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Subros -Margins squeeze ahead…
Subros reported its Q3FY11 numbers below our estimates as topline
was at | 273.3 crore (I-direct estimate: | 297.2 crore), a decline of 1.8%
QoQ as volumes declined 4.6% QoQ. However, realisation improved 3%
as currency fluctuations eased in Q3FY11 and helped shore up declines.
Input costs saw a decline of ~220 bps QoQ mainly due to the lag effect
support of OEMs (Maruti Suzuki) in Q2FY11 and increased forex impact.
EBITDA margins improved to 7.6% (up 70 bps QoQ) though it could
have been much higher if employee expenses had not seen a 70 bps
hike sequentially. The reported PAT was at | 5.5 crore (I-direct estimate:
| 9.1 crore). It was mainly pushed further down due to higher tax outgo
for Q3FY11 along with weaker operating metrics.
Volume growth to continue but competition to increase…
The strong passenger vehicle (PV) demand (~27% YTD) from its major
clients like Maruti Suzuki, Tata Motors and M&M has led the volume
growth of 19.7% YoY. The company is facing stiff competition from larger
and newer entrants in the HVAC segment, which has seen problems in
addition of new clients towards their respective latest model launches.
Forex movement, commodity prices, margins remain under pressure…
The company continues to have a strong foreign exchange exposure with
~60% of imported content denominated in yen, which continues to
remain at lifetime high levels (US$/JPY:~82). Commodity prices have not
shown any imminent signs of softening and Subros is unable to use an
incremental degree of any operating leverage to cushion these declines.
Valuation
Domestic demand continues to be strong. However, due to increased
competition in HVACs and lower operating performance we are cautious
in the near term. At the CMP of | 38, the stock is trading at 9.0x FY11E
EPS of | 4.2 and 7.0x FY12E EPS of | 5.4. We have valued it at 6.5x FY12
EPS of | 5.4 to arrive at a target price of | 35. Our target price implies a
downside risk of 8%. We have changed our rating from BUY to REDUCE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Subros -Margins squeeze ahead…
Subros reported its Q3FY11 numbers below our estimates as topline
was at | 273.3 crore (I-direct estimate: | 297.2 crore), a decline of 1.8%
QoQ as volumes declined 4.6% QoQ. However, realisation improved 3%
as currency fluctuations eased in Q3FY11 and helped shore up declines.
Input costs saw a decline of ~220 bps QoQ mainly due to the lag effect
support of OEMs (Maruti Suzuki) in Q2FY11 and increased forex impact.
EBITDA margins improved to 7.6% (up 70 bps QoQ) though it could
have been much higher if employee expenses had not seen a 70 bps
hike sequentially. The reported PAT was at | 5.5 crore (I-direct estimate:
| 9.1 crore). It was mainly pushed further down due to higher tax outgo
for Q3FY11 along with weaker operating metrics.
Volume growth to continue but competition to increase…
The strong passenger vehicle (PV) demand (~27% YTD) from its major
clients like Maruti Suzuki, Tata Motors and M&M has led the volume
growth of 19.7% YoY. The company is facing stiff competition from larger
and newer entrants in the HVAC segment, which has seen problems in
addition of new clients towards their respective latest model launches.
Forex movement, commodity prices, margins remain under pressure…
The company continues to have a strong foreign exchange exposure with
~60% of imported content denominated in yen, which continues to
remain at lifetime high levels (US$/JPY:~82). Commodity prices have not
shown any imminent signs of softening and Subros is unable to use an
incremental degree of any operating leverage to cushion these declines.
Valuation
Domestic demand continues to be strong. However, due to increased
competition in HVACs and lower operating performance we are cautious
in the near term. At the CMP of | 38, the stock is trading at 9.0x FY11E
EPS of | 4.2 and 7.0x FY12E EPS of | 5.4. We have valued it at 6.5x FY12
EPS of | 5.4 to arrive at a target price of | 35. Our target price implies a
downside risk of 8%. We have changed our rating from BUY to REDUCE.
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