Swaraj Engines, part of Mahindra and Mahindra (M&M) group, registered 2% drop in net profit to Rs 13.76 crore on a 7% growth in topline to Rs 124.57 crore for the third quarter ended December 2012. The company, major manufacturer of diesel engines and its components, had managed a minor growth in profits at the operating level which was washed away at net level by higher depreciation charges during the quarter due to major capacity expansion. The company witnessed drop in operating margin too during the quarter.
Quarter Performance:
The topline grew by 7% to Rs 124.57 crore. Volume wise, the company sold 15,288 units in Q3, an increase of 1015 units (7.1%) over corresponding previous quarter. The engine sales constitute 96% of its topline and are supplied to Mahindra & Mahindra's Swaraj tractor brand. The rest 4% represents high tech engine components supplied to SML Isuzu. The OPM dropped by 70 bps to 14.8% due to higher employee and other expenses (both as a % to sales, net of stock). The operating profit grew by a marginal 1% to Rs 18.4 crore. Raw material costs, as % to sales net stock adjusted, fell 30 bps to 75.9%. Staff cost grew by 40 bps to 4.7% while other expenditure rose by 110 bps to 4.3%.
Moderate rise in other income by 9% to Rs 3.61 crore was negated by rise in interest and depreciation charges. Interest cost was Rs 11 lakh (against nil in previous year). The depreciation cost more than doubled to Rs 2.12 crore. After this, PBT fell by 3% to Rs 19.76 crore. Nonetheless, 70 bps fall in effective tax rate restricted the fall in net profit further and the same fell by 2% to Rs 13.76 crore.
Nine month performance:
In the nine month ended Dec 2012, the topline grew by 10% to Rs 364.49 crore aided by 6-7% growth in engine sales volume to 43,691 units. However the OPM fell by 40 bps to 15.1% on little rise in raw material and staff costs (all components as a% to sales, net of stock). Thus the operating profit grew by limited 8% to Rs 55.1 crore. Substantial growth in interest and depreciation costs negated the other income rise effect and constrained the PBT growth to 4% to Rs 59.5 crore. Other income grew by 8% to Rs 9.56 crore. Interest and depreciation charges grew by 75% and 68% respectively to Rs 14 lakh and Rs 4.92 crore respectively. The net profit settled with 5% growth to Rs 41.46 crore post accounting 50 bps fall in tax rate.
On the engine capacity front, the second phase of expansion is now almost complete and the total available capacity stands at 75,000 engines per annum.
From the start of commercial operations in 1989-90, the company has supplied 460,000 engines till FY 12 for fitment into Swaraj tractors.
The promoters' shareholding stood unchanged at 50.6% as on 31st Dec 2012. None of the shares' held by promoters are pledged. Mahindra and Mahindra currently hold 33.2% equity stake in the company.
The scrip is currently trading 0.8% lower at Rs 489 at BSE on 22 January 2013.