Buy Subros; target of Rs 57: Angel Broking

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Buy Subros; target of Rs 57: Angel Broking

Angel Broking is bullish on Subros and has recommended buy rating on the stock with a target of Rs 57 in its November 2, 2010 research report.

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Angel Broking is bullish on Subros and has recommended buy rating on the stock with a target of Rs 57 in its November 2, 2010 research report.

"Subros reported higher-than-expected growth of 27.5% yoy in net sales to Rs 278 crore (Rs 218cr) for 2QFY2011. Growth was primarily on the back of ~30% growth in volumes. The company, however, registered a substantial 387bp yoy contraction in EBITDA margin on account of a 435bp yoy rise in raw-material costs. Input costs increased due to higher raw-material prices and adverse currency movement during the quarter (Rupee v/s Yen). Thus, net profit declined by 27.1% yoy to Rs 4.9 crore (Rs 6.7 crore), despite robust volume growth."

"For 2QFY2011, Subros reported subdued performance on the bottom-line front, despite healthy volume growth. Average net realisation registered a marginal decline yoy. Net profit declined substantially due to contraction in operating margin. However, owing to better growth visibility in the segment and reasonable valuations, we maintain a Buy on the stock."

"We estimate the company's volumes to post a CAGR of ~17% over the next two years, considering the increasing requirements of its OEM customers such as Maruti and Tata Motors and potential new client wins from the PV and CV segments. However, we expect realisations to be stable or decline marginally due to the aggressive pricing adopted by OEMs. Thus, we estimate Subros to post EPS of Rs 4.2 for FY2011E and Rs 5.7 for FY2012E. At the CMP of Rs 46, the stock is trading at 11.1x FY2011E and 8.1x FY2012E earnings. We maintain Buy on the stock with a Target Price of Rs 57," says Angel Broking research report.

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To read the full report click on the attachment