Buy Subros Ltd For Target Rs.902 By Sushil Finance
Industry tailwinds and Regulatory mandates in the commercial vehicle to drive growth
The Indian automotive HVAC (Heating, ventilation, and air conditioning) market is projected to expand significantly, growing from $1.6 bn in 2025 to $4.2 bn by 2034, at a CAGR of 11.1%. This growth rate is expected to outpace the general automotive production growth rate due to tech upgrades like auto climate control and thermal management in EVs, thereby increasing the electronic content and value of HVAC kit. Apart from this, The Ministry of Road Transport and Highways (MoRTH) has mandated that all N2 (3.5-12 tonnes) and N3 (>12 tonnes) category trucks manufactured on or after October 1, 2025, must be equipped with air-conditioned cabins. This transforms Subros from a cyclical auto ancillary into a policy-backed structural beneficiary.
Capacity addition and diversification to drive growth
Subros is aggressively expanding its manufacturing footprint to prevent capacity constraints: Kharkhoda Plant: The company is investing Rs.150 crore in a new greenfield facility in Haryana, which will add a capacity of 5 lakh units annually by early 2026 and then scalable to 1 million. Gujarat Plant: An investment of Rs.175 crore has been approved to add a capacity of 4,00,000 electric compressors per year. The expansion coupled with regulatory tailwinds should drive the growth for the company.
OUTLOOK & VALUATION
Subros is evolving from a localized assembler to a technology-led thermal solutions provider. With a pristine balance sheet (Debt/Equity ~0.04), strong return ratios (ROCE ~20%), and a capex cycle funded primarily through internal accruals, the company offers a favorable risk-reward ratio. We believe the market has yet to fully price in the earnings delta from the truck AC mandate and the railway vertical, presenting a strategic entry opportunity. We expect EPS of Rs.29 for FY27 and have assigned a P/E multiple of 31x to arrive at a price target of Rs. 902 which provides an upside of ~25% within 18 to 24 months from the current market price of Rs.720.
Please refer disclaimer at https://www.sushilfinance.com/Disclamier/disclaimer
Member : BSE/ NSE/ MSEI. SEBI Registration No.-INZ000165135.
