Buy Subros; target of Rs 384: HDFC Securities

HDFC Securities is bullish on Subros has recommended buy rating on the stock with a target price of Rs 384 in its research report dated April 23, 2018.

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April 24, 2018 / 16:55 IST

26 Aug, 2025 12:21

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HDFC Securities' research report on Subros

SUBROS has corrected by nearly 30% over the last three months on concerns of Truck AC business. This was post the government’s policy change allowing blowers in trucks above 3.5T, instead of complete ACs. Since blowers are cheaper (by ~80% vs ACs) the boost to topline will be much lesser. However, we still believe this business will help add Rs 1.2-1.5bn from FY19 and grow faster than the rest of the business, given its nascent stage. Meanwhile, Subros’ core PV AC business will continue to deliver strong growth (14% CAGR over FY18-20E) helped by faster growth in Maruti, Tata Motors and M&M PV sales and wallet-market share gains. More importantly, growth potential of new businesses like Truck/Bus Aircon, radiators and Condensers is very high (~30% CAGR over the next 3-5 years) and provides scale and diversification. In 9MFY18, Subros saw 21/49% growth in Revenue/PAT. Key positives include (1) Steady volume growth ~8% in PVs over FY18E, plus rising wallet share at key OEMs (+400bps YoY increase in PV marketshare in FY18) driven by refreshes and new models like Swift, Dzire, Baleno, Brezza, Renault Kwid, Tata Tiago, (2) Strong traction in Truck Aircons and Radiators, and (3) ROE expansion with improvement in margin (4) Improving cash flows, leading to debt reduction.

Outlook
We expect EPS growth of 45% CAGR over FY18-20E led by 17% CAGR in top line, 70 bps margin expansion and 35% cut in interest cost. Upgrade from Neutral to BUY with TP of Rs 384 (20x FY20E EPS).

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