At a Glance

Swaraj Engines Ltd is the diesel heart pumping inside Mahindra tractors, with one of the best ROEs in Indian manufacturing. Zero debt, high dividend payout, and Mahindra’s farm-tech shield — but at 11.9x book, are we paying for horsepower or just horsepower branding?

1️⃣ Introduction – Naam toh suna hi hoga… Swaraj?

If you’ve ever stared out at a sugarcane field in Punjab, chances are you’ve seen a Swaraj tractor, grunting through the mud like it’s on a patriotic mission. But behind that tractor? Swaraj Engines Ltd – the Mahindra-backed manufacturer of diesel engines for tractors ranging from 22 to 65+ HP.

While you were sipping cold coffee in an AC cabin, these engines were pulling 1-ton trailers in 45°C heat. And here’s the crazy part — the business behind this grunt machine? Almost debt-free, oozing 41% ROE, and dishing out dividends like your grandma gives laddoos during Rakhi.

2️⃣ WTF Do They Even Do? – Straight Outta Mohali

Swaraj Engines Ltd (SEL):

• 📦 Manufactures diesel engines exclusively for Swaraj-branded tractors (now part of Mahindra & Mahindra)
• 🛠️ Also produces hi-tech engine components like cylinder heads, crankcases, camshafts, etc.
• 📈 Installed capacity: ~1.35 lakh engines/year
• 🏭 Plant location: Mohali, Punjab
• 🎯 Single-client dependency: ~100% of sales goes to Mahindra’s Swaraj Division

Yes, this is a one-client love story. Think of it as a long-term arranged marriage that somehow worked.

3️⃣ Financials Overview – Profit, Margins, ROE, Growth

✅ EPS CAGR (5Y): ~12%
✅ Profit CAGR (5Y): ~19%
✅ Sales CAGR (5Y): ~17%
✅ Dividend Yield (FY25): ~2.55%

4️⃣ Valuation – Is It Cheap, Meh, or Crack?

Edu Verdict on Valuation:

• 🤌 Quality ain’t cheap, bro
• 🔥 ROE of 42% at 30x P/E = fair-to-slightly-rich territory
• 🚫 No re-rating tailwind ahead — already priced for perfection
• ✅ Looks sustainable, but not dirt cheap

🎯 FV Range (FY26e):
Assuming FY26 EPS ~₹150 and a P/E range of 24–28x:

👉 Fair Value Range = ₹3,600 – ₹4,200
At CMP ₹4,100 — it’s at the upper end of fair value.

5️⃣ What’s Cooking – News, Triggers, Drama

• 🧃 Capex in FY24: Jump in CWIP from ₹2 Cr → ₹38 Cr signals upcoming capacity/automation upgrades
• 🔧 Mahindra’s increased tractor exports = potential for Swaraj Engines too
• 📈 Mahindra Farm Division sales grew ~10% in FY25 — driving engine demand
• 🗳️ 39th AGM on July 15, 2025 — keep an eye on management commentary

Drama is minimal. This stock is more “Joint Family” than “Bigg Boss.”

6️⃣ Balance Sheet – How Much Debt, How Many Dreams?

• Debt-to-equity is practically zero
• Reserves & Surplus growing steadily
• CWIP increase hints at something brewing… maybe capacity, maybe robotics?

7️⃣ Cash Flow – Sab Number Game Hai

• Free Cash Flow Machine 🚂
• 76% dividend payout from actual cash, not vibes

8️⃣ Ratios – Sexy or Stressy?

This is one of the cleanest balance sheets in the smallcap auto ecosystem.

9️⃣ P&L Breakdown – Show Me the Money

• Gross Margin: ~28–30% range
• Other Income: ₹16 Cr in FY25 = ~10% of PBT
• Zero Interest expense = full profits get distributed or reinvested
• EPS growth of 15–20% CAGR continues despite being 1-customer dependent

🔟 Miscellaneous – Shareholding, Promoters

• Steady promoter stake
• FII/DII slowly increasing — a silent vote of confidence

🧠 EduInvesting Verdict™

Swaraj Engines is that rare beast:
💸 Debt-free
💪 High ROE
🎁 Fat dividend
🛡️ Mahindra-backed
📦 Monopoly-ish in its niche

But it’s also:
🥵 Highly dependent on one client (Mahindra Farm Equipment)
📊 Fully priced — no valuation cushion
🧂 Boring (which is often good)

Final Roast Rating:

“If Cummins is the gym-bro of engines, Swaraj is the quiet CA rank-holder who never skips dividend day.”

📌 This is not advice. It’s financial storytelling — powered by ROCE, not rumors.

✍️ Written by Prashant | 📅 June 28, 2025
Tags: Swaraj Engines, Mahindra Tractor, Auto Ancillaries, High ROE Stocks, Dividend Stocks, EduInvesting