Swaraj Engines

Swaraj Engines is one of the best examples of a proxy stock, one whose performance is derived from that of another company - in this case Punjab Tractors. The latter's dream performance in the tractors segment is not, however, reflected in the former's performance. This is largely due to a go-slow by its workmen in 1997-98 which affected offtake. While engine supplies to Punjab Tractors in the first four months increased by 32 per cent to 6,043 engines, a go-slow between August, 1997 to January, 1998 resulted in overall volume growth slowing down to 9 per cent in the full year.

Last year also saw its capacity expand from 18,000 engines to 24,000 engines on an annualised basis. Despite this, its operating profit margin increased only marginally to 18.64 per cent from 17.02 per cent.

Concerns about tractor sales slowing down should not worry the company as Punjab Tractors' sales in the first quarter of 1998-99 have increased by 28.9 per cent as against 22.4 per cent in 1997-98. In line, Swaraj's engine supplies have increased by 25.9 per cent to 5578 engines in the first quarter ended June, 1998.

Assuming that Punjab Tractors' growth rate continues, benefits of Swaraj's expanded capacity will start accruing in 1998-99 in the form of higher sales and profit growth.