Swaraj Automotives – Will it generate Multibagger return?

Posted on February 12, 2018

Swaraj Automotives short analysis. Don’t consider it as a recommendation.

What does the Swaraj Automotives do?

The company manufactures seats, seat mechanism and agriculture implants. It is a B2B business, therefore margins are low. Present in agriculture implant (sector having good prospects). Revenue contribution as per Q2FY18 – 75% from automotive parts & 23% from agriculture implements. Over the last few quarters, there has been a steep jump in the revenue from agriculture implements.

Automotive parts have somewhat 5% operating margin while agriculture implements have 2% margin (as per Q2FY18 numbers).

Website of Swaraj Automotives shows Mahindra, Swaraj, SML Isuzu, Nissan, Eicher etc in its client list. Not sure about the revenue concentration.


What can be the trigger for Swaraj Automotives going forward?

  • Recently they did some capacity expansion. It will manufacture seat frames initially and later seats and other products manufacturing will also start. Revenue contribution should come from the first quarter of FY19.
  • Launched new product and building own dealer network. Joined hands with an international manufacturer. This should improve the margin and boost topline going forward.
  • Bet on the Jockey – Jeevan Mahaldar. Check his LinkedIn profile here. He has been associated with many reputed companies in the past. This is both positive and negative. Positive because he brings a lot of experience. negative because he frequently changes organization. To avoid this, maybe he is offered sweat equity. If he remains, then I believe, the company should do well. It is also good because b4s is putting a capable man in place to run the company.


Financials of Swaraj Automotives (short summary)

  • The current market cap of the company is 30 Crores.
  • Sales in Q2FY18 was around 27 crores. The company is trading at around 1/4th of the total sales.
  • Market cap 30 crores and reserves 26 crores (as on March 17). Total asset is 51 crores.
  • Dividend yield is 3.18% (On a face value of 10, gave Rs.3.50 & Rs.4 as a dividend in FY16 & FY17 respectively)
  • Debt free company
  • Tax paying as per the standard rates.

Few Important points-

  • 211478 shares (8.82% stake) allotted to Jeevan Mahaldar as sweat equity, the newly joined executive director of the company. The allotment price is Rs.172.70.
  • Total outstanding shares after dilution would be 2609191 (211478 + 2397713). On the conservative basis, FY19E diluted EPS comes at Rs. 22+. Currently, Swaraj Automotives is trading at Rs.125, which is less than 6x of FY19E EPS.
  • The acquisition price of the promoter b4s solution private limited is Rs.145.50.
  • AR – page – 28 reads- “In the previous year your company was successful to receive an order from Indian railway to supply seats for its ambitious project called “Tejas train” and currently the seat is under development state, it is a great beginning and this area has a huge potential of business”.

Negatives –

  • On page 16 of AR17, the company is providing Discounting Free Cash Flow for the next couple of years. Unable to understand what is the need for that.
  • Cyclical business
  • Low liquidity

Disclaimer – This is not a stock recommendation and the author doesn’t hold any stock currently.

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