Fundamental Analysis of Swaraj Engines: The name “Mera Swaraj” is the most well-known household name in India. India is a land of agriculture, and to revolutionize the farming sector, a company inspired by Mahatma Gandhi’s economic freedom began to manufacture tractors under the brand name “Swaraj” in the last seven decades.

In this article, we shall perform the Fundamental Analysis of Swaraj Engines, a company that has revolutionized farming in India.

Fundamental Analysis of Swaraj Engines

We will begin our research by finding out about the industry in order to comprehend all of the players in the market and their market shares in the tractor industry. We will then go into the company’s financials, future goals, and a summary to complete the article.

Company Overview

Fundamental Analysis of Swaraj Engines - Swaraj Engines logo

Swaraj Engines Ltd (SEL) started its operations in the year 1985 in technical and financial collaboration with Kirloskar oil engines(KOEL) for the manufacturing of Diesel engines. In recent years SEL has also been a supplier of hi-tech engine components to Swaraj Mazda (SML).

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It manufactures and sells diesel engines, diesel engine components, and spare parts for tractors in India. SEL is a rapidly growing company and has a wide portfolio of tractors and farm machinery. It stands firmly amongst the top tractor brands in India. As of September 2022, Swaraj Engines Limited operates as a subsidiary of Mahindra & Mahindra Limited.

Business Segments

Swaraj Engines Ltd is the leading Manufacturer of Tractors Engines, Agriculture Tractors Engines, and their components. The company manufactures a range of tractors from 15Hp to 65Hp which are used for various farming needs. It also manufactures 4WD tractors for wetlands & specialized tractors for horticulture.

Fundamental Analysis of Swaraj Engines - Revenue
Swaraj engines Sales

Industry Overview

The Indian tractor market is the world’s second-largest, accounting for one-third of global output. The tractor industry in India has grown at a compound annual growth rate (CAGR) of 10% during the last four decades.

The Indian tractor market size was valued at $7,540.8 million in 2020, and it is expected to reach & 12,700.8  million by 2030 at a growth rate of 7.9%.

The Indian agricultural and farming sector accounts for around 16% of India’s GDP, and personalized tractor leasing and precision farming are growing trends in the tractor business that will fuel the tractor industry’s growth.

Additionally, several government projects and schemes, such as the “Blue Revolution Deep Sea Fishing Scheme,” “Pradhan Mantri Awas Yojana,” and others, as well as the increased industrialization and commercialization of the economy, are key contributors to India’s growth engine industry. Based on the previous five fiscal years, Mahindra & Mahindra has the highest market share at roughly 39%.

Industry overview

Swaraj Engines – Financials

Revenue & Net Profit Growth

There is consistent growth in sales of  63.07 % from Rs 871 crore in FY19 to Rs 1,422 crore in FY23. 

In FY23, operating profit and net profit increased at a CAGR of 7.09% and 10.32%, respectively, to Rs 186 crore and Rs 134 crore

Fiscal YearOperating salesOperating profitNet profit
20231422186134
20221138155109
202198713693
202077310071
201987213282
5-yr CAGR10.27%7.09%10.32%

(figures in Rs Cr except for CAGR)

Operating & Net Profit Margins

The operational profit and net profit have stayed stable over time, indicating that the firm is not increasing revenue or decreasing expenditures. This might be because of rising competition, market saturation, or bad management decisions

Fiscal YearOperating Profit MarginNet Profit Margin
202313%9.42%
202214%9.58%
202114%9.42%
202013%9.18%
201915%9.40%

In the next section, let us see how the change in segment profits has impacted profitability and efficiency by analyzing the return ratios: return on capital employed (RoCE) and return on equity (RoE) of swaraj engines.

Return Ratios: RoCE & RoE

This demonstrates that the firm is efficiently utilizing its shareholders’ equity to create revenue and is producing shareholder value by intelligently reinvesting its earnings to boost productivity and profitability, resulting in a slightly higher ROE over time.

Overall, it demonstrates the company’s use of finances while maintaining optimal operational performance and a robust underlying business strategy.

Fiscal YearROCEROE
202351.4139.04
202247.1935.81
202143.3932.98
202038.0230.11
201922.534.63

(figures in %)

Debt/Equity & Interest Coverage

Fiscal yearDebt/EquityInterest Coverage
202302,479.50
202202,160.23
2021042,925.79
202006,555.40
201901,402.52

Debt analysis of Swaraj Engine Ltd. shows that it is a debt-free stock with a strong interest coverage ratio over time. On the contrary, a company that has a higher interest coverage ratio tends to be better, but it is susceptible to volatility.

Future Plans of Swaraj Engines

So far, our fundamental study of Swaraj Engines has focused on the company’s prior financial information. We’ll try to obtain a feel of the future of the business and its investors in this part.

  • The company has planned to build a new plant in Punjab state for its foundry and R&D.
  • The company is working to build CNG-powered tractors in the prospect of future demand and to comply with Sustainable Development Initiatives.
  • Planned to increase the production of the Swaraj Gen2 8100 EX Self-Propelled Combine Harvester.

Key Metrics of Swaraj Engines

CMP₹ 1,771Market Cap(Cr.)₹ 2,152 cr
EPS₹ 110Stock P/E16.1
RoCE51.41%ROE39.04%
Promoter Holding52.13%Book Value₹ 282
Debt to Equity0Price to Book Value6.34
Net Profit Margin9.42%Operating Profit Margin13%

In Conclusion

Swaraj Engines Ltd. appears to be a fundamentally strong company with consistent revenue and growth, healthy profitability, and a reasonable valuation. Last but not least, there is a huge demand for engines in rural India.

As the company has merged with Mahindra & Mahindra, which has a 40% share in the Indian market. Do you think the company will be able to retain and expand its market share? What’s your take on this company? How about we continue our conversation in the comments below?

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