>SUBROS (ICICI DIRECT)

Growth momentum continues…
Exceeding our earning estimates, Subros reported 15.8% YoY growth and 7.4% QoQ growth in net sales to Rs 249.7 crore. The sales growth was supported by 14.2% volume growth and 0.9% realisation growth YoY. On the EBITDA margin front, the company saw a slide of 80 bps QoQ to 10.6%on the back of increased other expenses and personnel cost. However, on a YoY basis, the margin improved by 338 bps on account of lower raw material cost. The PAT was reported at Rs 9.03 crore, lower than our estimate of Rs 11.2 crore, registering a meagre improvement of 3.2% QoQ while YoY it jumped from Rs 0.78 crore. However, the low base effect cannot be ignored.

Going forward, strong volume growth from its key clients Maruti Suzuki and Tata Motors and restructuring of Logan by Mahindra and Mahindra would continue to support demand growth for Subros. In addition to this, many launches announced by MNC players having their production set up here in India would likely expand Subros’ client portfolio. This would not only garner higher volumes but also diversify its client concentration. We maintain our earnings estimates for FY11 and FY12.

Valuation
At the CMP of Rs 47, the stock discounts its FY11E and FY12E EPS by 8.2x and 6.9x while on an EV/EBITDA basis, it is trading at 3.3x and 2.8x its FY11E and FY12E basis. We are maintaining our earning estimates for the company considering the strong volume growth from its key clients
and reiterating our STRONG BUY rating on the stock.

To read the full report: SUBROS