Engines market may cruise along on the fast track as increasing farm mechanization and logistics drive up the demand for more vehicles on the farms and roads. The diesel engine market revenues are projected to grow at a Compounded Annual Growth Rate (CAGR) of 4.9% in 2018-2023 period.
The major demand for diesel engines comes from automotive industry due to growing demand for passenger vehicles in domestic and export market. With declining labor availability, farm mechanization is likely to intensify in the coming years. This would increase mechanization rate beyond the current 40% levels and demand for self –propelled equipment is also set to intensify in the next five years. The ‘Make in India’ initiative of the India Government is also motivating the industry to invest more in production capacity.
Amidst the positive growth trends in engines industry, here is a look at the prospects of leading companies in this sector:
#Cummins India Ltd (BSE: 500480, NSE: CUMMINSINDIA) Category: Large Cap
Cummins India Ltd was set up erstwhile Cummins Engine Company Inc. (CECO), USA and Kirloskar Oil Engines Ltd (KOEL) established as a JV with 50% ownership by CECO, 25.50% by KOEL and 24.50% public holding. Kirloskar Cummins acquired Cummins Diesel from Blackwood Hodge in 1967 and the first shipment of 15 engines dispatched to Egypt in 1968. In 1986, it achieved a major milestone producing its 50,000th engine. The company is now the leading manufacturer of diesel and natural gas engines – it is one of the seven legal entities of the Cummins Group in India.
The company achieved gross sales of Rs 5310 cr in 2016-17 representing a 7% increase over previous year. Domestic sales rose 12% while exports declined 3% and net profit was Rs 908 cr more or less same as previous year. Revamped Six Sigma approach and Accelerated Cost Efficiency (ACE) programs helped reduce costs, improve profitability across all businesses.
In Q3FY18, net profit fell 13.07% to Rs 172.19 cr while sales fell 0.43% to Rs 1,318.43 cr. Return on equity of 19.01%, return on assets of 16.91% and net profit margin fo 14.41% compare favorably with peer average while liquidity ratio and cash flow ratios are a cause for concern. It is trading at a Price Earnings Ratio (PE) of 29.64 which is indicative of moderate valuation by market.
On technical charts, RSI of 48.14 denotes neutral trend, while MACD has witnessed a bullish crossover signaling a bullish trend emerging and ADX of 47 indicates uptrend.
Target: 800 Duration : 4 weeks
#Kirloskar Oil Engines Ltd (BSE: 533293, NSE: KIRLOSENG) Category : Mid Cap
Kirloskar Oil Engines Ltd is the flagship company of the Kirloskar group with four state-of-the-art manufacturing units in India with global presence in Dubai, South Africa, Kenya. It is an acknowledged leader in manufacture of diesel engines, agricultural pump sets and generating sets.
The company reported net sales growth of 9% at Rs 2614 cr in 2016-17 as against Rs 2406 cr in the previous year while net profit was Rs 174 cr as against Rs 165 cr the previous year. The company reported 40.54% net profit growth at Rs 39.45 cr in Q3FY18 while sales grew 8.98% to Rs 684.61 cr. The scrip is trading at a PE of 33.37 indicative of moderate valuation by market.
Return on equity of 10.75%, assets fo 14.71%, net profit margin of 6.50% compares favorably with peer average while liquidity and cash flow is a cause for concern.
On technical charts, RSI of 47 indicates neutral trend while MACD has witnessed a bullish crossover indicative of bullish trend emerging and ADX of 14 indicates range bound trading.
#Swaraj Engines Ltd ( BSE: 500407, NSE:SWARAJENG) Category: Mid Cap
Swaraj Engines Ltd was established in 1985 by Punjab Tractors Ltd which was later merged with Mahindra and Mahindra Ltd and Kirloskar Engines Ltd. The company is in the business of manufacturing and supply of diesel engines in the range of 22 HP to above 54 HP. The company has supplied over 7,00,000 engines for use in Swaraj tractors.
The company’s revenue rose to Rs 667.07 cr in FY2017 from Rs 528.27 cr the previous year. Net profit rose to Rs 68.83 cr as against Rs 51.31 cr the previous year. Return on networth rose to 24.3% while earnings per share rose to 55.4.
The company reported net profit growth of 12.61% at Rs 17.23 cr for Q3FY18 while sales rose 18.95% to Rs 183.26 cr. The financial ratios present a mixed picture with return on equity of 24.29%, return on assets of 21.29%, net profit margin of 10.33%, while liquidity and cash flow ratios appear better. The company had issued a share buy back offer at Rs 2400 in January for 2,94,746 shares. The company has paid up capital and free reserves of RS 282 cr as on March 2017.
On technical charts, RSI fo 57 indicates bullish trend while MACD has witnessed a bullish crossover indicative of buying opportunity and ADX of 17 indicates range bound trading.
Target: 2115 Duration: 4 weeks.
#Greaves Cotton Ltd (BSE: 501455, NSE: GREAVESCOT) Category: Mid Cap
Greaves Cotton Ltd was established in 1922 and is a diversified engineering company producing diesel, petrol engines, farm equipment and generator sets. The company reported net profit of Rs 181 cr in FY17 as against Rs 200 cr the previous year while revenue was more or less steady at Rs 1819 cr. In Q3FY18 net profit rose 26.10% to Rs 55.61 cr while sales rose 10.82% to Rs 447.28 cr. Earnings per share has risen to 2.28. A lower PE of 15.63 leaves room for further growth. On technical charts, RSI of 54.57 indicates bullishness, ADX of 23 indicates range bound trading while MACD has witnessed a bullish crossover.
Target: 140 Duration : 2 weeks
Diesel engines market is set to witness steady growth fuelled by increase in farm mechanization and growth of logistics due to improved road infrastructure and steady economic growth. The implementation of GST is expected to cut down on logistics costs and improve profitability of the industry. North India accounts for major share of diesel engine demand and Make in India program of the India Government is leading to increased capacity creation and development of new engines. India’s diesel engine industry has also made major inroads in global markets.
Investors stand to gain from a selective exposure to diesel engines industry as most of the scrips are indicating a buying trend emerging in technical charts