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Subros 3QFY2014 performance highlights and results update

February 10, 2014, Monday, 07:47 GMT | 03:47 EST | 13:17 IST | 15:47 SGT
Contributed by Angel Broking

Subros reported a disappointing performance for 3QFY2014, led by continued slowdown in passenger vehicle demand, which continues to impact the company’s volumes. We believe that the downturn in the passenger car industry is likely to continue in the near term which is expected to result in a sluggish volume performance going ahead. Nevertheless, localization initiatives are expected to lend stability to EBITDA margins. We maintain our Neutral rating on the stock.
3QFY2014 performance disappoints again: For 3QFY2014, Subros’ top-line declined sharply by 15.1% yoy (3% qoq) to Rs.278cr due to a 12.4% yoy (1.4% qoq) decline in volumes. The Net average realization too declined 4.4% yoy (3.2% qoq) during the quarter. The volume growth of the company continues to be impacted by sluggish demand in the passenger car industry, which has led to a slowdown in volume off-take of its key clients like Maruti Suzuki, Mahindra & Mahindra and Tata Motors. The EBITDA margin, however, improved 88bp qoq (flat yoy) to 10.5%, aided by other operating income of Rs.4cr related to state government incentives received in Maharashtra. The company has managed to sustain its margins around 10% over the last few quarters, despite the decline in volumes, primarily led by localization initiatives. Led by a sharp decline in the top-line, the bottom-line too declined 72.7% yoy (43.5% qoq) to Rs.2cr.
Outlook and valuation: We revise downwards our volume, revenue and earnings estimates for FY2014E/ 15E to account for the weak volume performance during the quarter and also to factor in the weak demand environment which is currently prevailing in the country. At Rs.24, the stock is trading at 9.4x FY2015E earnings; which is broadly in-line with its historical average. We therefore maintain our Neutral rating on the stock.