PICK OF THE WEEK:
Subros Ltd
BSE Code: 517168
Face Value: Rs.2
CMP: Rs.40.45
Book Value: Rs.34.53
EPS: Rs.4.96
P/E: 8.96
Industry P/E: 10.07
Dividend: 35%
Short Term Target: Rs.45-46.
Introduction: Subros Limited is
Shareholding Pattern: The promoters hold 40.01% while the general public holds 59.99%. Out of the public holding, Denso Corporation holds 7,800,000 shares or 13 %; while Suzuki Motors Corporation holds 7,800,000 shares or 13 % shares of the company. Hence out of 59.99% public holding 26% is blocked for trade—this gives premium value to the shares of the company. Moreover DIIs hold 1.48% of the shares of the company.
Financials: For FY10, the company came out with wonderful set of numbers. The total income of the company for FY10 came out to be Rs.906.61 Cr as against Rs.696.38 Cr. The net profit of the company for FY10 came out to be Rs.27.73 Cr as against Rs.13/17 Cr in the same period previous year. The EPS of the company for FY10, on a very small equity of Rs.12 Cr came out to be Rs.4.62 as against Rs.2.20 in the same period previous year. Moreover, both the NPM and GPM improved in FY10 when considered on Y-o-Y basis.
For Q2FY10 the total income of the company came out to be Rs.278.71 Cr as against Rs.218.50 Cr in the same period previous year. However, the net profit of the company decreased to Rs.4.87 Cr in Q2FY10 as against Rs.6.68 Cr in the same period previous year.
Triggers:
· During FY10, the Company scaled new heights and set several new benchmarks in terms of sales and overall operations. The company has sold 747,707 number of A.C. systems as against 618,752 number, in the previous year giving an increase of 21%. The Company was also able to increase its profitability by successfully implementing various cost reduction programs in areas of Material Cost through Global Sourcing / Value Engineering and reduction in manufacturing costs.
· The Company has also started the process of setting up its facility in Sanand,
· The Company is further expanding into newer segments relating to Thermal Engineering Products for Automobiles Sector or for other industrial uses like radiators, Engine cooling modules, Bus A/C, Rail A/C etc. Trial sales for Radiators have already commenced.
· The Company has finalized for setting up a design Joint venture Company in
· During FY10, THAI SUBROS LIMITED subsidiary Company in Thailand, achieved a turnover of THB 268.40 Lacs as against THB 9.42 Lacs during the last financial year, the sales has increased substantially and the Company was having Profit before tax of THB 19.35 Lacs as against loss of THB 12.11 Lacs during the previous year.
· We can expect PV segment to post a healthy CAGR of ~14% over FY2010–12E. Given the company’s dependence on the PV segment, we can expect it to gain from
· As a market leader and largest player in the domestic car AC market, Subros enjoys more than 40% market share. The company has managed to garner high market share on the back of its strong technological expertise backed by Denso and Suzuki. Further, in view of growing PV volumes, the company has ramped up its capacity to 1 (one) mn units per annum and proposes to expand capacity to 1.5 mn units per annum in the first phase and further to about 2 mn units per annum in the next two-three years. The capacity expansion will enable Subros Ltd to assure volume to its OEM customers and to capture increased demand, as it is already operating at ~93% of its enhanced capacity.
· The Company, considering the growth in the Automobile sector in general, has planned its capacity expansion, to cater to the increased demand from existing as well as new Automobiles manufacturers in
· Angel Broking has reportedly recommended a ‘Buy’ on Subros Ltd with a price target of Rs.57 as against the market price of Rs.40.45 in its report dated Nov 2, 2010. On the other hand, Sharekhan (in its report dated Nov. 18, 2010) has also recommended a `Buy` on Subros Ltd with a price target of Rs.53 as against the market price of Rs.40. 45.
Caution: Any upward movement in the commodity prices and further appreciation in the yen against the rupee could affect the margin going forward.
Chart Check and Conclusion: We can expect the company’s volumes to post a CAGR of 17% over the next couple of years, considering the increasing requirements of its OEM customers such as Maruti and Tata Motors and potential new client wins from the PV and CV segments. Moreover, the realizations are expected to be stable or decline marginally due to the aggressive pricing adopted by OEMs. The Q2FY2011 results were below the market expectations on account of a much lower than expected margin during the quarter. The operating profit margin for Q2FY11 declined by 227 basis points sequentially to 6.9%---the sharp dip in the margin was primarily on account of a high raw material cost. The company imports about 50% of its raw material from
However, the company is likely to see a robust volume growth on account of a strong demand in the passenger car segment and the de-bottlenecking of capacities of its major client, Maruti Suzuki. Besides, the company is also contemplating increasing supplies to Tata Nano, General Motors and Ford, which will bring in incremental volumes going forward. It is expected that the company would increase product localization and reduce its yen-denominated imports in H2FY2011. Higher localization in face could lead to margin expansion.
From the charts it has been found that most of the parameters are in buy mode. The scrip has a support around Rs.39-40 range, which will be difficult to break on the downside. Investors should buy the scrip around this support range and wait for a short term target of Rs.45-46. In the medium to long term the scrip could touch Rs.55-57. It is for those investors who do not want to take too much risk in the markets, but want to earn a steady income over a period.
Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.
The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.
Note: The scrip was recommended to the Paid Groups on 20-12-2010 at Rs.40.45. The scrip already gave good returns to the Paid Members.