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Research
Subros - 1QFY2013 Result Update - Angel Broking
Posted On : 2012-08-03 20:41:49( TIMEZONE : IST )
Subros (SUBR) reported better-than-expected operating performance for 1QFY2013; however bottom-line declined sharply led by increase in depreciation and interest expense and fall in other income. Looking ahead, we expect the volume growth to remain under pressure in 2QFY2013 due to disruption in production at its key customer, Maruti Suzuki. Nevertheless, we expect volumes to revive during 2HFY2013 driven by festival demand. Further, gradual decline in interest rates will also benefit volume growth. We recommend Buy on the stock. Mixed results for 1QFY2013: SUBR reported strong 26.3% yoy growth in net sales to Rs.319cr, driven by a 23.2% yoy jump in total volumes. Net average realization also increased by a healthy 2.6% yoy (flat qoq) during the quarter. The company's operating margin improved 44bp yoy to 9.0% driven by reduction in other expenditure which as a percentage of sales saw a decline of 120bp yoy. However, a 27.4% yoy increase in raw-material expenses arrested further margin expansion. Raw-material expense as a percentage of sales increased 60bp yoy probably due to INR depreciation which could have negated the localization benefits during the quarter. Hence operating profit surged 32.9% yoy to Rs.29cr. On a sequential basis, operating margin declined by 246bp due to reduced operating leverage benefits as volumes declined 15.4% qoq. Adjusted net profit, however, registered a steep decline of 66.9% yoy to Rs.3cr on account of 71.5% and 64.7% yoy increase in interest and depreciation expense, respectively. Other income too declined sharply (Rs.0.4cr vs. Rs.3.8cr in 1QFY2012) impacting the bottom-line.
Outlook and valuation: Though we have revised our volume estimates downwards to 8%/10% from 10%/12% in FY2013E/14E, we expect margins to remain stable, led by localization benefits. At Rs.29, the stock is trading at 5.1x FY2014E earnings. We recommend Buy on the stock with a target price of Rs.34, valuing SUBR at 6x FY2014E earnings.
