Swaraj Engines - Great cash flows!

FY19 Q3 Results:

The result are bit disappointing to me on volume front. I was expecting higher volume growth due to higher M&M tractor sales data. It may mean that volume of Swaraj brand tractor in M&M tractor sales has grown at lower rate then other brands.

As a result, financial also shown almost no growth. On positive side, there is no degrowth as well. Intersting to see how M&M sales progress in Fy20 and how is monsoon in Fy20 for Swaraj future performance. The valuation are discounting the figures but may see marginal negative impact of financials in next week.

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Took a small position recently in Swaraj. One of questions asked by a colleague was around why Swaraj and not VST. Below table may answer to some extent.

One key thing to note is Greaves cotton seem to be doing something good on operational efficiency front. Have not considered any relative valuation comparison in above exercise. I think there is enough qualitative information available on respective threads to address “why” side of these numbers


Hi ,
I think it is not a fair comparison in my limited knowledge as Business of all the three entities are different.

  1. Swaraj Engine manufactures Tractor Engines required by Mahindra Tractor division as of now. They need very low SKU and thus looks very good on Asset Turnover and inventory management. Also their customer which is Mahindra is fixed and thus they have no issues with the Debtor Days and receivables. It is majorly a B2B Business.

  2. VST is more into a diversified business of Tillers , Tractors (currently below 27 HP) , Rice Planters , Engines & Spares. Overall the percent of Engines/Spares is not that high.
    It is very obvious that they need large inventories and High SKU and will have to give some credit time to the dealers and thus have high receivables/debtor days & high level of inventory days. It thus results into higher working Capital. It is more of a B2C Business. The growth in last few quarters has been poor. Management quoted delay in releasing subsidies by government as the reasons for poor growth.

  3. Greaves Cotton is also a very diversified business. They are into 3W and Commercial 4W Diesel / CNG engines as well as into Non Automotive engines used in Marine , Construction , Agriculture. They manufactures variety of Industrial Engines ranging from 30 HP to 700 HP as well as smaller engines below 12HP. They also manufactures wide range of generator sets in the range of 2.5 kVA to 500 kVA. They also manufactures power tillers and light agricultural equipment like Weeder. They also have build a network of "Greaves Care” which is a one-stop Center for all services and spares requirements. They recently acquired Ampere which is making Electric Scooters. Given , the kind of business they have which require very high SKU , the working Capital Management is commendable. Despite all these verticals , the growth has been very poor from last few years but seems to be picking up from last few quarters. Management is too buying aggressively from open Markets in last few Months.

Disc: I am accumulating Swaraj Engines and Greaves Cotton in staggered manner. Tracking VST Tillers too which is facing some headwinds due to delay in release of subsidies by the government as per management. I like to play a basket approach here with some names in Auto space keeping a cap of 20% on sector with a cap of 6-7 Stocks.



Thanks a lot @bharat19 This is very helpful. Frankly, I did not ve much idea of greaves cotton when I did this. A friend asked on relative comparison of Swaraj and VST and then nother friend asked to add Greaves. But what was interesting to see that Greaves has improved on some of these metrics over last 2-3 years and available at good dividend yield and going thorugh company details gives good perspective of risk reward scenario. Thanks for the post


The growth has started to pick up in Greaves in last few quarters and future looks good with the kind of developments going on. The growth need to be consistent otherwise it may turn into a trap. It can be termed as the Case of “Heads i win , Tails i do not loose much”. I believe that businesses like this need to be bought over a period of few quarters looking at the performance. The big negative is that Bajaj is not their customer which is a leading player in 3 W space.

One more business of this league I have started buying recently is Banco Products which has started showing growth in last 2 Years and is available at good valuations. Here also , when i first bought it , the dividend yield was very attractive and i thought that it may provide support on downside but still it corrected 10-12% from my initial buy price. It was a good learning that Market likes to see the growth every quarter and buying such business over a period of few quarters is more helpful.

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Ya, more or less, similar views on Greaves. I think we would need clarity on topline loss which would happen on Diesel size and how much could be compensated by hrbrid, cng, ev,hybrid, b2c business etc etc. Not sure if possible to get a crystal clear view and we may need to flow through execution n keep accumulating if story keeps on delivering. Have few such positions where either there are some open risks beyond analysis and its more of an execution journey and hence hesitant to take big position. This looks one of them. Disc: 1.5% allocation at 122, still studying

Q4 FY19 Results: https://www.bseindia.com/xml-data/corpfiling/AttachLive/4278e056-468f-4ba7-8ad0-12c3f0f9cc40.pdf

Notes from Annual report 2018-19 and other aspects of Industry Analysis:

• SEL is supplying diesel Engines in the range of 20 HP to 60 HP. Since the start of commercial operations in 1989-90, your Company has supplied close to one million engines for fitment into “Swaraj” tractors.

• Fiscal 2019 was the 3rd successive year of growth for the tractor industry and it has posted an increase of 8% over last year.
• The engine sales volume for the financial year 2018-19 grew by 8.3% to reach 99,638 units (previous year - 92,022 units) and net operating revenue at Rs. 871.74 crores as against Rs. 771.16 crores of previous year recorded a growth of 13%

• Higher than volume growth was possible due to increase in price per engine sold which saw 2nd consecutive year of improvement post 5 years of stagnation


• EBITDA increased in tandem with volume growth and reached Rs. 131.65 crores as against previous year’s Rs. 121.59 crores. While profit before tax for the year stood at Rs. 127.40 crores (previous year - Rs. 122.72 crores), profit after tax (before other comprehensive income) at Rs. 82.42 crores (previous year - Rs. 80.10 crores) translated into Basic Earning Per Share of Rs. 67.96 (previous year - Rs. 64.62).

• The prices of related commodities - iron and steel - have witnessed upward trends during the fiscal 2019. As a result, the material cost as a percentage of net revenue from operations increased to 75.3% from previous year’s level of 74.5%.

• The increase in depreciation and amortisation for the year to Rs. 19.54 crores from previous year’s Rs. 16.82 crores was due to additional depreciation on fresh capex made during the year and the full year impact of capital investments made during second half of previous year

• Reflecting the above, the Operating Profit (EBITDA) margin stood at 15.1% against 15.8% of previous year.

• Total inventory including work-in-progress and finished stock at the end of the financial year stood at Rs. 47.44 crores (previous year - Rs. 31.92 crores) representing 20 days of net operating revenue (previous year - 15 days). The increase in inventory was primarily due to higher finished engine inventory to meet the expected higher demand in the beginning of first quarter of FY 2019-20. However, demand scenario is equally important (please refer below)

• Taking the total dividend to Rs. 50.00 per share for the financial year 2018-19 (previous year - Rs. 50.00 per share)

• In view of the Government’s focus on rural development, a good forecast for horticulture production and an increase in the MSP, it is expected that growth perspective for the tractor industry will remain positive in the current fiscal as well. In this backdrop, the engine business of your Company is likely to move in tandem with the tractor industry. Further, the Company’s ongoing capacity expansion programme for increasing its engine manufacturing capacity to 1,35,000 units per annum has also been completed and the same is now available to meet the expected enhanced demand in future.

• During the year, your Company has also migrated to SAP ERP system as a business enabler.

• Management remuneration increase is reasonable

• Overall remuneration to management and board sums up to 2.5 Cr which is well within prescribed limit

• There is a capex leading to asset expansion on balance sheet and if there is enough demand should lead to growth

• Also, there is additional finished inventory lying which might give good growth in Q1 FY20

• Almost 150 cr + of cash and investments

• Segment wise reporting of production and dispatches


Capex Analysis

Earlier 120K capacity has come at 179 Cr which means 15k Rs per engine generating Rs 83K revenue and 8k PAT which is almost 50% Return on investment (keeping exact formula and few other assets aside). With the new additional capacity of 15K coming at 34 Cr, this turns out to be 23K per engine, if they generate same 8K profit, this looks around 30% return on investment unless this can be sold at a higher price and margin and hence, there could be chances of return ratios sliding a bit based on how margins play out

Industry Analysis

• Indian tractor industry (the world’s largest by volume) has a mix of Indian origin and international manufacturers and is traditionally segmented by horsepower broadly - the low horsepower upto 30 HP segment, the mid segment of 30 HP - 50 HP and the higher segment of above 50 HP. While most of the major players cater to all the three segments, their relative strengths and market positions differ from segment to segment. Over a period of time, the medium and higher HP segments have become the most popular and fastest growing segments in the country owing to increased affordability, tractor versatility and evolution of farming practices especially in case of farmers with large land holdings.

• Riding on the strength of overall positive attributes, the domestic tractor industry recorded growth for the third successive year and during FY 2018-19 posted a volume of around 7,87,000 units (previous year - 7,29,000 units) - a growth of 8%. Factors like successive normal monsoon, improved crop production through favourable crop cycles, positive sentiments in rural areas, easy availability of farm finance at reasonable interest rates etc. propelled the growth in tractor industry.

Management View:

With Government’s continued thrust on enhancing farmers’ income through various initiatives like improving irrigation facilities, crop insurance, hike in minimum support price (MSP), monetary support to marginal farmers, promoting rural development besides other industry growth drivers such as agri mechanisation, scarcity of farm labour especially during the sowing season and momentum in infrastructural projects etc., the tractor industry is expected to continue its growth journey in medium to long term. In the backdrop of the optimistic industry outlook for the Company’s prime customer, business prospects of your Company appear to remain positive

Personal View

• Clean and clear business with strong financial metric which kind of ticks all 1st level checklists undergoing expansion but there could be cyclic demand headwinds. As it is evident from 2013 to 2018 data, it is a semi cyclic industry (2013 to 2015 numbers). After good 3 years, industry is again facing demand headwinds (refer to below article) where in last few months there has been a YoY degrowth


• Also, Mahindra has recently lost market share to other players

• So, growth might face headwinds due to cyclic behavior and competition and that could be the reason apart from valuation that why share prices have fell by more than 40%.

• Also, last cycle did not only lead to volume contraction but also per unit topline stagnation/little contraction. If that plays out again post 2 years of strong unit topline growth, this could further lead to impact on overall EPS (in case the unit economics improvement is due to higher HP tractor capacity, might be sustainable)

• So, considering demand headwinds, historical cyclical behavior logevity of tractor industry, unit economics of cyclicity, margin contraction in scenario of expansion under constrained demand environment and hardening of raw material cost, keeping a cautious watch to accumulate

No holdings as of now but in watchlist. Did technical trading in last 6 months



Quoting the Outcome of Board meeting for today uploaded in BSE.

"As the domestic tractor industry remained subdued in first quarter of current fiscal
and registered a decline over corresponding quarter of last year, Company’s engine
sale for the quarter ended 30th June, 2019 got impacted and stood at 23,033 units as
compared to 26,742 units sold during corresponding quarter of last year - a degrowth of 13.9%.

In the backdrop of lower engine sale, Company’s Net Operating Revenue for the first
quarter of FY 2019-20 at Rs. 205.38 crores registered a decline of 12.4% over last
year’s same period revenue of Rs. 234.52 crores. While Profit Before Tax for the
period was Rs. 26.22 crores (last year - Rs. 35.65 crores), Profit After Tax stood at
Rs. 16.92 crores (last year - Rs. 23.06 crores)."

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FY 20 Q2 Results:

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Given that we had normal monsoons for past years, chances are bright of abnormal monsoons Does the current valuations (18PE, 13 ev/ebit) factor in poor monsoon. Often bad stock price comes in before the bad news. If no, then how to look at its valuations

Q3 FY20 Results: https://www.bseindia.com/xml-data/corpfiling/AttachLive/dec5ee8c-9d56-4ea7-b754-8264e79e7618.pdf

De-growth continues…

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De-growth was expected as M&M Tractor sales decline. Swaraj Exlcusively supply Engine to M&M tractor (Swaraj tractor brand) and very small engine parts to Sml isuzu.

While decline in M&M Tractor sales duing Q3FY20 was around 7% (YOY) same for Swaraj was higher at around 12% (YOY).

However, if we compare Swaraj Engine sales to M&M Tractor sales for December quarter over the years, We find Swaraj has 23% average market share of M&M Tractor sales during December sales during FY12-FY20 period. I have calculated market share as Swaraj Engine sales to M&M Quarterly Tractor Sales release for SIAM (3 months sales added to arrive at particular quarter sales).


While there has been marginal fall in Swaraj Engine Q3FY20 market share, I did not find same as worrisome. The fortune of Swaraj engine directly linked to M&M Tractor sales in general, Swaraj Tractor Division sales in particular.

We understand from various reports, that Indian Farmer are expected to have bumper Ravi Crop (+plus high food inflation which mean improved realisation for Farmers). We may see exceptionally high income growth agri in short term and I would anticipate same reviving demand for tractors which shall mean improving prospect for Swaraj. However, this my understanding of business and it may be completely wrong.

Discl: Swaraj Engine is among top 10 stock holdings for me. I have been invested for around 8 years. My view may be biased due to my holding. Investor shall do his/her own due diligence or consult investment advisor before taking any decision. I am not SEBI registered analyst. No transaction in the company for last 23 months.



Results are out for the last quarter including full year results.

Swaraj Engines’ net profit fell 13.8% to Rs 71.04 crore on a 11.3% decline in net sales to Rs 773.30 crore in the full year ended on 31 March 2020 as compared to the full year ended on 31 March 2019. PBT stood at Rs 93.07 crore in FY20, down by 26.9% from Rs 127.40 crore in FY19.

Engine sales for FY20 stood at 89,928 units, down 9.75% compared with last year’s sale of 99,638 units.

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The Tractor and ancillary companies have corrected less and holding the fort well during the current market turmoil.

Do you feel that the prospects of Tractor and ancillary companies will improve manyfold if the proposed Agricultural Reforms are implemented?

Given that tractor and ancillary sectors are cyclical, how do you manage your holdings in Swaraj Engines? Do you trim your positions when the sector seems to attain its peak (e.g. in 2017)?

Thanks for your message. Swaraj is one of the best companies I have invested in. If you need to read (rather see) cleanest balance sheet among Indian Business, Swaraj Engine would be one of them in my opinion. Given the cashflow generating business which can grow annually at around 15% without major capex for another 10 years (as per my understanding given that company has almost half land only occupying current plan and hence scope for
multiple brownfield expansion over next 5-7 years) and exceptional cashlfow generating high ROCE expanding (but definitely volatili), Swaraj is among my core holding since nearly decade now. I have occassionally increased and reduce my holding in the company based on my view of price.

Swaraj has done well when agriculture was controlled. If case all state in India decide to decontrol land ownership and allow corporate farming, that may result major booster in agri productivity and also mechanisation of labour, which shall indirectly benefit Swaraj TRactors and hence Engine. Even if no change in regulation, still Engine show pattern of Tractor business growth with moderate volatility. So I do not see any negative development (keep aside positive for time being).

As the sector is cyclical, Swaraj Engire directly linked to Tractor industry. Normally Tractor industry has 3-4 years of upcycle followed with 1-2 years declince/stability phase. Even monsoon rainfalll also add seasonality to cycle. However, Swaraj Enginre shown relatively less volatile sales as compared to tractor industry. One reason being that Swaraj has constantly increased it share of engine supply when compared to Mahindra tractor sales. It would make sense for Mahindra to move share of tractor engine sourced from Swaraj as same being also owned by Mahindra.

However, business prospect and share price can not be insulated from volatility of business and share makret. In past, I have increased and declined holding in Swaraj Engine shares depend on my perception of business prospect and share price.

Find enclosed my dealing Swaraj Engine over period. Please note that I have used a mutiple of my actual quantity of trading, I am reluctant to share that information. The quantity in enlcosed trade broadly to give view about % holding bought and sold over period. The price are actual, date are actual, but quantity is mutiplied with certain factor.

Please note that my reading of future may be wrong. One also need to consider important factor of Evehicle in Autombile industry and impact of same on Tractor industry (in context of requirement of Engine). Hence, future may not be same as past growth. Also, this is based on my uderstanding of industry and Swaraj business, which may be completely wrong.

Disl: Among my top 10 holdings. Sold maginal quantity in last 2 months increase in cash in portfolio. My view may be biased. Not a SEBI registered analyst. I am not recommending any investment action in the company. Investor shall do their own due diligence before making any investment decision.


Enclosing my working Swaraj Engine for an investor who got allotment in IPO and continue to hold without any action (neither participating in buyback nor subscribing in rights but continue to hold orignial holding and receive dividend). Over a period (since 1989 when compnay did IPO (assumed at par of Rs 10 each) Rs 1000 invested (100 share @ 10 per share), would have grown to ~850,000/- (600 shares @ 1408 share price on March 2019) giving XIRR of 46% (cell W34 in enclosed excel file) over 30 years. Net profit data available from FY92 to FY19 (27 years) increased at 16% CAGR.

Please refer to enclosed file for details.
Swaraj Engine XIRR since IPO.xlsx (43.4 KB)


First is with two normal monsoons last 2 years, can we expect deficient monsoon sooner rather than later. Then the question arises does the current valuation price in the possibility of a deficient monsoon.
Further sir can you tell me the source where you got the land information (for learning purpose) that land is available.
Next question is what if M&M decides to squeeze the margins of Swaraj Engines. It has never happened in past but if this happens then what.
Sir your views have opened eyes about the business beyond our imagination!!