Subros: In-Line Q1-FY19, Maintain Buy, Several Levers of Strong Earnings Growth, High Mgt Pedigree

SUBROS: Strong Q4-FY18 – Re-Iterate ‘Buy’ Investment Thesis

Independent Research Analyst

Mamta Verma

DC India Research

DC India Research LLP (DCIR) is based out of Mumbai, India.

We specialize in providing customized, independent research across listed and unlisted companies in India across equities and credit including sectoral research. Our customers include India focussed PE funds, special situation funds, domestic AMCs, Wealth Advisory& PMS firms, Rating Agencies & Investment Advisors. 

The DCIR board consists of prominent names from the industry as well as CIO’s of Hedge funds.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/subros-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:7522:1">Subros Ltd (SUBR IN)</a> is market leader in automotive AC parts with a 42% market share. MSIL is the largest customer (contributed 67% of 9m-FY20); it is also largest supplier to OEMs like Tata Motors and M&amp;M. Moreover, a strong parentage (Denso Corp. 20% stake) provides Subros access to Denso’s technological prowess and thus a strong competitive edge.
Subros trades at 36xs FY20 EPS before E.O. and 19xs FY21 EPS of Rs. 15/- and 14.5xs FY22 EPS Rs. 20/-. Valuing the stock at 18-20xs average of FY21-22E EPS gives us fair value in the range of Rs. 315-350/- share with an upside of 20%+ at higher-end.
We would recommend adding the stock at every price correction as we think the company is amongst the best positioned in the auto-ancillary sector given its strong business moat with dominant share in the auto AC segment, incremental revenue diversification to non-Car segments, strong management pedigree and healthy balance sheet.

Subros Ltd (SUBR IN) is market leader in automotive AC parts with a 42% market share. MSIL is the largest customer (contributed 67% of 9m-FY20); it is also largest supplier to OEMs like Tata Motors and M&amp;M. Moreover, a strong parentage (Denso Corp. 20% stake) provides Subros access to Denso’s technological prowess and thus a strong competitive edge.
Subros trades at 36xs FY20 EPS before E.O. and 19xs FY21 EPS of Rs. 15/- and 14.5xs FY22 EPS Rs. 20/-. Valuing the stock at 18-20xs average of FY21-22E EPS gives us fair value in the range of Rs. 315-350/- share with an upside of 20%+ at higher-end.
We would recommend adding the stock at every price correction as we think the company is amongst the best positioned in the auto-ancillary sector given its strong business moat with dominant share in the auto AC segment, incremental revenue diversification to non-Car segments, strong management pedigree and healthy balance sheet.

Subros – Q3-FY20: Buy on Correction – Signs of Headwinds Easing for Principal OEM Maruti Augurs Well