East India Securities is bullish on Swaraj Engines has recommended buy rating on the stock with a target price of Rs 1313 in its research report dated May 11, 2020.
East India Securities' research report on Swaraj Engines
Swaraj Engines (SWE) reported a lower single-digit volume decline in Q4FY20, far better than ~12% de-growth in the tractor industry. Based on our recent survey, we believe Swaraj tractors continue to enjoy strong brand equity. Swaraj Engines reported a top-line of Rs 1,751mn (down 8.5% YoY & up 3.0% QoQ), in-line with our estimate. This was on account of engine volume degrowth of 4.3% YoY. Blended realization declined by about 4.4% YoY. The company witnessed an EBITDA margin contraction of 97bps YoY to 11.6%, however there was a jump of 177bps QoQ in margin. PAT witnessed a small fall of 4.9% YoY to Rs 158mn. Considering COVID impact and rising competition, we have lower down our target price to Rs 1,313 with Buy rating as we believe tractor sector would outperform in auto industry with government focus on agriculture and construction activities.
Outlook
By looking at the present uncertain situation and intensifying competition in tractor industry, we have lower down our multiple to 18x FY22E (~17% discount to its six-year average) to arrive at a target price of Rs 1,313 per share, which indicates 34% upside from the current levels. Hence, we have Buy rating.
For all recommendations report, click here
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