For FY08, Subros recorded a modest performance as the automobile sector witnessed a slowdown coupled with a steep rise in the commodity prices.
During FY08, more than 60% of the company’s revenues came from the PV segment, which grew 12% y-o-y to 17,65,039 (1,578,431) vehicles.
Going ahead, we expect the PV segment to post a CAGR of 12% over FY08-10E. On the back of this, we expect the AC and FMA segments to clock a CAGR of 14% in the mentioned period. Overall, we estimate net sales to grow at a CAGR of 12% over FY08-10E.
Despite tough times, Subros managed to improve EBITDA margins in FY08 by 110bp to 12.6% (11.5%) owing to the y-o-y decline in raw material costs (as % to sales) by 180bp to 69.1%.
Raw material cost declined substantially as the company substituted the imported raw material — Completely Knocked Down (CKD) units — with indigenous material. We expect EBITDA Margins to remain at 12-12.5% levels as cost pressures from the labour front would off-set the savings in raw materials.
For FY08, PAT increased marginally by 3% to Rs28.6cr due to higher depreciation and interest expenses. Depreciation y-o-y increased 18% to Rs32.5 crore due to capitalization of Rs38.6 crore.
We estimate Subros to register an EPS of Rs5.2 in FY09E and Rs6.4 in FY10E. At the current market, the stock is trading at 5.8x FY09E and 4.7x FY10E EPS. We maintain a BUY on the stock with a target price of Rs42.