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    Subros

    SUBROSMixed
    Capital Goods·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

    8

    • 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

    2

    • Muted demand and slower growth in domestic automotive market

    • Low EV penetration hindering investment in electric compressor localization

    Key financials

    Single quarter

    07 metrics
    1. 01Revenue₹828 Cr+1.8%YoY
    2. 02EBITDA₹83 Cr+13%YoY
    3. 03EBITDA Margin10.0%
    4. 04PBT₹49 Cr+16.8%YoY
    5. 05PBT Margin5.9%

    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
    List

    Guidance & targets

    11
    CategoryTargetPriority
    Localization
    Import Content
    <10%
    		High
    Order Book
    Railways Order Booking
    ₹35-40 crores
    		High
    Revenue
    MHCV Truck AC Business
    ₹160-175 crores
    		High
    Revenue
    Railways Revenue Target
    ₹75 crores
    		Medium
    Capacity
    Kharkhoda Plant Capacity
    4.5-5 lakh units
    		High
    Capex
    Kharkhoda Plant Investment
    ₹150 crores
    		High
    Capex
    Electric Compressor Manufacturing Facility Cost
    ₹90-120 crores
    		Medium
    Operational Timeline
    Kharkhoda Plant Operational Date
    April 2026
    		High
    Product Mix
    Car vs Non-Car Segment Mix
    85:15
    		Medium
    Sustainability
    Carbon Neutrality
    by 2040
    		High
    Capacity Utilization
    Kharkhoda Plant Utilization
    70-80%
    		High

    Risks & concerns

    7
    RiskSeverity

    Muted demand and slower growth in domestic automotive market

    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

    high

    CV segment degrowth

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

    medium

    Unforeseen events impacting market momentum

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

    medium

    Supply chain disruptions and foreign exchange impact

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

    medium

    Low EV penetration hindering investment in electric compressor localization

    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

    high

    Areas of Evasion(2)

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

    Q&A highlights

    3

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.