Swaraj Engines looks like a solid co.
M&M holds 33.22% & Kirloskar Group owns 17.39%.
95% of revenues come from Punjab Tractors which has been merged with M&M.
But isn't an inter promoter share transfer exempt from Open Offer - ?
OPM (%) :
FY03 - 23%
FY04 - 22%
FY05 - 22.5%
FY06 - 20.3%
FY07 - 20%
FY08 - 19.2%
FY09 - 15.3%
FY10 - 17.5%
FY11 - 17%
FY12 - 15.4%
H1FY13 - 15.4%
Clearly margins have come down structurally since M&M's takeover in FY08.
Realization per Engine :
FY02 - Rs.54,537/-
FY07 - Rs.72,873/-
FY12 - Rs.81,102/-
H1FY13 - Rs. 84,786/-
Realization per Engine which increased @ 5.97% from FY02-07, has crawled at a CAGR of only 2.16% in FY07-12.
On the other hand, the Receivables have decreased from Rs.36Cr. in FY07 to Rs.8.75Cr. as on 30/09/12 even though sales have gone up from 130Cr. to 475Cr.
Moreover, Sales growth which was stagnant from FY00 to FY07 have grown by 28% CAGR since then.
The co. has produced free cash flows of Rs.200 in the last 5 years.
The RoE (excluding cash) has increased from 22% in FY07 to 128% in FY12.
Installed Capacity : per annum
FY10 - 36,000 units
FY11 - 42,000 units
FY12 - 60,000 units
end CY12 - 75,000 units
At peak utilization of expanded capacity, the co. will do Sales of around Rs.640Cr. & EBITDA of Rs.100Cr.
CMP = Rs.427/-
MCap = Rs.530Cr.
Cash = Rs.135Cr.
EV = Rs.395Cr.
EBITDA = Rs.73Cr.
EV / EBITDA = 5.4x
RISK :
i.) Co. might be merged with M&M if Kirloskar's sell out to M&M.
ii.) M&M might squeeze the margins further.
