Subros Limited — Q2 FY25 earnings call

Call held 8 Nov 2024

Management summary

Subros reported a resilient Q2 FY25 performance amidst muted domestic market demand, achieving 1.8% revenue growth and significant margin expansion across EBITDA, PBT, and PAT. The company's focus on operational efficiencies and localization drove profitability improvements. Strategic investments in a new Kharkhoda plant and growing opportunities in railways and AC cabins for trucks are set to drive future growth, despite current industry headwinds and cautious outlook for H2 FY25.

Highlights

  • Q2 FY25 Revenue stood at ₹828 crores, showing a modest growth of 1.8% YoY.

  • EBITDA for Q2 FY25 was ₹83 crores, representing 10.03% of net sales, an improvement of 13% YoY.

  • Profit Before Tax (PBT) for Q2 FY25 was ₹49 crores (5.87% of net sales), up 17% YoY.

  • Profit After Tax (PAT) for Q2 FY25 reached ₹36 crores (4.41% of net sales), marking a 36% YoY improvement.

  • The company maintained strong market shares: 43% in passenger vehicle aircon, 51% in truck aircon, and 16% in bus segment.

  • Subros secured new business worth ₹120 crores during the quarter, with most SOPs scheduled for FY26.

  • A new Greenfield project at Kharkhoda was formally approved with an investment of ₹150 crores, targeting 4.5-5 lakh units capacity by April 2026.

  • Import content reduced to 16% of total turnover, with a target to bring it below 10% in the next 2-3 years.

Concerns

  • Muted demand and slower growth in domestic automotive market

  • Low EV penetration hindering investment in electric compressor localization

Key financials

  1. Revenue ₹828 Cr +1.8%YoY
  2. EBITDA ₹83 Cr +13%YoY
  3. EBITDA Margin 10%
  4. PBT ₹49 Cr +16.8%YoY
  5. PBT Margin 5.9%
  6. PAT ₹36 Cr +36%YoY
  7. PAT Margin 4.4%

What they filed

Q1 FY27: revenue up 17.5%, net profit up 2.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue828 821 908 878 880 +6%948 +15%1,050 +16%1,032 +18%
EBITDA76 76 93 82 68 −11%81 +7%92 −1%81 −1%
Net profit36 33 46 41 41 +14%35 +6%49 +7%42 +2%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Car and Non-Car Segment Contribution (Q2)
    93% Car Segment7% Non-Car Segment
  • Market Share (Q2)
    43% Passenger Vehicle Aircon51% Truck Segment Aircon16% Bus Segment
  • Revenue by Product (Q2)
    ₹640 Cr Passenger Vehicle Business₹120 Cr Radiators₹30 Cr Passenger Car & CV (excl. Radiators)
  • Alternative Fuel-based Vehicles
    20% Revenue Contribution
  • Maruti Business Share
    80% Percentage of Total Revenue
  • Mahindra & Mahindra Business Share
    24% Percentage of Total Revenue

Guidance & targets

Localization

  • Import Content Localization · next two to three years · High confidence <10%

    From 16% today

    So, our overall import content of total turnover is around 16% and we have target to bring it down to less than 10% in the next two to three years' time.

    — Parmod K Duggal

Order Book

  • Railways Order Booking Order Book · current financial year · High confidence ₹35-40 crores
    and the order booking for railways is roughly between Rs. 35 to 40 crores, out of that around Rs. 10-12 crores will be executed during the current financial year, balance will go into the next financial year as per the terms of the contract.

    — Parmod K Duggal

Revenue

  • MHCV Truck AC Business Revenue · post-October '25 regulation · High confidence ₹160-175 crores
    Still, our assumption of truck aircon business to the tune of Rs. 160 to 175 crores still intact unless there is a drastic change in overall industry sentiments.

    — Parmod K Duggal

  • Railways Revenue Target Revenue · next three years (FY27) · Medium confidence ₹75 crores
    While you refrain from giving a target revenue, earlier we have said that our goal was maybe Rs. 75 crores in the next three years, so that was probably FY'27 given we did Rs. 5 crores in '24, are we on track for that or you think possibly could be even larger than this?

    — Arjun Khanna (referencing prior management statement)

Capacity

  • Kharkhoda Plant Capacity Capacity · by April 2026 · High confidence 4.5-5 lakh units
    We will be setting up this plant for 4.5 lakhs to half a million capacity for Hoses and Tubes and ECM. This would be an important strategic investment by us in the Greenfield project for our growth and also to improve our presence in the automotive sector.

    — Parmod K Duggal

Capex

  • Kharkhoda Plant Investment Capex · by April 2026 · High confidence ₹150 crores
    In this board meeting we have got formal approval for this project for the investment of 150 crores.

    — Parmod K Duggal

  • Electric Compressor Manufacturing Facility Cost Capex · Medium confidence ₹90-120 crores
    So, normally electric compression manufacturing will cost us between Rs. 90 crores to120 crores.

    — Parmod K Duggal

Operational Timeline

  • Kharkhoda Plant Operational Date Operational Timeline · April 2026 · High confidence April 2026
    and this plant would be operational by April 2026.

    — Parmod K Duggal

Product Mix

  • Car vs Non-Car Segment Mix Product Mix · next three years · Medium confidence 85:15

    From 93:7 today

    Of course, this will change and probably it would be maybe around 85:15.

    — Parmod K Duggal

Sustainability

  • Carbon Neutrality Sustainability · by 2040 · High confidence by 2040
    our commitment towards sustainability is also progressing well and we already announced that carbon neutrality within Subros operation by 2040.

    — Parmod K Duggal

Capacity Utilization

  • Kharkhoda Plant Utilization Capacity Utilization · within one to two years' time of launch · High confidence 70-80%
    capacities will be utilized to the extent of 70% to 80% very quickly maybe within one to two years' time of the launch of our project also.

    — Parmod K Duggal

Market context

  • Railways Segment Growth Revenue · next two to three years' time · Medium confidence double-digit
    So, we see this segment for us would be a growth in double-digit in the next two to three years' time.

    — Parmod K Duggal

Risks & concerns

  • Muted demand and slower growth in domestic automotive market

    high

    Q2 FY25 saw muted demand, with PV industry degrowth of 0.7% in Q2 and modest 2.4% in H1, below initial 3-4% forecast.

    Management acknowledged

  • Low EV penetration hindering investment in electric compressor localization

    high

    Despite industry talk, EV penetration is only around 1%, making a ₹90-120 crore investment in electric compressor manufacturing risky due to potential idle capacity.

    Management acknowledged

  • CV segment degrowth

    medium

    CV segment, including truck and bus, faced approximately 10% degrowth during the quarter.

    Management acknowledged

  • Unforeseen events impacting market momentum

    medium

    Elections, heat waves, and heavy rains in May, June, and September dampened market momentum.

    Management acknowledged

  • Supply chain disruptions and foreign exchange impact

    medium

    Ongoing Red Sea crisis and logistic delays are causing supply chain disruptions, and foreign exchange impact from remaining imports is a concern.

    Management acknowledged

Areas of evasion (2)

  • exact H2 market numbers
  • precise long-term EV penetration forecasts

Q&A highlights

2 direct
Passenger vehicle industry outlook for H2 FY25 and new model wins Partial
So, at this stage, it is very difficult to make any assumption about H2 because we have seen H1 with the muted growth... But overall as an industry performance expectation in FY-'24-25, we may say that the H2 will not be substantially different than H1.

Management expressed difficulty in predicting H2 outlook due to H1's muted growth and mixed festive season response, indicating continued caution for the near term.

Asked by Amit Hiranandani

Railways business margins and revenue targets Direct
Margins are reasonably, I think it is comparable to all our business, because as a business policy, we code businesses with the similar margins only. ...as we increase our penetration into railways and the scale is increasing, we may have chance to improve the margins for railway segment.

Clarified that current railway margins are comparable to existing business, but potential for improvement exists with increased scale and penetration, including lifecycle sales/services.

Asked by Amit Hiranandani

Feasibility of electric compressor localization in India given low EV penetration Direct
So, I will say that feasibility is still on electric compressor localization in India and we also see this is upcoming opportunity for us to make these compressors in India. But right now the risk factor is that despite industry is talking about electrification in passenger vehicle industry, but still we are around 1% penetration only.

Highlights the dilemma of investing in EV component manufacturing (₹90-120 crores) when current EV penetration is very low (1%), posing a risk of idle capacity and impacting fixed costs.

Asked by Arjun Khanna

2 min read 5 chapters

Detailed narrative

Q2 FY25 Financial Performance and Margin Expansion

Subros reported Q2 FY25 revenue of ₹828 crores, a 1.8% growth YoY, contributing to a H1 FY25 revenue of ₹1,638 crores, up 8.7%. The company demonstrated significant profitability improvements, with Q2 EBITDA at ₹83 crores (10.03% margin), up 13% YoY. PBT increased by 17% to ₹49 crores (5.87% margin), and PAT surged by 36% to ₹36 crores (4.41% margin). These gains are attributed to aggressive internal efficiency pushes and localization efforts.

Automotive Market Dynamics and Outlook

The Indian passenger vehicle industry experienced slower-than-expected growth in H1 FY25, with a 0.7% degrowth in Q2 and a modest 2.4% growth in H1, falling short of the initial 3-4% forecast. The CV segment also saw a major degrowth of approximately 10% in Q2. Management noted that H2 FY25 is not expected to be substantially different from H1, with no new models anticipated from OEMs until January's Bharat Mobility Show. The overall market sentiment remains cautious due to unforeseen events like elections, heat waves, and heavy rains.

Strategic Growth Initiatives: Kharkhoda Plant and Railways

Subros received formal board approval for a new Greenfield project at Kharkhoda, with an investment of ₹150 crores. This plant, targeting 4.5-5 lakh units capacity for Hoses, Tubes, and ECM, is expected to be operational by April 2026 and achieve 70-80% utilization within 1-2 years. The railways segment is emerging as a significant growth area, with an order booking of ₹35-40 crores, of which ₹10-12 crores will be executed in FY25. Management anticipates double-digit growth in railways over the next 2-3 years.

AC Cabins for Trucks and Alternative Fuel Vehicles

The Ministry of Road and Transport's mandate for AC cabins in trucks by October 2025 presents a substantial opportunity, with Subros anticipating ₹160-175 crores in sales from this segment. The company has secured large businesses for this initiative, with sales commencing in the subsequent financial year. Additionally, 20% of Subros' total revenue currently comes from alternative fuel-based vehicles (CNG, hybrid, EV), and they are actively developing aircon products for EV buses, including a hydrogen bus project for Ashok Leyland.

Localization and EV Compressor Strategy

Subros has significantly reduced its import content from 42% six-seven years ago to 16% currently, with a target to bring it below 10% in the next 2-3 years. While electric compressor localization in India is an upcoming opportunity, management remains cautious due to the low EV penetration (around 1%). An investment of ₹90-120 crores for an electric compressor facility would require a market size of 600,000-700,000 units, which is currently not met, posing a risk of idle capacity.

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