Swaraj Mazda (NSE:SWARAJMAZD) is the smallest player by volume in the Indian medium and heavy commercial vehicle market (M&HCV) and light commercial vehicle market (LCV). In India, it has a market share of 5.41% in the passenger carriers market and 1.58% in the goods carrier market of M&HCV. In the LCV market, Swaraj Mazda has a market share of 8.07% in passenger carriers and 1.39% in goods carriers.
Over the past five years, Swaraj Mazda's revenues and net profit have grown at average annual growth rates of 10% and 5%, respectively. Raw material costs fluctuations affect the net profit and operating margin of Swaraj Mazda as raw material costs comprise about 84.46% of the price of the company's finished products as compared to the industry average of 70% to 74%.
Swaraj Mazda Limited is a light commercial vehicle and medium and heavy commercial vehicle manufacturer in India. The Company's product portfolio caters to specialized sub-segments for cargo and passenger applications. In the passenger segment, the company's products include ambulances, dumper placers, water tankers and troop carriers. It has also developed four wheel drive and compressed natural gas (CNG) vehicles plus airbrake versions.
The company operates through its subsidiaries Punjab Tractors Limited, Swaraj Engines Limited, Swaraj Automotives Limited, Mazda Motor Corporation and Sumitomo Corporation. The company exports its products to various countries like Bangladesh, Kenya, Tanzania, Nepal, Zambia, Ghana, Ivory Coast, Rwanda, Seychelles Syria and Jordan. Its plant is located at Asron, Nawanshahar district in the state of Punjab.
First Quarter 2010 Results (ended June 30, 2010)
For the first quarter of 2010, Swaraj Mazda reported total sales of Rs. 192.00 crore, compared to Rs. 156.00 crore in the first quarter of 2009. The company reported operating income of Rs. 1.10 crore compared to Rs. 1.00 crore in the first quarter of 2009. Net profit after tax was Rs. 5.10 crore, compared to Rs. 2.10 crore in the first quarter of 2009. EPS for the quarter was Rs. 3.5, compared to Rs. 2.0 a year ago.
Share holding pattern
Sumitomo owns 39.49% of Swaraj Mazda, whereas Indian promoters, namely Mahindra & Mahindra Ltd through its subsidiary Punjab tractors, owns another 14.04% of the company. On December 31, 2008, Mahindra & Mahindra Ltd announced that it would pull out of Swaraj Mazda as it has a ‘no-compete’ clause with ITEC in its LCV market. Sumitomo Corporation has agreed to purchase the entire Punjab tractors stake. FII's own another 9.31%. No mutual fund has any ownership of the company, but private equity firms like Actis, CDC and Reliance Capital are invested in the company. Banks and Financial Institutions own only a 0.06% share in the company.
|Private Corporate Bodies||2.98%|
|Banks Fin. Inst. and Insurance||0.06%|
Swaraj Mazda's business involves the manufacture of medium and heavy commercial vehicle and light commercial vehicle. Both of these two segments can be subdivided in to passenger carriers and goods carriers.
Swaraj Mazda sold 2,090 medium and heavy commercial vehicles in FY2008 as compared to 1,422 in FY2007, an increase of 47%. The market share increased from 4.96% to 5.41% within the year in this category. Swaraj Mazda's sales of light commercial vehicles dropped by 10% taking the vehicles produced in FY2008 to 2,234 as compared to 2,492 in FY2007. The market share decreased from 10.5% to 8.07% within the year in this category. Since inception, Swaraj Mazda has sold a total of 42,300 passenger vehicles.
Swaraj Mazda sold 3,663 medium and heavy commercial vehicles in FY2008 as compared to 4,300 in FY2007, a decrease in volume of 15% as compared to the industry average of only 6%. The market share decreased from 1.74% to 1.58% within the year in this category. Swaraj Mazda's sales of light commercial vehicles increased by 28% taking the vehicles produced in FY2008 to 2,610 as compared to 2,047 in FY2007. The market share increased from 1.22% to 1.39% within the year in this category. Since inception, Swaraj Mazda has sold a total of 78,000 trucks.
The automobile industry is a cyclical industry. It is substantially affected by general economic conditions. The demand is influenced by factors including the growth rate of the economy, easy availability of credit, increase in disposable income, interest rates, freight rates and oil prices. Lack of vehicle finance availability, lower growth of GDP and/or increases in fuel prices lead to a decline in the demand for automobiles.
The Indian economy has shown a sharp decline in GDP from 7.1% in the 2nd quarter of FY2008-09 to 5.3% in 3rd quarter of FY2008-09. The decrease in freight rates due to the slowdown of the economy also leads to a decrease in demand for commercial vehicles as expansion of fleet size is stopped. The freight rates dropped by 9.4% in 2008. Despite the 62% decline in the international gasoline prices, the gasoline prices have dropped by only 10% in India. All this factors have affected the sales of The Company's product portfolio caters to specialized sub-segments for cargo and passenger applications.. In Feb 2009, the sales in commercial vehicles segment showed a decline of 53% as compared to that of Feb 2008.
Raw material costs comprises of about 84.46% of the price of the finished products. Any price increase of the raw materials have a direct bearing on the overall operating margin. As can be seen from the Amex steel index and the world steel price index, there is high degree of volatility in the steel prices. This volatility not only affects the operating margin but also the inventory management of the steel required for production. In August 2008 steel prices peaked to over 1100$/tonne 40% higher then the steel price in January 2008. Whereas on the other hand in March 2009, the steel prices have fallen to 4 year low of $473/tonne. Tyres are also an important part of the raw material required for manufacturing. Tyre prices are correlated to the rubber prices. The chart above shows the volatility present in the rubber market. The rubber volatility also affects the operating margin and consequently the net profit margin.
Development of Indian rail network and the freight rates has a direct impact on the sales of Medium and heavy commercial vehicles used for long haul. On October 5, 2006 Indian railways began the work of the Railway Freight Corridor. The project plan is to connect all the major cities in India with special track capable of carrying double decker wagon freight trains with greater axle load of 30 tonnes per wagon, each train having around 200 wagons and a speed of 150 km/hr. Successful completion of the project would increase the freight carrying capacity of Indian railways by 78% This would adversely affect the sales of medium and heavy commercial vehicles. On 10th February, 2009 the work on the first phase of eastern freight corridor commenced. The work on the western freight corridor is planned to start in March 2009. The entire project is planned to be completed by Dec 2014.
Financial Comparison of the competitors:
|Name||Revenue in Rs Crore||Net Profit Margin||Operating Margin|
|Mahindra & Mahindra Ltd||30,150||10.34%||11.45%|