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M u t e d p e r f o r m a n c e ; v a l u a t i o n s a t t r a c t i v e . . .
Subros reported its Q2FY12 numbers that were slightly below our
estimates. The topline came in line with our expectation at | 240.5 crore
(I-direct estimate: | 242.1 crore), a dip of 13.6% YoY owing to a decline in
volumes caused by production issues faced by its major client Maruti.
Thus volumes declined ~8% QoQ at ~1.8 lakh units however
realisations/unit improved ~4% QoQ to | 13,360 with richer product mix
towards truck & bus segment for Tata Motors and M&M. The company
has started to reap the benefits from the strategy of higher degree of
localisation of parts like RS evaporators and heater core thus providing an
incremental ~720 bps costs saving on YoY basis at 70.4%. EBITDA
margins however declined sequentially to 8.1% (down 217 bps QoQ) as
higher personnel costs (up 138 bps QoQ) as localisation activities
increased domestically. Margins also suffered due to forex impact which
would be provided by key clients with a quarterly lag. The reported PAT
for Q2FY12 came in at | 3.2 crore (down 34.4% YoY and 60.1% QoQ).
ƒ Localisation strategy to reduce forex exposure
The completion of total localisation of components like RS evaporators
and heater core during the quarter is expected to reduce the forex
exposure. The benefit from this is expected to flow through in the coming
quarters. The personnel expenses increased on this account (up 323 bps
YoY) as localisation led to higher salary expenses.
ƒ Key patron Maruti hit by labour unrest
Subros supplies ~73% of its sales to Maruti Suzuki, 16% towards Tata
Motors with M&M contributing ~8% of sales & ~3% from others. Maruti’s
volumes for Q2FY12 were sharply down ~20% YoY as the Manesar
labour unrest led to a loss of ~29,000 units. This resulted in higher
inventory, fixed costs leading to a EBITDA margin slide of ~100 bps QoQ
V a l u a t i o n
We expect the company’s localisation practices to further moderate input
prices and comprehend the current slowdown in domestic automotive
space as a near term phenomenon. At the CMP of | 27, the stock is
trading at 4.0x FY13E EPS. We have valued the stock at 4.5x FY13 EPS of
| 6.9 to arrive at a target price of | 31 with a potential upside of 15%.We
maintain our BUY rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M u t e d p e r f o r m a n c e ; v a l u a t i o n s a t t r a c t i v e . . .
Subros reported its Q2FY12 numbers that were slightly below our
estimates. The topline came in line with our expectation at | 240.5 crore
(I-direct estimate: | 242.1 crore), a dip of 13.6% YoY owing to a decline in
volumes caused by production issues faced by its major client Maruti.
Thus volumes declined ~8% QoQ at ~1.8 lakh units however
realisations/unit improved ~4% QoQ to | 13,360 with richer product mix
towards truck & bus segment for Tata Motors and M&M. The company
has started to reap the benefits from the strategy of higher degree of
localisation of parts like RS evaporators and heater core thus providing an
incremental ~720 bps costs saving on YoY basis at 70.4%. EBITDA
margins however declined sequentially to 8.1% (down 217 bps QoQ) as
higher personnel costs (up 138 bps QoQ) as localisation activities
increased domestically. Margins also suffered due to forex impact which
would be provided by key clients with a quarterly lag. The reported PAT
for Q2FY12 came in at | 3.2 crore (down 34.4% YoY and 60.1% QoQ).
ƒ Localisation strategy to reduce forex exposure
The completion of total localisation of components like RS evaporators
and heater core during the quarter is expected to reduce the forex
exposure. The benefit from this is expected to flow through in the coming
quarters. The personnel expenses increased on this account (up 323 bps
YoY) as localisation led to higher salary expenses.
ƒ Key patron Maruti hit by labour unrest
Subros supplies ~73% of its sales to Maruti Suzuki, 16% towards Tata
Motors with M&M contributing ~8% of sales & ~3% from others. Maruti’s
volumes for Q2FY12 were sharply down ~20% YoY as the Manesar
labour unrest led to a loss of ~29,000 units. This resulted in higher
inventory, fixed costs leading to a EBITDA margin slide of ~100 bps QoQ
V a l u a t i o n
We expect the company’s localisation practices to further moderate input
prices and comprehend the current slowdown in domestic automotive
space as a near term phenomenon. At the CMP of | 27, the stock is
trading at 4.0x FY13E EPS. We have valued the stock at 4.5x FY13 EPS of
| 6.9 to arrive at a target price of | 31 with a potential upside of 15%.We
maintain our BUY rating on the stock.
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