Buy Subros; target of Rs 435: HDFC Securities

HDFC Securities' research report on Subros

Subros delivered strong numbers in 2QFY19 despite several headwinds like slowdown in PVs segment and unfavorable currency movement. Strong growth was attributed to acquiring new business(like compressor for Tata Tiago and Nexon) in core PV AC segment, shift in demand towards petrol variants and strong revenue from other verticals like bus/truck ACs and radiators, Revenue/EBITDA rose 14/9% YoY (beat est). EBITDA margin at 10.5% (-42bps YoY in line expectation), increase in other expenses (led by higher freight and selling & distribution expenses) was offset by oplev. APAT jumped 48% YoY at Rs 238mn supported by lower depreciation (-13% YoY) and tax.

Outlook

We expect Subros to generate FCF of Rs ~4bn over FY18-21E (18% of current EV). This will help to deleverage its balance sheet. Expect EPS growth of 32% over FY18-21E. Maintain BUY with TP Rs 435(20xSep-20E EPS).