Dolat Capital is bullish on Subros has recommended buy rating on the stock with a target price of Rs 231 in its research report dated June 30, 2020.
Dolat Capital's research report on Subros
Subros reported a decent performance in Q4FY20, despite several headwinds, including moderation in PV segment, impact of lockdown and input cost pressures. Revenue declined 11.5% YoY to Rs 4.5bn led by slowdown in PV segment and absence of revenue from the home AC segment. EBITDA margin contracted by 153bps YoY to 9.1% on account of negative operating leverage. The Company is the key player in the Automotive AC market and commands ~45% market share in PV segment. We expect the company to be a key beneficiary of market share of MSIL owing to traction in lower end cars. MSIL accounts for ~70% of revenue for Subros. The company is focused on deleveraging its balance sheet (the net debt fell to Rs 300mn in FY20 from Rs 3.6bn in FY18), which should improve profitability in coming years. The Company has resumed operation at all plants in phased manner and plant utilization stood at 30-40% in June-20, in line with OEM demand.
Given the expected recovery in PV sales from Q2FY21 onwards, incremental revenue from new business verticals, reduction in interest cost, and benefit from the lower corporate tax rate, we estimate Subros to potentially report a PAT CAGR of 70% over FY21E-FY23E. We roll forward our target multiple to FY23E and value the stock at Rs 231 (based on 17x FY23E EPS). Recommend BUY.
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