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Published on 1/10/2019 10:21:38 AM | Source: Equirus Securities Ltd

Update On Subros Limited By Equirus Securities

Market Share gains and Non-PV segment to propel the next leg of growth

SUBR outperformed the industry and posted the revenue growth of 8% yoy owing to the market share gains in PV and the additional revenue of Rs 620mn from Home AC. Ex of home AC the sales de-grew 4% yoy against the PV degrowth of 12% on production basis. Company gained 3% market share in 1Q. We expect FY20 sales growth of 5% due to muted PV sales growth and EBITDAM of 10.0%, cut due to higher share of Home AC business (lower margins). We cut FY20/FY21E sales by 4%/4% and EBITDA by 12%/12%. We revise our multiple to 18x from 17x to factor in the higher growth in FY21/22 and Retain LONG with a rolled over Sep’20 TP of Rs 270 (Jun’20 TP: Rs 304 at 17x multiple)

Continue to gain market share in PV segment by earning new platforms: SUBR’s market share in PV ACs increased to 45% (42% in FY19) on the back of gaining the new platforms. Management has indicated it has won the business for all the platforms from MSIL till FY21 including S-Presso and XL6. SUBR has started a new supply of HVAC to the New WagonR which has helped it outperform the industry this incremental revenue of WagonR will continue through the year. As indicated earlier, SUBR being stronger in petrol-based ACs — is set to gain further market share with BS VI transition.

New products will help SUBR increase the kit value: Subros is working on series of new products and new product innovations like 2.5pm air filter, rotary vane compressors, battery cooling module (BCM) etc which will help SUBR increase its kit value and realization. Additionally, SUBR is also developing various products for electric cars and buses and is in discussion with various OEMs for the same.

Increasing share of Non-PV segment will shield the impact of PV slowdown: Currently, the non-PV segment contributes ~26% of the revenue pie. This share is expected to rise to 40% in next 2-3years driven by strong growth in home ACs, CVs and buses. In 1QFY20 Home AC segment contributed 620mn to the topline management expects to clock ~Rs 1.25bn from Home ACs in FY20. Though margins for the home AC business are lower (4- 6% in 1Q), segment margins should normalize with operating leverage kicking in.

1Q a quarter of One-offs: Company received the final settlement claim from the insurance company for the fire incident in Manesar plant for which company has recorded 403mn as exceptional revenue. Also, SUBR has paid onetime Rs 71mn interest to HSIDC for the enhanced compensation for industrial land acquired at Manesar

 

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