Subros Ltd. share price target

We re-iterate BUY as (1) Subros has gained market share to 42% in a slowing market (up by 2%) (2) The company is deleveraging its balance sheet. They have already paid down Rs 1.2bn from the equity infusion by Denso (3) The share of passenger car AC's will reduce to 70% (from 80% currently) as the other segments (CV's, railways and home AC) ramps up. Subros reported a weak 4Q due to the ongoing sluggishness in the passenger car industry. However, we believe that the company is adopting an astute strategy by increasing its share of non passenger car AC business and deepening its relationship with its Japanese partner Denso. We re-iterate our BUY on the stock (TP of Rs 310) and we continue to value the stock at 17x on FY21 EPS.

Subros posted muted results in 4QFY19, as it was affected by the slowdown in the PV segment. Revenue/EBITDA declined 6/14% YoY, respectively. EBITDA margin was 10.6% (-92/-52bps YoY/QoQ), due to a weaker product mix and a negative operating leverage. The management has guided for a 5-7% growth in the PV AC business and an overall growth of 10-11% in FY20. The net debt reduced to ` 1.5bn in FY19, from ` 3.6bn...

Our recent plant visit to Subros at Manesar reinforces our confidence in the company,as its MD, Ms.Shradha Suri Marwah elaborated on the progress and growth potential of Subros' different businesses, key organizational changes and several other initiatives.

Maintain BUY with TP Rs 309(17xDec-20E EPS). The Subros management shared the future road map post the recent increase in stake by Denso to 20% (from 13% earlier). The focus of the Japanese parts maker will increase as Subros will now be an affiliate company. While the relationship scope will be confined to the thermal products domain, they will benefit from new product introductions.

Denso increases its stake BUY: During 9MFY19, Subros has increased its market share in Indian Car AC market from39% to 42% despite sluggish PV market growth (2% production increase YoY).

Despite PV industry growth of Adj. PAT Interest cost reduced in 3QFY19 due to repayment of long term debt (9MFY19 Other income was negative due to loss incurred on fair value accounting of derivatives after netting off realized currency gain on hedging. Tax rate remained high Management expects PV industry to grow at ~6-7% in FY20. However, it expects Subros to grow faster than industry at 10-11% given its rising market share, presence in better selling models and shift to petrol variant. Further it is already tied up with new business for next one year. It aims to achieve EBITDA margins of 12-13% over next two years by reducing its import content of raw material (from current 30% to 25% by FY21) and improving revenue mix. Subros is pursuing a new thermal product for electric cars and is negotiating with various customers.

Subros reported Q3FY19 results. Following are the key highlights: o Net Sales rose by 13.8% (YoY) to `5.1bn o EBITDA Margins expanded by 51bps on a YoY basis to 11.1%...

Maintain BUY with TP Rs 335(17xDec-20E EPS). Subros posted healthy numbers in 3QFY19 (Revenue/EBITDA rose 14/19% YoY), despite several headwinds including moderation in PV segment and input cost pressures. The growth was attributed to i) new business wins (for models including Ertiga, swift, Tata Tiago, Nexon, Mahindra Marazzo, etc) in the core Passenger Vehicle segment ii) shift in demand to petrol variants iii) strong revenue from other verticals, particularly bus/truck ACs and radiators. EBITDA margin at 11% (+50/60bps YoY/QoQ) was ahead of estimate, led by a richer mix (improvement in revenue from CVs AC business).

Subros Ltd is a joint venture with 40% ownership by Suri family and 13% each by Denso Corporation (Denso) and Suzuki Motor Corporation (SMC). Subros, is an integrated manufacturer and market leader for auto air-conditioning units and manufactures thermal products such as compressors, condensers, heat exchangers and all connecting elements required to complete AC loop for automotive applications. Subros caters to the Pvs, Buses, Trucks, Refrigeration Transport, off roaders, Railways & AC Manufacturers. SL has 4 plants located at Noida, 2 at Mannesar, 1...

Multiple Growth Drivers - BUY: Subros continues to increase its core AC business market share in Indian Car market and add new business. In the medium term, Subros growth prospects remains bright in Car AC segment due to its association with Maruti Suzuki.