Buy Subros; target of Rs 415: Khambatta Securities

HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."

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26 Aug, 2025 12:21

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Khambatta Securities' research report on Subros

The Operating Revenue of Subros Ltd stood at ₹ 529.5 crores for the 2Q FY22 as compared to ₹458.1 crores in the same quarter last year. On a sequential basis, the Revenue has seen a growth of 10.2%. There has been a significant drop in the EBITDA (35% y-o-y decline) to ₹ 34.7 crores from the ₹ 53.5 crores reported in 2QFY21. The increase in commodity prices, container cost, Packing and Freight cost, Diesel cost and the product mix has led to a ~512 bps y-o-y decline in the EBITDA margin. There has been a marginal improvement of ~98 bps in 2QFY22 over 1QFY22. The Other income has seen a dip due to settlement of Foreign liabilities and an annual increment given to employees in April 2021 has led to the rise in employee cost during the quarter. The company has reported Net Profit de-growth of 72.1% y-o-y from ₹ 17.73 crores in 2QFY21 to ₹ 4.95 crores in 2QFY22. The Net Profit margins fell ~300 bps to 0.9% (3.9% in 2QFY21) during the 3 months ended September 21.

Outlook

The stock currently trades at an attractive forward P/E level of 23x FY24E EPS. Assigning a target multiple of 27x FY24E EPS, our valuation generates a price target of ₹ 415, informing a BUY rating with an upside potential of 17% from the current levels.

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