising ~4x

asset turnover, healthy ~15% margins and works with negative working

capital cycle. Hence, it realises high return ratios to the tune of ~50%. On

the b/s front; SEL has a healthy balance sheet with cash surplus of ~| 180

crore as of FY18. The company also has high dividend ratio (~75%),

thereby offering high dividend yield of ~4%. It has also been a consistent

cash flow generator with average CFO of ~ | 110 crore over FY18-20E

with CFO yield of ~6.5%. Revising estimates, we expect engine sales at

SEL to grow at a CAGR of 9.8% over FY18-20E to 1.11 lakh units in FY20E

(0.9 lakh units in FY18). Consequently, we expect sales, EBITDA & PAT to

grow at a CAGR of 11.9%, 12.7% & 10.3%, respectively, in FY18-20E. We

build in EBITDA margins at ~16%. We value SEL at | 1450 i.e. 18x P/E on

FY20E EPS of | 80.4 and assign a HOLD rating on the stock.

Exhibit 14: Two year forward P/E (SEL currently trading at 17.4x)

0

500

1000

1500

2000

2500

Jan-05

Jun-05

Nov-05

Apr-06

Sep-0

6

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

Apr-11

Sep-1

1

Feb-12

Jul-12

Dec-12

May-13

Oct-13

Mar-14

Aug-14

Jan-15

Jun-15

Nov-15

Apr-16

Sep-1

6

Feb-17

Jul-17

Dec-17

May-18

Oct-18

(|)

Price 30x 24x 21x 18x 12x 9x 6x

Source: Reuters, ICICI Direct Research


Recommendation history vs. Consensus

0

10

20

30

40

50

60

70

80

90

100

0

500

1,000

1,500

2,000

2,500

3,000

Oct-18

Sep-1

8

Jul-18

Jun-18

Apr-18

Mar-18

Jan-18

Nov-17

Oct-17

Aug-17

Jul-17

May-17

Apr-17

Feb-17

Jan-17

Nov-16

Oct-16

Aug-16

Jun-16

May-16

Mar-16

Feb-16

Dec-15

Nov-15

(%

)

(|)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct Research

Key events

Date/Year Event

2008 The company got indirectly acquired by Mahindra & Mahindra (M&M) on account of its acquisition of Punjab Tractors (erstwhile promoters of Swaraj Engines). M&M

also launches an open offer for minority shareholders as per the rules prescribed by Sebi

2009 Working capital drastically improves at SEL, net working capital days reduced from 42 days in FY08 to four days in FY09

2010 SEL operates at >100% capacity utilisation levels. Production in FY10 at 39254 units on a capacity of 36000 units, implying utilisation levels of 109%

2011 SEL undertakes and commissions a capacity expansion programme. Capacity increased from 36000 units annually to 42000 units. Engine production in FY11 was at

~48000 units, implying a capacity utilisation of ~114%

2012 Company further increases its capacity from 42000 units in FY11 to 60000 units in FY12. Production in FY12 was at 55099 units

2013 SEL further increases its capacity from 60000 units in FY12 to 75000 units in FY13. Production in FY13 stood at 57348 units. Judging the surplus cash on books and

good cash flow generating ability of SEL, the SEL management increases the dividend payout (75%) with absolute dividend at | 33/share

2014 Maintains higher dividend payout ratio at 65% with absolute dividend per share at | 35/share. Production in FY14 stood at 74786 units, implying capacity utilisation

levels of ~100%

2015 SEL to implement capacity expansion programme wherein the company intends to increase its current capacity from 75000 units annually to 105000 units annually.

The total capex spend would be ~ | 38 crore (to be met by internal accruals) while it is expected to be commissioned by Q2FY16

2016 SEL ends the year with 64088 units of engine sales (down 1% YoY). Monsoon 2016 season ends with rainfall at 97% of LPA thereby being normal in nature. Tractor

industry witnesses robust volume growth of 20% in H1FY17

2017 SEL outpaces industry growth rate with engine sales in FY17 at 82297, up 28% YoY vs. industry growth rate of 18%. The company is further augmenting its capacity

from 105,000 units to 120,000 units at an incremental capex of ~| 50 crore

2018 SEL ends the year with robust growth. Net sales in FY18 stood at | 771.2 crore, up 15.8% YoY. EBITDA for the quarter came in at | 121.7 crore with corresponding

EBITDA margins at 15.8%, up 10 bps. PAT in FY18 stood at | 80.5 crore, up 16.5% YoY


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Mahindra Group 30-Sep-18 33.3 4.0 0.0

2 Kirloskar Group of Companies 30-Sep-18 17.4 2.1 0.0

3 L&T Investment Management Limited 31-Aug-18 4.8 0.6 0.0

4 DSP Investment Managers Pvt. Ltd. 30-Sep-18 3.4 0.4 0.0

5 HDFC Asset Management Co., Ltd. 30-Sep-18 2.1 0.3 0.0

6 Jupiter Asset Management Ltd. 30-Sep-18 1.5 0.2 0.0

7 Shah (Vikram Chinubhai) 30-Sep-18 1.5 0.2 0.0

8 Parikh (Reeta Keyur) 30-Sep-18 1.4 0.2 0.0

9 SBI Funds Management Pvt. Ltd. 30-Sep-18 1.3 0.2 0.0

10 Dimensional Fund Advisors, L.P. 30-Sep-18 0.4 0.1 0.0

(in %) Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

Promoter 50.6 50.6 50.7 50.7 50.7

FII 5.3 2.7 2.5 2.6 2.6

DII 12.5 12.3 13.1 13.0 12.6

Others 31.6 34.4 33.7 33.7 34.1


Recent Activity

Investor name Value (US$ M) Shares (M) Investor name Value (US$ M) Shares (M)

L&T Investment Management Limited 0.27 0.01 Tata Asset Management Limited -2.09 -0.08

Union Asset Management Company Private Limited 0.11 0.00 DHFL Pramerica Asset Managers Private Limited -0.23 -0.01

Edelweiss Asset Management Ltd. -0.23 -0.01

Kotak Mahindra Asset Management Company Ltd. -0.18 -0.01

Quant Money Managers Ltd -0.03 0.00

Buys Sells



Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18 FY19E FY20E

Net Sales 666.2 771.2 893.4 965.2

Other Operating Income 0.0 0.0 0.0 0.0

Total Operating Income 666.2 771.2 893.4 965.2

Growth (%) 26.7 15.8 15.8 8.0

Raw Material Expenses 495.6 574.3 671.0 723.9

Employee Expenses 31.0 34.8 40.2 43.1

Other Operating Expense 35.0 40.5 42.7 43.8

Total Operating Expenditure 561.6 649.6 753.9 810.7

EBITDA 104.6 121.7 139.6 154.4

Growth (%) 42.2 16.3 14.7 10.7

Depreciation 16.3 16.8 19.3 20.5

Interest 0.1 1.0 0.1 0.0

Other Income 17.2 19.0 15.2 16.1

PBT 105.4 122.8 135.4 150.0

Exceptional Item 0.0 0.0 0.0 0.0

Total Tax 36.6 42.7 47.6 52.5

PAT 68.8 80.1 87.8 97.5

Growth (%) 34.5 16.5 9.6 11.1

EPS (|) 55.4 66.1 72.4 80.4


Cash flow statement | Crore


Profit after Tax 68.8 80.1 87.8 97.5

Add: Depreciation 16.3 16.8 19.3 20.5

(Inc)/dec in Current Assets -2.9 -14.7 -14.3 -5.6

Inc/(dec) in CL and Provisions 16.9 30.7 5.8 9.6

Others 0.1 1.0 0.1 0.0

CF from operating activities 99.2 113.9 98.6 121.9

(Inc)/dec in Investments -38.5 -27.2 -10.0 -20.0

(Inc)/dec in Fixed Assets -6.4 -22.6 -10.0 -10.0

Others -1.0 -7.5 0.0 0.0

CF from investing activities -45.9 -57.3 -20.0 -30.0

Issue/(Buy back) of Equity 0.0 -0.3 0.0 0.0

Inc/(dec) in loan funds 0.0 0.0 0.0 0.0

Dividend paid & dividend tax -64.1 -72.8 -80.0 -87.3

Inc/(dec) in Share Cap 0.0 0.0 0.0 0.0

Others 15.0 -62.9 6.8 7.3

CF from financing activities -49.0 -135.9 -73.2 -80.0

Net Cash flow 4.3 -79.3 5.5 11.9

Opening Cash 181.8 186.1 106.8 112.3

Closing Cash 186.1 106.8 112.3 124.2


Balance sheet | Crore


Liabilities

Equity Capital 12.4 12.1 12.1 12.1

Reserve and Surplus 270.9 216.4 231.1 248.6

Total Shareholders funds 283.3 228.5 243.2 260.7

Total Debt 0.0 0.0 0.0 0.0

Deferred Tax Liability 6.3 5.8 5.8 5.8

Minority Interest / Others 0.0 0.0 0.0 0.0

Total Liabilities 289.6 234.3 249.0 266.5

Assets

Gross Block 196.2 206.9 222.9 232.9

Less: Acc Depreciation 104.9 115.0 134.3 154.9

Net Block 91.3 91.9 88.6 78.0

Capital WIP 0.8 6.0 0.0 0.0

Total Fixed Assets 92.1 97.9 88.6 78.0

Investments 48.9 76.1 86.1 106.1

Inventory 26.1 31.9 36.7 39.7

Debtors 13.1 15.3 24.5 26.4

Loans and Advances 0.0 0.0 0.0 0.0

Other Current Assets 2.0 8.6 8.9 9.7

Cash 186.1 106.8 112.3 124.2

Total Current Assets 227.2 162.6 182.4 199.9

Current Liabilities 77.4 105.5 110.1 119.0

Provisions 5.2 7.7 8.8 9.5

Current Liabilities & Prov 82.5 113.2 119.0 128.5

Net Current Assets 144.7 49.4 63.4 71.4

Others Assets 3.8 10.9 10.9 10.9

Application of Funds 289.6 234.3 249.0 266.5


Key ratios


Per share data (|)

EPS 55.4 66.1 72.4 80.4

Cash EPS 68.5 79.9 88.4 97.3

BV 228.1 188.5 200.6 215.0

DPS 43.0 50.0 55.0 60.0

Cash Per Share (Incl Invst) 189.2 150.8 163.6 189.9

Operating Ratios (%)

EBITDA Margin 15.7 15.8 15.6 16.0

PAT Margin 10.3 10.4 9.8 10.1

Inventory days 14.3 15.1 15.0 15.0

Debtor days 7.2 7.2 10.0 10.0

Creditor days 42.4 49.9 45.0 45.0

Return Ratios (%)

RoE 24.3 35.1 36.1 37.4

RoCE 31.2 45.9 49.4 51.4

RoIC 216.3 264.4 310.9 507.4

Valuation Ratios (x)

P/E 25.3 21.2 19.3 17.4

EV / EBITDA 14.0 12.4 10.7 9.5

EV / Net Sales 2.2 2.0 1.7 1.5

Market Cap / Sales 2.5 2.2 1.9 1.8

Price to Book Value 6.1 7.4 7.0 6.5

Solvency Ratios

Debt/EBITDA 0.0 0.0 0.0 0.0

Debt / Equity 0.0 0.0 0.0 0.0

Current Ratio 0.5 0.5 0.6 0.6

Quick Ratio 0.2 0.2 0.3 0.3



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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

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[email protected]


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