Published on 3/01/2020 10:05:43 AM | Source: Reliance Securities Ltd

Update On Subros Ltd By Reliance Securities

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New Business Coupled with Automobile Revival to Drive Revenues; NOT RATED

We recently met the senior management of Subros Ltd. (SUBR), a leading manufacturer of car AC and cooling modules. SUBR , founded in 1985 as a JV public limited company with 40% ownership by Suri family of India and 13% ownership by Denso Corporation (Denso) & Suzuki Motor Corporation (SMC). It is primarily engaged into the manufacturing of thermal products for automotive applications in India in technical collaboration with Denso. The Company has three key product verticals for PVs i.e. (1) Compressors; (2) Condensers; and (3) HVAC, which jointly contribute ~90% to its revenues. Other small business like tubes and hoses, bus AC, rail AC, transport refrigerator and home AC components contribute ~10% to its revenues. SUBR is expected to drive its revenue growth from new products and new business like Home A/C, going forward. Looking ahead, we expect strategy of business diversification, focus on deleveraging balance sheet and increase profitability will result in decent improvement in SUBR’s financial performance.


Key Takeaways

* Strong Market Share Position across Products: SUBR enjoys market leadership across product segments. Its market share in Passenger Car AC segment has improved from 40% to 41% over FY18-FY19, while its market share stood at 47%, 37% and 30% in HVAC, Compressors and Condensers segments, respectively. In CV space, its market share hovers at ~60% (with market share of 70% & 40% in the blowers & AC systems, respectively). Company fulfils ~60% of Maruti Suzuki’s A/C requirements.

* High PV Contribution ~90%: SUBR’s key revenue contributor is PV with ~90% contribution. Its Car AC segment contributes ~80% to its total revenue. While ECM contributes 11% and other segments like railway coach, vehicle refrigerators, home AC components etc. contribute the balance 9%. SUBR aims to de-risk its business by increasing non-PV contribution, going forward. It expects PV contribution to fall to 72% from current level of 90% by FY21E, as the share of other segments is expected to increase to 27%. Its new business of Home A/C is fastest growing business albeit on a low base.

* MSIL – Contributes 70% to SUBR’s Biz: MSIL is the biggest customer of SUBR, which contributes ~70% to its revenue, while M&M and Tata Motors also contribute sizable chunk within PV segment. Other customers include SML Isuzu, Force Motors, Denso, Daimler, Ashok Leyland, Medha and Bombardier. It also started supplying home AC components to Voltas. Management indicated improvement in production schedule over next 2-3 months across PV players.


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