ICICI Direct: Swaraj Engines Play On Rural Revival, Superior Balance Sheet
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ICICI Direct Report
Swaraj Engines Ltd. reported a subdued set of Q1 FY21 numbers. Net revenues for the quarter were down 43% YoY Rs 117 crore, tracking a 40% decline in engine volumes to 13,756 units.
Average selling price for the period were to the tune of Rs 85,047 per unit, down 1.1% QoQ, 4.6% YoY. Margins fell 240 basis points QoQ to 11% despite a 60 bps gross margin expansion as negative operating leverage played out. Consequent profit after tax for the quarter came in at Rs 7.8 crore, down 54% YoY. Dividend for the year was at Rs 40 per share.
SEL, through its large business share of Mahindra & Mahindra’s tractor division, is an auxiliary play on the post Covid-19 revival of the domestic rural economy. Demand visibility in times of sluggishness elsewhere, in our opinion, is set to lead to continuation of premium valuations commanded by the company. Its robust financials offer additional comfort.
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