Maintain BUY on Subros - Demand revival ahead - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

While Subros' 4QFY21 margin missed estimate (-130bp QoQ) due to higher input costs, the management expects profitability to benefit from a pick-up in passenger car demand (as the economy revives). Further, Subros is participating in the RFQs of the upcoming Toyota-Maruti joint models, which will benefit sales from FY23E onwards. We roll forward our target price timeframe to Jun-23 and maintain BUY with a revised target price of INR 410, based on 22x forward earnings.

4QFY21 financials: While revenue grew 9% QoQ to INR 6.6bn, the EBITDA margin, at 9.7% (-130bps QoQ), was affected by higher commodity costs (74% of sales vs 69.9/71.8% YoY/QoQ). The interest cost though witnessed a decline of 50/20% due to the company's improved cash cycle and reduction in long-term debt. Reported PAT, at INR 256mn (-7% QoQ), was in line with estimate.

Key takeaways: (1) Margin affected by cost pressures: In 4QFY21, GM declined 400/215bps YoY/QoQ due to a sharp increase in commodity costs. However, Subros' has a pass-through clause with customers with a one- quarter lag. Margin is expected to sustain in double digits, given Subros' efforts towards localisation and backward integration. (2) Diversification initiatives: The non-car AC segment contributed to 23% of revenue in FY21, whereas the home AC segment contributed 5% (INR 880mn VS INR 930mn in FY20); it is currently operating at a 60-65% utilisation and the peak revenue could reach INR 2.5-3bn. ECM accounted for 14% of revenues. (3) Maruti-Toyota tie-up to benefit: Subros has participated in the RFQs for the upcoming Maruti-Toyota platform and has secured business for two major components. The SOP is expected to begin in FY23. (4) Capacity expansion: For FY22, the management has planned a Capex of INR 1bn for expanding the capacities for HVAC (from 2mn units to 2.5mn units) and compressors (from 1.5mn units to 2mn units).

Shares of SUBROS LTD. was last trading in BSE at Rs.314.25 as compared to the previous close of Rs. 310.5. The total number of shares traded during the day was 5432 in over 397 trades.

The stock hit an intraday high of Rs. 317 and intraday low of 312.15. The net turnover during the day was Rs. 1710545.

Source : Equity Bulls

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