Subros Ltd. share price target

We interacted with the management of Subros Ltd recently. The company is a key player in the automotive AC market, commanding ~35% market share. We believe the company is well poised to grow Revenue/EBIDTA at 18/19% CAGR over FY16-19E

Decline in Raw material costs leads to operating margin expansion:Subros reported revenue of Rs. 3729Mn in Q3FY17 up by 13.4% YoY and down by -14.8% QoQ where EBITDA margins stood at 11.2% this quarter as against 10.7% in the previous quarter, majorly driven by raw material cost decline. However, PATdeclined by -24.0%/-45.6% in QoQ/YoY due to exceptional expenses on account of the fire accident at their Manesar plant. Also, employee and other expenses have slightly shot up in Q3FY17 as compared to the previous quarter.

Surfing Against the Tides Steadily: Robust revenue growth - After the devastating quarter (Q1FY17) on account of a fire accident at the Manesar plant which incurred considerable equipment and inventory damage leading to loss, Subros has bounced back recording a revenuegrowth of 34.8% at Rs. 4375Mn in Q2FY17 (QoQ) and 35.5% YoY. EBITDA improved by 42.9% QoQ at Rs. 468Mn and 20.8% YoY with margins improving by 60bps QoQ and declining by 130 bps YoY due to fire mishap which affected sales while the fixed costs remained.

SALES UP BY 17% TO `3.3BN DRIVEN BY 17.6% VOLUME GROWTH Subros Q3FY16 sales increased by 17% YoY primarily on account of robust volume growth of 17.6% YoY (272,435 Units) during the quarter. This is a second successive quarter for Subros to report ~18% volume growth on yoy basis. During the quarter, average realizations per unit were up by 0.4% on yoy basis to `12,052/unit after preceding 4 quarters of decline in the same. The Company continues continue to benefit from buoyancy in a passenger vehicle market in India as it remains main supplier for AC kits to Maruti....

Subros Ltd, manufacturer of air conditioner systems for automobiles, mostly caters to the passenger segment OEMs; predominantly Maruti Suzuki India Ltd (MSIL). Therefore, on the basis of recent progress in this segment, we expect revenues to increase at a CAGR of 11% between FY15-17E primarily driven by volume growth at CAGR of 13% because realizations have got hit owing to pricing competition; and going forward, we have kept realizations constant for our estimations.

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