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B l e a k p e r f o r m a n c e ; o u t l o o k o p t i m i s t i c …
Subros Q3FY12 results were below our estimates. The top line came
slightly above our estimates at | 253.8 crore (I-direct estimate: | 247.7
crore) reflecting a decline of 7.1% YoY owing to ~13.0% YoY slide in
volumes. On a sequential basis, Subros posted a 9.3% volume growth
indicative of the gradually ramp up in production of its major client Maruti
coupled with strong performance of clients like Tata Motors and M&M.
However, the topline growth was restricted by realization fall of 3.4%
QoQ. The EBITDA margins came inline with our expectations at 8.6% (up
103bps YoY and 55bps QoQ) owing to benefits from component
localization strategy resulting in lesser dependence on Japanese imports.
The personnel costs came higher at |22.8 crore primarily due to
increased localization activities. The reported PAT for the quarter came in
at | 2.1 crore (down 62.5% YoY and 33.7% QoQ) owing to higher than
expected depreciation and interest costs.
ƒ Vendor hedging by Maruti expected to curtail forex impact
Maruti Suzuki has obtained special permission from the RBI to obtain
foreign exchange cover on behalf of its key suppliers like Subros. Maruti
procures ~90% of its component requirements locally, but many vendors
in turn import critical parts, mostly from Japan. For example,
compressors used by Subros in its air conditioning system are locally
assembled, but the piston used in it is imported from Japan. Currently,
Maruti compensates vendors for the forex losses incurred on the import
of component parts and thereby providing little incentive for localization.
But now, by hedging forex exposure and getting them to share the cost of
the cover, vendors are looking at localise sourcing more aggressively.
The benefits of the strategy are expected to flow from FY13E.
V a l u a t i o n
We expect margin expansion to continue as localisation strategy
mitigates input cost pressures. Moreover, we expect a rebound in the PV
segment in FY13E on a smaller base with key client Maruti expected to
post ~20% volume growth. At the CMP of | 26, the stock is trading at
9.6x FY12E EPS and 4.6x FY13E EPS. We have valued it at 5.0x FY13 EPS
of | 5.7 to arrive at a target price of | 29 implying a potential upside of
12%. We maintain our BUY rating on the stock
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Click here for PDF LINK
B l e a k p e r f o r m a n c e ; o u t l o o k o p t i m i s t i c …
Subros Q3FY12 results were below our estimates. The top line came
slightly above our estimates at | 253.8 crore (I-direct estimate: | 247.7
crore) reflecting a decline of 7.1% YoY owing to ~13.0% YoY slide in
volumes. On a sequential basis, Subros posted a 9.3% volume growth
indicative of the gradually ramp up in production of its major client Maruti
coupled with strong performance of clients like Tata Motors and M&M.
However, the topline growth was restricted by realization fall of 3.4%
QoQ. The EBITDA margins came inline with our expectations at 8.6% (up
103bps YoY and 55bps QoQ) owing to benefits from component
localization strategy resulting in lesser dependence on Japanese imports.
The personnel costs came higher at |22.8 crore primarily due to
increased localization activities. The reported PAT for the quarter came in
at | 2.1 crore (down 62.5% YoY and 33.7% QoQ) owing to higher than
expected depreciation and interest costs.
ƒ Vendor hedging by Maruti expected to curtail forex impact
Maruti Suzuki has obtained special permission from the RBI to obtain
foreign exchange cover on behalf of its key suppliers like Subros. Maruti
procures ~90% of its component requirements locally, but many vendors
in turn import critical parts, mostly from Japan. For example,
compressors used by Subros in its air conditioning system are locally
assembled, but the piston used in it is imported from Japan. Currently,
Maruti compensates vendors for the forex losses incurred on the import
of component parts and thereby providing little incentive for localization.
But now, by hedging forex exposure and getting them to share the cost of
the cover, vendors are looking at localise sourcing more aggressively.
The benefits of the strategy are expected to flow from FY13E.
V a l u a t i o n
We expect margin expansion to continue as localisation strategy
mitigates input cost pressures. Moreover, we expect a rebound in the PV
segment in FY13E on a smaller base with key client Maruti expected to
post ~20% volume growth. At the CMP of | 26, the stock is trading at
9.6x FY12E EPS and 4.6x FY13E EPS. We have valued it at 5.0x FY13 EPS
of | 5.7 to arrive at a target price of | 29 implying a potential upside of
12%. We maintain our BUY rating on the stock
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