Accumulate Subros; target of Rs 40: Angel Broking

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Accumulate Subros; target of Rs 40: Angel Broking

Angel Broking is bullish on Subros and has recommended accumulate rating on the stock with a target of Rs 40 in its May 2, 2011 research report.

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RELATED NEWS Accumulate Godrej Consumer; target of Rs 447: Angel Broking Buy Bank of India; target of Rs 629: Prabhudas Lilladher Buy Mundra Port; target of Rs 175: KRChoksey ALSO READ See previous views by Angel Broking See what other Experts & Brokerages are saying about Subros See messages about Subros Subros BSE | NSE 30/05/12 Are Mutual Funds betting on Subros?

Angel Broking is bullish on Subros and has recommended accumulate rating on the stock with a target of Rs 40 in its May 2, 2011 research report.

"Subros reported healthy performance for 4QFY2011, backed by volume growth following strong OE volumes, increased average realisation and tax-benefits on account of higher R&D spends. Owing to better growth visibility in the segment and reasonable valuations, we upgrade our recommendation on the stock to Accumulate from Neutral."

"Subros reported 21.7% yoy and 11.1% qoq growth in net sales to Rs 303.7 crore, driven by 17.2% yoy and 9.7% qoq growth in volumes following strong OE sales. Average net realisation grew by 3.9% yoy during the quarter. Operating margin registered a 158bp yoy contraction to 8.9%, on account of a 134bp and 136bp yoy increase in rawmaterial cost and other expenditure, respectively. However, operating margin expanded by 148bp qoq as the company commenced local production of evaporators as an import substitute, which helped in reducing raw-material cost marginally as compared to 3QFY2011. Net profit posted a 21.5% yoy and 98.6% qoq increase to Rs 11 crore mainly due to lower tax outgo. Tax rate during the quarter declined on account of tax benefits that the company enjoyed on R&D spends."

"We estimate Subros' volumes to post a ~13% CAGR over FY2011-13E, considering the increasing requirements of its OE customers such as Maruti and Tata Motors and potential new client orders in the PV and CV segments. However, we expect realisation to remain stable due to the aggressive pricing adopted by OEMs. At Rs 35, the stock is trading at reasonable valuations of 8x FY2012E and 7x FY2013E earnings. We recommend Accumulate on the stock with a target price of Rs 40, valuing it at 8x FY2013E earnings," says Angel Broking research report.

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To read the full report click on the attachment