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Subros reported poor performance for 2QFY2012 on account of lower volumes
and higher interest cost. The company’s volumes declined during the quarter, led
by slowdown in the domestic passenger vehicle industry. We have revised our
volume estimates downwards to factor in the sluggish demand scenario for
passenger vehicles in 2HFY2012 due to high interest rates and rising fuel prices.
We recommend a Neutral rating on the stock.
Performance impacted by lower volumes and higher interest expense: For
2QFY2012, net sales registered a 13.6% yoy (4.6% qoq) decline to `240.5cr,
largely due to the 24% yoy (9.8% qoq) decline in volumes. Volumes declined due
to general slowdown in the passenger car industry and slowdown in volumes of its
major clients, Maruti Suzuki and Tata Motors. Average net realization, however,
grew by 13.8% yoy (5.7% qoq), arresting the further top-line decline. Operating
margin witnessed an expansion of 116bp yoy to 7.9%, led by a 716bp yoy fall in
raw-material expenses. On the other hand, a 279bp and 322bp yoy increase in
other expenditure and staff cost restricted further yoy margin expansion.
Sequentially, operating margin contracted by 202bp yoy because of the sharp
increase in staff cost. Net profit registered a substantial decline of 35.9% yoy
(61% qoq) to `3.1cr mainly due to the 44.2% yoy increase in interest expense.
Outlook and valuation: We estimate Subros to register a decline in its volume in
FY2012E, led by slowdown in the passenger vehicle industry. Further, higher
interest expense on account of increasing debt levels will negatively affect the
company’s bottom line. At `27, the stock is trading at 8.2x FY2012E and 6.6x
FY2013E earnings. We recommend a Neutral rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Subros reported poor performance for 2QFY2012 on account of lower volumes
and higher interest cost. The company’s volumes declined during the quarter, led
by slowdown in the domestic passenger vehicle industry. We have revised our
volume estimates downwards to factor in the sluggish demand scenario for
passenger vehicles in 2HFY2012 due to high interest rates and rising fuel prices.
We recommend a Neutral rating on the stock.
Performance impacted by lower volumes and higher interest expense: For
2QFY2012, net sales registered a 13.6% yoy (4.6% qoq) decline to `240.5cr,
largely due to the 24% yoy (9.8% qoq) decline in volumes. Volumes declined due
to general slowdown in the passenger car industry and slowdown in volumes of its
major clients, Maruti Suzuki and Tata Motors. Average net realization, however,
grew by 13.8% yoy (5.7% qoq), arresting the further top-line decline. Operating
margin witnessed an expansion of 116bp yoy to 7.9%, led by a 716bp yoy fall in
raw-material expenses. On the other hand, a 279bp and 322bp yoy increase in
other expenditure and staff cost restricted further yoy margin expansion.
Sequentially, operating margin contracted by 202bp yoy because of the sharp
increase in staff cost. Net profit registered a substantial decline of 35.9% yoy
(61% qoq) to `3.1cr mainly due to the 44.2% yoy increase in interest expense.
Outlook and valuation: We estimate Subros to register a decline in its volume in
FY2012E, led by slowdown in the passenger vehicle industry. Further, higher
interest expense on account of increasing debt levels will negatively affect the
company’s bottom line. At `27, the stock is trading at 8.2x FY2012E and 6.6x
FY2013E earnings. We recommend a Neutral rating on the stock.
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