22 Jun Why This Smallcap Auto stock Rallied 44%?

Subros Stock Price rallied 44% in 2 days – Time to buy or sell?

The recent surge in the stocks of AC maker companies such as Amber Enterprises, Blue Star, Johnson Hitachi, and Subros can be attributed to the Indian government’s announcement regarding air-conditioned driver compartments in trucks.

The Minister for Road Transport and Highways, Nitin Gadkari, stated that all trucks manufactured in India will be required to have air-conditioned driver compartments by 2025. The minister stated that all truck driver cabins in India must be fitted with air conditioning, emphasizing the importance of ensuring comfort for the people who drive the trucks. Gadkari made this announcement during a speech at the Desh Chaalak auto industry event.

This announcement has created a positive market sentiment for AC maker stocks as it opens up a new business opportunity for these companies.

Also Read:3 Small Cap Stock suggestions by Experts

The Analysts’ View

According to Avinash Gorakshkar, the Head of Research at Profitmart Securities, the reason for the rise in AC maker stocks is the recent announcement by Transport Minister Nitin Gadkari regarding the mandatory requirement of air-conditioned driver compartments in all trucks in India starting from 2025.

This announcement has generated positive sentiments in the market in the short term for AC maker stocks.

Gorakshkar explains that the surge in these stocks is due to the expectation that auto companies will be unable to develop ACs for the driver compartments themselves. As a result, the market anticipates that these leading AC maker companies will be outsourced to provide the AC units for the trucks.

This outsourcing is seen as a significant additional business opportunity for these AC maker companies, which specialize in manufacturing white goods such as air conditioners.

The announcement by the Transport Minister has therefore created optimism among investors regarding the future prospects of AC maker stocks, leading to the rise in their prices.

This development is seen as a potential boost to the balance sheets and margins of these AC manufacturers in the long term. While it may take a couple of years for the implementation of this requirement, market analysts anticipate an additional revenue stream to emerge for AC maker companies in the next few years.

Given this outlook, experts have advised long-term investors to consider adding

-Subros, Voltas, Amber Enterprises, Johnson Hitachi, and Blue Star to their portfolios.

These companies are considered market leaders in the AC manufacturing sector and are expected to be preferred choices for auto companies based on their performance and market reputation.

The Indian auto air conditioning manufacturer, Subros, experienced a significant increase in its stock price, rising by 44% following the announcement made by Union Road Transport Minister Nitin Gadkari.

The market reacted positively to this development, and Subros shares witnessed a substantial surge. Investors recognized the potential business opportunity for Subros as a leading auto air conditioning manufacturer, considering the increased demand for their products due to the mandatory requirement for air-conditioned driver cabins in trucks.

The announcement by the Transport Minister signaled a significant market shift, and investors reacted by showing confidence in Subros’ future prospects. The surge in stock price reflects the market’s positive sentiment towards the company, anticipating increased orders and revenue from supplying air conditioning units for truck driver cabins. To learn more about stock market basics and stock analysis one can consider enrolling in our Stock Market Learning Courses, here.

 
Company Info
 

Subros Limited is a leading Indian manufacturer of automotive air conditioning systems. Established in 1985, the company is headquartered in New Delhi, India.

Subros specializes in providing comprehensive air conditioning solutions for passenger vehicles, commercial vehicles, and railways.

Subros has a strong focus on research and development, aiming to deliver innovative and energy-efficient solutions to meet the evolving needs of the automotive industry. The company’s commitment to quality, reliability, and customer satisfaction has contributed to its reputation as a trusted player in the automotive air conditioning sector.

Subros has been recognized for its excellence in various industry forums and has received several awards and accolades for its performance, innovation, and contribution to the automotive sector.

Business Overview of Subros Limited:

Established Presence:

Subros Limited is a well-established company in the automotive industry, specializing in manufacturing air conditioning systems. With over three decades of experience, the company has built a strong presence and reputation in the market.

Customer Base:

Subros has established long-term relationships with major automobile manufacturers in India, including

-Maruti Suzuki,
-Tata Motors,
-Mahindra & Mahindra, and
-Ashok Leyland.

These partnerships have helped the company secure a significant market share and become a preferred supplier in the industry.

Global Reach:

In addition to serving the domestic market, Subros has a global presence and exports its products to various countries. The company’s international operations contribute to its revenue diversification and expansion into new markets.
 

Product Overview of Subros Limited:

Automotive Air Conditioning Systems:

Subros specializes in the manufacturing of automotive air conditioning systems. The company offers a comprehensive range of products, including

-Compressors, condensers, heat exchangers, HVAC modules, radiators, and other related components.

Technological Advancements:

Subros focuses on research and development activities to incorporate technological advancements in its product offerings. The company aims to develop innovative and energy-efficient air conditioning solutions to meet the evolving needs of the automotive industry.

Customized Solutions:

Subros works closely with its customers to provide customized air conditioning solutions tailored to their specific requirements. The company’s engineering expertise and flexible manufacturing capabilities allow it to develop and deliver products that meet the diverse needs of different vehicle models.
 

The Possible Impact of the Current Announcement

The business of Subros Limited is expected to be positively impacted by Mr. Gadkari’s announcement regarding the mandatory requirement of air-conditioned driver compartments in trucks.

Increased Demand:

With the new regulation in place, there will be a surge in demand for air conditioning systems for truck driver compartments. Subros, being a prominent manufacturer of automotive air conditioning systems, is likely to witness an increase in orders and sales volume. The company can leverage its expertise and existing customer relationships to cater to this growing demand.

Additional Revenue Stream:

The mandatory requirement opens up a new business avenue for Subros. As auto companies may not be able to develop ACs for the driver compartments internally, they are expected to outsource this requirement to established AC manufacturers like Subros. This presents an additional revenue stream and business opportunity for the company.

Strengthened Position:

Subros’ position in the market is likely to be strengthened as it becomes a preferred choice for auto companies seeking reliable and high-quality air conditioning solutions. The company’s track record, reputation, and established relationships with major automobile manufacturers in India can give it a competitive advantage in securing contracts for supplying ACs for truck driver compartments.

Long-Term Growth:

The impact of Mr. Gadkari’s announcement is expected to be a long-term growth driver for Subros. While the implementation of the regulation may take time, the company can anticipate sustained demand in the coming years as more trucks comply with the requirement. This steady growth trajectory can positively influence the company’s financial performance and enhance its market position.

Fundamentals

• Market Cap ₹ 3,049 Cr.
• Current Price ₹ 467
• High / Low ₹ 521 / 271
• Stock P/E 63.6
• Industry PE28.0
• PEG Ratio -12.6
• Dividend Yield 0.21 %
• Face Value ₹ 2.00
• Return over 1year 62.1%

Financial Performance :

 
Financial Ratio

• Debt ₹ 18.7 Cr.
• Debt to equity 0.02
• ROCE 8.91 %
• ROE 5.67 %
• Qtr Profit Var 9.79 %
• Qtr Sales Var 9.84 %
• OPM 5.97 %
• Free Cash Flow ₹ 8.92 Cr.

Subros achieved its highest-ever turnover of Rs. 2,806 Crores in FY22-23, registering a growth of 25% despite industry challenges. The company recorded a 10% growth in revenue from operations during the last quarter, reaching Rs. 748 Crores.

Additionally, Subros realized an EBITDA of Rs. 56.67 Crores and a profit before tax of Rs. 26.69 Crores in Quarter 4.

Future Plans of the Company 

 
(Source: Company Presentations to Analysts)

New Products and Business:

Subros is aligning itself with emerging trends in the mobility landscape, such as

-ACs for autonomous driving,
-Connected cars,
-Electrified vehicles, and
-Shared mobility.

-The company has secured new business until 2025-2026 and aims for 15% of its total turnover to come from hybrid or electric vehicles.

-Subros has also expanded its ECM and HVAC sectors, planning to export them to markets in Japan and the US.

Collaborations and Launches:

-Subros collaborated with Denso to introduce the Vane Rotary Compressor, generating a matured business of Rs. 250 Crores.

-The company also launched a THF radiator for hybrid vehicles in collaboration with Denso.

-Additionally, Subros is developing products for the EV thermal space with Denso’s support.

-Noteworthy projects for Q1 2024 include partnerships with Maruti Suzuki, Mahindra tractors, and Mahindra electric cars/SUVs.

CAPEX Investments:

-Subros invested Rs. 130 Crores in CAPEX, including the acquisition of a PDC die-casting plant.

-The company plans to invest between Rs. 90 Crores and Rs. 100 Crores in CAPEX for FY24, primarily for new launches, including EV vehicles for Maruti and other customers.

Commodities and Margins:

-Subros anticipates softening commodity prices, including trends in LME plastics, copper, and steel.

-The company has engaged with customers for compensation on certain gases affected by the Ukraine conflict. Efforts are underway to improve gross margins impacted by increased fabrication costs, seeking compensation from OEMs.

-Subros expects short-term margin improvements and substantial long-term progress.

Guidance and Outlook:

-Subros aims to achieve historical levels of profitability within the next two to three years.

-The company expects 15% of its revenue to come from hybrid and EV by 2025-2026.

-It remains positive about market demand and recovery in FY24, projecting double-digit growth.

-Subros is focused on achieving a revenue mix of 75% from cars and 25% from non-cars, with 60% of revenue from Maruti and 40% from other customers.

The risk associated with investing in Subros Limited

 
Investing in Subros Limited, like any investment, carries certain risks that investors should be aware of.

Here are some specific risks associated with investing in Subros:

Competitive Landscape:

Subros faces competition from both domestic and international players in the automotive air conditioning market. The presence of established competitors with strong market positions, technological capabilities, and brand recognition can pose challenges to Subros’ market share and pricing power.

Intense competition may also lead to price wars, reduced profit margins, and the need for continuous investments in research and development to stay competitive.

Example: A competitor introducing technologically advanced and cost-effective air conditioning systems may attract customers away from Subros, affecting its market share and revenue.

Supply Chain Disruptions:

Subros relies on a complex supply chain to source raw materials, components, and equipment for its manufacturing processes.

Any disruptions in the supply chain, such as delays, shortages, or quality issues, can impact production schedules, increase costs, and potentially affect product delivery to customers.

Example: A sudden shortage of a critical component due to supplier issues or geopolitical events can disrupt Subros’ production, leading to delays in fulfilling orders and potential loss of customer confidence.

Dependence on Key Customers:

Subros has key customers, including major automobile manufacturers in India. The company’s financial performance is dependent on maintaining strong relationships with these customers and securing long-term contracts.

Any loss of a major customer or a significant reduction in orders from key customers could have a negative impact on Subros’ revenue and profitability.

Currency and Economic Risks:

Subros operates in a global market where currency fluctuations, economic instability, and geopolitical events can impact its financial results. Fluctuations in exchange rates can affect the cost of imported raw materials and components, impacting the company’s profitability. Economic downturns or unfavorable economic conditions in the regions where Subros operates can also affect customer demand and purchasing power.

Example: A significant depreciation of the domestic currency against the currencies of Subros’ trading partners can increase the cost of imported components, leading to reduced profit margins.

It’s important for investors to carefully evaluate these risks, along with other relevant factors, before making investment decisions regarding Subros Limited. Conducting thorough research, analyzing the company’s financials, and staying informed about industry developments can assist in making informed investment choices.

 
Please note that we are not SEBI-registered advisors or analysts. All the views shared in this article and all the content shared on aceink.com are only for learning and educational purposes. Any part of the article or any information on Aceink.com should not be interpreted or considered as investment advice. None of the opinions, views, or content posted on Aceink.com constitutes investment advice, as we are not SEBI-registered advisors or analysts.

DISCLAIMER:

We are not SEBI-registered advisors or analysts. All the views shared in this article and all the content shared on aceink.com are only for learning and educational purposes. Any part of the article or any information on Aceink.com should not be interpreted or considered as investment advice. None of the opinions, views, or content posted on Aceink.com constitutes investment advice, as we are not SEBI-registered advisors or analysts.

Aceink.com or any person associated with this website accepts no liability or responsibility for any direct, indirect, implied, or any other consequential damages arising directly or indirectly due to any action taken based on the information provided on this website. Please conduct your own research, and we suggest seeking investment advice only from a SEBI-registered investment advisor.

The views expressed by investment experts, broking houses, news and media houses, rating agencies, etc., are their own and not those of Aceink.com or its management. Aceink.com advises users to consult a SEBI-registered investment advisor before making any decisions.
 

——————-
“Fundamentally Strong Midcap IT Stock ” A Leader in Cloud Communication and Blockchain Solutions, If you are looking for a company that is in…….Read More

Fundamentally Strong Midcap IT Stock