Buy Subros; target of Rs 310: HDFC Securities

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HDFC Securities' research report on Subros

We upgrade Subros to BUY (ADD earlier) as the EBITDA margin surprised at 11.7% (vs 9.5% in FY20), led by higher localisation levels. The management highlights that the double-digit margin range is sustainable, driven by its cost-cutting initiatives and improving production levels. We believe that the parts supplier would benefit from a revival in passenger car volumes and the company’s diversification initiatives. Subros is scaling up its presence in home ACs and railways segment (under the Make in India theme).

Outlook

We raise our FY22/23 estimates by ~19% to factor in improving margin outlook. We value the stock at 21x (in line with its average P/E multiple) and set a revised target price of Rs 310, based on Sep-22 EPS. Key risks: slower economic recovery in India, delayed scale-up in localisation levels.

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