Buy Subros; target of Rs 371: Khambatta Securities

Khambatta Securities' research report on Subros

Subros’s 1Q FY22 performance was affected by covid 2.0 and consequent lockdown in many states. Operations was suspended during May 21 as OEMs and dealers remained shut at several locations. However, the impact of covid in 1Q FY22 was much less severe than during 1Q FY21 as reflected in the robust improvement in numbers on a y-o-y basis. Raw material cost remained elevated on a y-o-y basis due to higher commodity prices and import logistic cost as well as product mix. On a q-o-q basis, profitablity suffered as sales declined. The sequential dent in margins was a result of negative operating leverage, driven by higher manpower cost and other expenses as a perctenage of operating revenues.

Outlook

Management guides double-digit revenue growth for FY22. The Subros stock has appreciated 33% since we initiated coverage with a BUY rating on 17 September 2020. We reiterate a BUY rating with a price target of Rs 371 (at 22.0x FY23E EPS) with a 15% upside as we make marginal downward revision of estimates based on updated data-points and outlook.

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