“Subros (SUBR) reported better-than-expected results for 4QFY2012, driven by strong volume growth and margin expansion on account of localization benefits. Reported net profit increased significantly, benefitting from exceptional income of Rs29cr (~65% of PBT). Going ahead, we expect passenger car demand to improve, led by easing of interest rates, thereby benefitting SUBR. We recommend Accumulate on the stock.”
“SUBR reported strong 21.5% yoy (45.4% qoq) growth in its net sales to Rs369cr, driven largely by a 17.2% yoy (47.7% qoq) jump in net volumes. Net average realization also increased strongly by 5.3% yoy (flat qoq) during the quarter. Volume performance benefited from strong sequential volume growth at Maruti Suzuki (major customer). The company’s operating margin surprised positively as it expanded by 254bp yoy (295bp qoq) to 11.4%, led by raw-material cost savings (raw-material to sales ratio declined by 250bp yoy) due to commencement of local production of certain components (mainly evaporators). However, a 90bp yoy increase in staff cost restricted further margin expansion. Led by strong operating performance and exceptional income of Rs29cr (profit on sale of immovable property), net profit registered significant 221.2% yoy growth to Rs35cr. Depreciation expense increased sharply by 78.9% yoy (59.2% qoq) during the quarter.”
“We expect revival in the company’s volumes in FY2013E, led by improvement in demand for passenger cars with the easing of interest rates. Further, we expect margins to remain stable, led by localization benefits. Thus, we recommend Accumulate on the stock with a target price of Rs36, valuing SUBR at 7x FY2014E earnings,” says Angel Broking research report.
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