Khambatta Securities has given Buy recommendation for Subros with a target price of Rs. 385 in its research report issued on Jul 12, 2021

Khambatta Securities’ research report on Subros

With 65% of FY21 revenues coming from the Suzuki group (Maruti Suzuki and Suzuki Motor Gujarat combined), management expects the Suzuki group’s contribution to be 65% to 70% in the next 3 years. Tata Motors and Mahindra & Mahindra are amongst other major customers of Subros with the company commanding shares of ~20% and ~30% of the thermal products’ business generated from the OEMs. Management has a revenue target of Rs 100 crore from Home AC in FY22 (Rs 88 crore or 5% revenue contribution in FY21). With capacity utilisation of 50% to 55% in 4Q FY21, the Home AC unit has an annual production capacity of 2.5 lakh units with the potential to generate peak revenues of ~Rs 200 crore. Capex plans include Rs 110-110 crore / Rs 70 crore / Rs 65 crore in FY22/FY23/FY24 in brownfield expansion, leading to the expasnion of HVAC/compressor capacities from 20 lakh / 15 lakh units to 25-27.5 lakh / 20 lakh units.

Outlook

Basis expectations of robust sales growth, driven by buoyant end-market demand, and improvement in profitability, we reiterate a BUY rating with a price target of Rs 385 (at 22.0x FY23E EPS) and an upside of 18% from current levels.

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