Dear All,
Forwarding you the Result Update on Subros with an Accumulate recommendation and a Target Price of `40 (12 months).
Subros reported healthy performance for 4QFY2011, backed by volume growth following strong OE volumes, increased average realisation and tax-benefits on account of higher R&D spends. Owing to better growth visibility in the segment and reasonable valuations, we upgrade our recommendation on the stock to Accumulate from Neutral.
Net sales up 21.7% yoy; profitability up 21.5% yoy: Subros reported 21.7% yoy and 11.1% qoq growth in net sales to `303.7cr, driven by 17.2% yoy and 9.7% qoq growth in volumes following strong OE sales. Average net realisation grew by 3.9% yoy during the quarter. Operating margin registered a 158bp yoy contraction to 8.9%, on account of a 134bp and 136bp yoy increase in raw-material cost and other expenditure, respectively. However, operating margin expanded by 148bp qoq as the company commenced local production of evaporators as an import substitute, which helped in reducing raw-material cost marginally as compared to 3QFY2011. Net profit posted a 21.5% yoy and 98.6% qoq increase to `11cr mainly due to lower tax outgo. Tax rate during the quarter declined on account of tax benefits that the company enjoyed on R&D spends.
Outlook and valuation: We estimate Subros’ volumes to post a ~13% CAGR over FY2011–13E, considering the increasing requirements of its OE customers such as Maruti and Tata Motors and potential new client orders in the PV and CV segments. However, we expect realisation to remain stable due to the aggressive pricing adopted by OEMs. At `35, the stock is trading at reasonable valuations of 8x FY2012E and 7x FY2013E earnings. We recommend Accumulate on the stock with a target price of `40, valuing it at 8x FY2013E earnings.
Kindly click on the following link to view the Report.
If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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