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2QFY20 revenues (-12% YoY) were impacted by weak demand environment. Subros continues to gain market share in pass car ACs (currently at 46%) and is well positioned for any pick up in industry demand over FY21/22. We are lowering our estimates by ~5% to factor in the 2Q results. Maintain BUY with a revised TP of Rs 270 (at 17x Sep-21 EPS).
Despite the slowdown in PVssegment Subros’ core PV AC business managed to grew in single digit in 1Q led by shift in demand towards petrol variants plus rising wallet share in key OEMs. Moreover, traction in home AC segment (led by increasing localization and increased demand from online players) is mitigating the impact of slowdown in Automotive sales. The net debt reduced to Rs 2bn in 1QFY20, from Rs 3.6bn in FY18, which will aid profitability in FY20/21. We recommend Buy, with a TP Rs 260 (based on 18x FY21E EPS).
Over FY19-21E, we expect, Subros to report 11.4% sales CAGR and 33.0% PAT CAGR. The Company is expected to report EPS of Rs16.2 and Rs21.5 in FY20E and FY21E respectively. At CMP of Rs221, Subros stock is quoting at PE of 10.3xFY21 earnings. We maintain our BUY rating on the stock with a revised price target of Rs323 (PER of 15xFY21E earnings).
We cut our revenue/ PAT estimates for FY20E and FY21E by 3%/12% and 5%/13% respectively to factor in weak Q4 results and auto industry slowdown. We expect revenue/ PAT CAGR of 10%/ 24% over FY19- 21E. The stock is trading at 16.2x FY20E and 13.6x FY21E EPS. We maintain our Buy rating with revised target price of INR 367/share (20x FY21E EPS).
We remain positive on Subros growth prospects in its Car and Non Car business segment. We expect, Subros to report 12.3% sales CAGR and 35.6% PAT CAGR over FY19-21E. At CMP of Rs253, Subros stock is quoting at PER of 11.3xFY21E earnings. We maintain our BUY rating on the stock with a revised target price of Rs336 (PER of 15xFY21E Earnings).
Subros posted muted results in 4QFY19, as it was affected by the slowdown in the PV segment. Revenue/EBITDA declined 6/14% YoY, respectively. EBITDA margin was 10.6% (-92/-52bps YoY/QoQ), due to a weaker product mix and a negative operating leverage. The management has guided for a 5-7% growth in the PV AC business and an overall growth of 10-11% in FY20. The net debt reduced to Rs 1.5bn in FY19, from Rs 3.6bn in FY18, which will aid profitability in FY20/21. We recommend Buy, with a TP Rs 323 (based on 21x E EPS).
We recently attended the analyst meet of Subros Ltd in Delhi. Apart from its core Car AC business, the Company plans to pursue aggressive growth in Non Car AC segments like Truck Cabin AC, Radiator supply to Maruti, Railway AC’s and Refer AC. Management reiterated its earlier stance of achieving ~Rs30bn sales by FY22 indicating 13% sales CAGR over FY19-22E. Over FY19-21E, we expect, Subros to report 14% sales CAGR and 37.7% PAT CAGR. At CMP of Rs250, Subros stock is quoting at PER of 10.6xFY21E earnings. We retain our BUY rating on the stock with a revised target price of Rs329 (PER of 14xFY21E Earnings).We roll over our price target to FY21 Earnings Estimates. Following are the key takeaways from the Analyst meet:
We re-iterate our Buy on the stock as the increased commitment by Denso will ensure that Subros is well positioned to benefit from technology shifts in the thermal products domain. We expect the core PV AC business to report steady growth, led by volume growth at MSIL, shift in demand towards petrol variants coupled with rising wallet share in other key OEMs. Maintain BUY with TP Rs 309(17xDec-20E EPS).
During 9MFY19, Subros has increased its market share in Indian Car AC market from 39% to 42% despite sluggish PV market growth (2% production increase YoY). This is on account of addition of new business (from M &M and Maruti) and change in petrol- diesel mix from 55:45 to 75:25 wherein company has a leadership position in petrol engine segment. It’s non Car AC segment also continues to grow faster on account of addition of Truck AC and radiator business. During the quarter, Denso has increased its stake in Subros from 13% to 20%. We view this as a highly positive development for Subros as this alliance is most likely to open-up further business opportunities in domestic and international market. From medium term perspective, we remain positive on Subros growth prospects. Over FY18-20E, we expect, Subros to report 14.5% sales CAGR and 39.8% PAT CAGR. At CMP of Rs236, Subros stock is quoting at PER of 12.6xFY20E earnings. We maintain our BUY rating on the stock with a revised target price of Rs299 (PER of 16xFY20E Earnings).
SOURCE: Data from D'Market via Quandl. Intraday data delayed 15 minutes.
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