Buy Subros; target of Rs 260: Dolat Capital

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Dolat Capital's research report on Subros

Subros 1QFY20, revenue beat estimate to ` 5.7bn (+7% YoY) led by wining new business (HVAC for new Wagon R and AC kit for Renault Nissan for Brazil facility) and incremental revenue from Home AC business (` 620mn). EBIDTA margin contracted by 111bpsYoY to 9.6 % on account of weaker product mix (low margin in home AC). Despite the slowdown in PVs segment 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 ` 2bn in 1QFY20, from ` 3.6bn in FY18, which will aid profitability in FY20/21.

Outlook

We recommend Buy, with a TP ` 260 (based on 18x FY21E EPS).

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