Accumulate Subros; target of Rs 370: Dolat Capital Market

Dolat Capital Market's research report on Subros

Driven by strong growth in core PV AC business and recovery in home ACs segment , Subros printed impressive numbers in 3QFY21. Revenue (+30% YoY, Rs. 6bn) and EBITDA (+37% YoY, Rs 663mn) beat expectations. Despite a fall in GM (225bps QoQ, 186bps YoY), EBITDA margin expanded to 11% (+62bpsYoY) led by operating leverage and cost control measures. Management expect gross margin to improve from next quarter due to pass on input cost to OEMs. We expect volume growth to continue in the PV segment led by traction in personal mobility and low base. MSIL’s low network inventory (less than 1 week) and robust order backlog (~200kk vehicle) will aid further volume growth. Home AC sales increased to Rs.240mn vs Rs.50mn in Q2FY21 while margin is under pressure due to fluctuation of input cost. We expect the Home AC segment will also show significant growth due to the ban on imports of AC’s with refrigerants. Current capacity for Home AC segment is 250-300k units and peak revenue may reach to Rs.2.5-3bn in next two- three years. The company is focused on deleveraging its balance sheet, Gross debt has also come down to Rs. 1bn in Q3 vs 1.4bn in 2Q.

Outlook

Given the strong momentum in PVs volume, recovery in CV segment, incremental revenue from new business verticals (especially from Home AC and railway) and sharp reduction in interest cost, we estimate Subros to report a PAT CAGR of 58% over FY21-FY23E. We increase our EPS by 17/13% for FY22/23E and upgrade target price to Rs 370 (based on 22x FY23E EPS). Recommend Accumulate.