Swan Energy Ltd: A multibagger.

Target: Rs.1000+

If you can remember, I had suggested a buy or I bought the shares of Swan Energy Ltd (Rs.554.55) near Rs.210/Rs.217. The stock has delivered more than 3x returns from my buy price. Photo: Energy World.

Since, the scrip has already given a mind-boggling returns over a given period, the question is: How much the stock can further move up considering the new initiatives and completion of some vital projects of the company like FRSU. 

Let's explore its ventures, including its real estate projects, textile division, and LNG initiatives:

Real Estate Projects and Land Bank: 

Swan Energy is actively engaged in the real estate sector, particularly in prime areas of Khar-Bandra, Mumbai. The company has significant plans, with projects encompassing approximately 2 million square feet of development potential, valued at around Rs.12,000 crore. Recently, it has obtained an occupation certificate for a premium residential project in Bengaluru, showcasing their expansion in the real estate sector.

Textile Division:

Swan Energy’s textile division is a substantial segment of its operations. The company is noted for its capacity to produce 3 million fabrics per month. In addition to fabric production, it also manufactures and sells yarn and ready-made garments, thereby diversifying its textile offerings. 

In India, the textile value chain exhibits varying profit margins across yarn, fabric, and garments:

💢Garments: In India, garment manufacturing generally offers the highest margins, ranging from 10% to 30%. This is due to the value addition from cutting, sewing, designing, and branding. Indian companies involved in apparel exports or premium domestic markets often see better margins due to increased demand and branding.

💢Fabric: Margins in the fabric segment are moderate, typically between 8% to 15%. Fabric production margins depend on the type of fabric, its end-use (e.g., fashion vs. industrial textiles), and the level of processing involved, such as dyeing and finishing. Companies in India that specialize in niche fabrics may experience higher margins.

💢Yarn: Yarn manufacturing in India has the smallest margins, typically around 5% to 10%, due to the highly competitive and commodity-like nature of the yarn market. The margins in this segment are also influenced by fluctuations in raw material prices (like cotton, which India is a major producer of), and energy costs, which are significant for spinning mills.

In summary:

- Highest margins: Garments

- Lowest margins: Yarn

However, these are ballpark figures and are often influenced by local market conditions, international demand, government policies, and raw material availability.

LNG Projects:

Swan Energy is heavily invested in LNG projects, operating both Floating Storage Regasification Units (FRSU) and LNG terminals. 

The company is establishing a major LNG terminal in Gujarat, which is expected to enhance its capabilities in the energy sector significantly.

Oil and Gas Exploration:

In addition to its LNG activities, Swan Energy is involved in oil and gas exploration expanding its footprint in the energy market. This diversification supports its strategic goals across multiple sectors, including energy and infrastructure.

The acquisition of Reliance Naval and Engineering Ltd (RNEL) by Swan Energy Ltd is significant in the context of the reported order from Russia for the construction of 28 light vessels. Here are some insights:

Swan Energy Ltd's Acquisition of RNEL: The acquisition has been described as a strategic move to strengthen Swan Energy's position in the shipbuilding sector, especially for defense contracts. This is highlighted in reports discussing Swan Energy's plans to utilize RNEL's capabilities to fulfill international orders, including the one from Russia.

The order from Russia: The order from Russia for the 28 light vessels, estimated to be around $1 billion, emphasizes the potential for Swan Energy to leverage RNEL's expertise in shipbuilding for international clients. 

However, my sources could not confirm whether those orders are still alive or ready for execution with the correct management of Swan Energy Ltd in place or they have been cancelled.