Subros Limited

Subros reported a robust Q2 FY26 with revenue from operations at ₹879.83 crores, marking a 6.22% YoY growth. This performance outpaced the broader automotive industry, which saw a marginal 1.5% decline in the PV segment. The company's EBITDA grew by 6.24% to ₹87.98 crores, maintaining a margin of 10.04%, while PAT increased by 11.36% to ₹40.59 crores. Key drivers included a 70% H1 growth in the CV Truck segment due to mandatory AC implementation and a 26% growth in the railway business.

While overall profitability improved, the EBITDA margin was impacted by a 1.28% increase in the material sales ratio to 73.08% due to commodity price and foreign exchange fluctuations, with a lag in customer compensation. The company recognized a significant one-time^📎 incentive of ₹13.39 crores from the Gujarat government, which boosted other income. Excluding this incentive, management noted a ~1% impact on margins from commodity/forex. Staff costs also saw a slight increase from 9.98% to 10.3% due to annual salary corrections.

Operating cash flow for H1 was negative, primarily due to a strategic inventory increase of over ₹75 crores. This build-up was a proactive measure to de-risk against geopolitical disruption^🌐s and extended container lead times. For capital expenditure, Subros maintains a normal annual capex of around ₹120 crores for routine business and de-bottlenecking. The Kharkhoda green manufacturing plant, a key growth initiative, is on track with an overall investment plan of ₹150 crores.

Subros is actively expanding its presence in the rapidly evolving EV and strong hybrid segments, which currently contribute 24% to total revenue and grew by 30% in H1. While Maruti currently imports EV compressors, Subros anticipates a significant increase in content per vehicle for other thermal components in EVs. The HVAC system for an EV car is expected to generate 1.6 times the revenue of a conventional car, with other four thermal elements (excluding compressor) cumulatively yielding 2x the revenue of an ICE product. Discussions for EV compressor localization are at an advanced stage, with plans expected within 3-6 months.

The mandatory AC notification for N2 and N3 category trucks has created a substantial growth opportunity, with the truck business revenue reaching ₹62 crores in Q2. Management revised its FY26 truck business revenue target upwards, expecting to cross ₹200 crores, significantly higher than ₹125 crores in FY25. The company also reported consistent performance with Mahindra PV and growth in Mahindra CV due to new air-conditioned models. Subros aims to increase its share of Mahindra's total thermal product buying from 20% to around 25% going forward^⏳.

Management expressed optimism for Q3 and H2 FY26, expecting a recovery from earlier shortfalls due to anticipated GST impacts and festive demand. For the full financial year FY26, Subros anticipates outperforming the overall industry, which is projected to grow between 3% to 4%. While a precise FY27 growth guidance was not provided, management stated they "strive for double digit growth" and expect next year's growth to be "slightly better than the current year growth."