Subros stock hits new all-time high on order win from Indian Railways

Automotive air-conditioning solution provider, Subros, witnessed a surge in its shares on Monday, reaching a new pinnacle, following the announcement of a new order win from Indian Railways. In an exchange filing on December 09 (Saturday), the company said it bagged a new order worth ₹25 crore from Indian Railways for the supply and commissioning of coach roof mounted air-conditioners. 

The company is already a supplier of Rail Driver cabin air conditioning systems to Indian Railways, and the focus on Coach Air-Conditioners is in line with the strategic direction to expand the company's business in the Railway Electric mobility segment.

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Following this development, the company's shares opened today's trade strongly at ₹530 apiece, 17.68% higher compared to the previous closing price of ₹450.35 apiece and extended their positive momentum in the early trade to record a new all-time high of ₹531. This year so far, the stock has skyrocketed nearly 70%, spiking from ₹298 to ₹507.

Founded in 1985 as a joint venture with the Suri family of India, DENSO Corporation & Suzuki Motor Corporation, Subros is the leading manufacturer of thermal products for automotive applications in India, in technical collaboration with Corporation, Japan. It is the only integrated manufacturing unit in India for auto-air conditioning system products.

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The company manufactures compressors, condensers, heat exchangers, and all connecting elements. It serves various sectors, including passenger vehicles, buses, trucks, refrigeration transport, off-roaders, residential air conditioners, and railways.

Domestic brokerage firm Sharekhan is optimistic about Subros' prospects, attributing it to the sustained growth in the domestic passenger vehicle (PV) segment and a shift in consumer preference towards SUVs.

Maintaining a significant market share (42% in the PV AC segment) and initiating new programs, Sharekhan expects the company's volume growth will outpace the industry norm, fueled by Subros supplying components for new models with Maruti Suzuki (MSIL) and securing new programs from Mahindra & Mahindra (M&M).

This, according to the brokerage, gives Subros healthy revenue visibility in the near term, as the PV segment has been performing well in the domestic market and its key customers are enjoying a healthy order backlog.

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As of Q2FY24, MSIL had an order backlog of 250,000 units, and M&M had 286,000 units, with Subros enjoying wallet shares of 75% and 35%, respectively. Despite being a leading player in the PV AC segment, Subros has successfully diversified its revenue streams. While PVs contributed 96% to Q2FY24 revenue, the company aims to derive 25% of its revenue from non-PV segments in the medium term.

"Subros is expected to participate in upcoming tenders from railways in the coach AC segment. However, it has been reducing its focus on the home AC segment due to a low margin profile and a delay in passing on an increase in input costs to customers. Further, the mandatory installation of ACs in trucks from January 2025 would expand the addressable market for Subros," said the brokerage.

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