05 Sept 2018

Initiating Coverage I Sector: Auto Ancillary

Subros Ltd.
BSE SENSEX S&P CNX
CMP: INR328 TP: INR442(+35%) Buy
38,157 11,520
Growth on acceleration
Subros Ltd is the leading manufacturer of air conditioning systems (ACs) for
the passenger vehicles (PV) in India with Maruti Suzuki India Ltd. (MSIL)
being its major client. It also supplies its products to the Commercial
Vehicles (CVs) segment i.e. Trucks, Buses, Reefer transports and Off-
Stock Info roaders. Recently it forayed into the Railways and Home AC segment to
Bloomberg SUBR IN
diversify further. 92% of the revenue currently comes from the PV segment
Equity Shares (m) 60.0
which the company targets to reduce to 82% by FY21 in order to de-risk its
business model.

Initiating coverage
52-Week Range (INR) 442 / 218
Steady PV industry growth to drive Subros’ revenue: Improving economic
1, 6, 12 Rel. Per* (%) -4 / -15 / 14
growth, sustained rural recovery and anticipated normal monsoon would
M.Cap. (INR b) 19.7
propel steady 8% CAGR (FY18-20E) in the PV industry. We believe MSIL
M.Cap. (USD b) 0.3
would be the biggest beneficiary (expect 13% CAGR), thus benefitting
Avg Turnover, INR m 12
Subros which supplies ~70% of the MSIL’s total AC requirement. Further,
Free float (%) 60
improving share of business (SoB) with other OEMs (Tata Motors, Renault
Data as on 4th Sept, 2018-=
*relative to BSE Sensex Nissan, Mahindra & Mahindra) and entry into radiators segment would aid
revenue growth. We expect Subros’ PV segment revenue to grow at 14%
Financials Snapshot (INR bn) CAGR to INR22.7bn over FY18-20E.
Y/E Mar 2018 2019E 2020E Non PV segment to provide diversification: Government’s move for
Net Sales 19.1 22.2 25.7
mandatory AC/blower in trucks from Jan’18 opens up a new revenue
EBITDA 2.1 2.5 3.0
stream for the company. It’s entry into CV ACs, railways and home AC offers
PAT 0.6 1.0 1.2
incremental opportunities over the next 3-5 years. We expect non PV
EPS (INR) 10.3 15.9 20.1
segment to report revenue CAGR of 40% to INR2.9bn over FY18-20E and its
Gr. (%) 67.9 53.8 26.6
contribution in overall revenue to reach 12% by FY20E from 8% in FY18. It
BV/Sh (INR) 67.5 81.3 98.7
would be largely led by trucks and railway segments.
P/E (x) 31.8 20.7 16.3
Robust earnings growth with improving return ratios: We believe the
P/BV (x) 4.9 4.0 3.3
company is well poised to grow its revenues/EBITDA at 15.8%/ 18.7% CAGR
EV/E (x) 11.1 9.4 7.7
Div. PO (%) 13.1 13.2 13.2
to INR25.7bn/3bn over FY18-20E, driven by steady growth in PV segment
RoE (%) 16.5 21.4 22.3
and incremental revenue from new business verticals. PAT is expected to
RoCE (%) 12.7 16.8 18.5
grow faster at 39.5% CAGR due to expansion of EBITDA margins by 56bps
to 11.5%, lower interest cost and low depreciation (change in method from
Shareholding pattern (%) WDV to SLM). RoEs/ROCEs are expected to expand to 22.3%/18.5% by
As On Dec-17 Mar-18 Jun-18 FY20E from 16.5%/12.7% in FY18, led by robust growth, improved working
Promoter 40.0 40.0 40.0 capital and free cash flow generation.
MFs 7.0 6.6 6.7
Valuation: We like Subros as it’s a best proxy play to MSIL’s growth story
FPIs 0.4 0.4 0.6
Others 52.6 53.0 52.7 and is well equipped to capture the opportunities in the non-PV segment.
With addition of newer business verticals, growing client base and in-house
Investors are advised to refer product development, we believe the company is poised for sturdy growth
through disclosures made at the on a long-term sustainable basis. The stock is trading at 20.7x FY19E and
end of the Research Report.
16.3x FY20E EPS. Given its strong earnings growth and sharp jump in return
ratios, we believe the premium valuation is likely to sustain. We value
Subros at 22x FY20E EPS and arrive at a target price of INR442, implying 35%
upside. We initiate coverage with a Buy rating.

Sneha Poddar Pooja Doshi

sneha.poddar@motilaloswal.com pooja.doshi@motilaloswal.com
Tel: +91 22 3846 2642 Tel: +91 22 3010 2689
 Subros Ltd.

Company Background
Incorporated in 1985, Subros is a joint venture (JV) company with 40% ownership by Suri family
and 13% each by Denso Corporation (Denso) and Suzuki Motor Corporation (SMC). Subros, in
technical collaboration with Denso (a Japanese auto components provider), is an integrated
manufacturer and market leader for auto air-conditioning units. It is engaged in manufacturing of
thermal products such as compressors, condensers, heat exchangers and all connecting elements
required to complete AC loop for automotive applications.

It caters to all major automotive segments i.e. passenger vehicles (PV), commercial vehicles (CV;
Trucks, Buses & Refrigerator transport), Off-roaders and Railways. It also entered into Home AC
segment in FY17. The PV segment is its primary segment, contributing 92% to the overall revenues
while the non-PV segment contributes ~8%. Subros enjoys 40% market share in the PV segment,
with Maruti Suzuki (MSIL) being its major client.

It has manufacturing plants in Noida and Manesar (North), Pune and Sanand (West) and Chennai
(south), with an annual capacity of 1.5mn units p.a., which gives it a well-diversified presence. It
also has a technical center in collaboration with Denso and a tool manufacturing center in Noida.

Exhibit 1: Journey since inception

Source: Company, MOSL

Exhibit 2: Segment-wise revenue mix (FY18) Exhibit 3: Product-wise revenue mix (FY18)
2% 2% 1%
8% 3% Car Segment (PV)

11% ECM (PV)

Car Segment After Markets +

Others
Non Car Segment Bus

Refer/ Truck/ Tractor/

Home AC
92% 81% Railways

Source: Company, MOSL

Sept 2018 2
 Subros Ltd.

Exhibit 4: Subros’s key product range

Source: Company, MOSL

Exhibit 5: Key customers across all segments

Source: Company, MOSL

Exhibit 6: Auditors Exhibit 7: 1-year stock performance rebased to 100

Name Type
M/S Price Waterhouse C.A. LLP Statutory
M/s. RSM & Co. Secretarial Auditor
M/s. Chandra Wadhwa & Co. Cost Auditor

Source: Company, MOSL

Source: Company, MOSL

Sept 2018 3
 Subros Ltd.

Investment Argument

Steady PV industry growth to drive Subros’ revenue

We expect PV industry volume to grow at an 8% CAGR over FY18-20E on the back of continued
rural recovery, anticipated normal monsoon and pick-up in economic activity. We believe that
MSIL would be the biggest beneficiary and grow faster than the industry at 13% CAGR. Thus, with
Subros supplying ~70% of the total AC requirement of MSIL, it is likely to benefit from the same.
Further, improving share of business (SoB) with other OEMs (TAMO, Renault Nissan, M&M) and
entry into radiators segment would provide aid to the revenue growth. We expect Subros’s PV
segment revenue to grow at 14% CAGR to INR22.7bn over FY18-20E.

Exhibit 8: Key components manufactured by Subros

Source: Company, MOSL

Exhibit 9: Cost structure of key components of AC Exhibit 10: Market leader in PV AC seg. (FY18)
Compressor HVAC Condenser Hose pipes & tubes Subros Hanon Sanden Denso
Mahle Behr Dowoon Calsonic Others
10%
5% 2%
5%
15% 8%
40%
40%

10%

12%
35%
18%

Source: Company, MOSL

Sept 2018 4
 Subros Ltd.

Long-term prospects of PV industry favorable; MSIL to benefit the most

Domestic PV industry growth undershot expectations in the 5 year period (FY11-16) with ~2.0%
CAGR in volumes, due to weaker economic growth, poor monsoon (in FY15/16) and other regulatory
impacts. However, growth recovered in FY17/18 to 9.2%/ 7.9%. Going ahead we expect steady
volume growth on the back of normal monsoon, increase in minimum support prices of various agri-
commodities, rising rural income, higher aspirations and improving affordability. We estimate PV
industry volumes to grow at 7.9% CAGR over FY18-20E.

Exhibit 11: PV industry expected to grow at a steady rate

PV industry volumes ('000 units)
5,000

4,000 3,829
3,548
3,288
3,047
3,000 2,665 2,789
2,520 2,630 2,504 2,601

2,000

1,000

-
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: SIAM, MOSL

Exhibit 12: MSIL to out-perform PV industry growth

PV industry volume growth (%) MSIL volume growth (%)

40%
29%
30%

20% 24.9% 14.1%

11.9% 13.4% 12.2%
10.6% 9.8%
10% 4% 3.3%
-1.4% 9.2% 7.9% 7.9% 7.9%
3.9% 7.2%
0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
1.3%
-10% -6.1%
-10.8%
-20%

Source: SIAM, MOSL

MSIL is one of the largest PV manufacturers in India with market share of 50% in FY18. We believe
it would continue to be the biggest beneficiary of this sturdy demand, given its stronghold in the
entry-level segment. Further its new launches targeted toward filling gaps in its portfolio would
improve the overall product mix and drive growth. We estimate 13% volume CAGR over FY18-20E
for MSIL and expect market share to improve to ~57% by FY20E.

Sept 2018 5
 Subros Ltd.

Exhibit 13: MSIL to continue gaining market share

MSIL's dom. market share (%)

60.0% 56.7%
53.5%
50.0%
50.0% 46.8% 47.4%
45.0% 45.0%
42.1%
39.4%
38.3%
40.0%

30.0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: MSIL, MOSL

Subros - Best proxy play on MSIL’s growth story

In FY18, Subros supplied ~ 70% of the total AC requirement of MSIL, catering to all the highest selling
models i.e. Baleno, Brezza, Swift, Ignis, etc. Besides petrol, it started providing ACs to diesel variants
from FY16 onwards, which led to increase in SoB with MSIL from 65% in FY16 to 70% currently.
Diesel cars account for nearly 30% of MSIL’s total sales volume. With MSIL being the top revenue
contributor (90% of PV segment revenues) for Subros, we expect it to benefit the most from former’s
out performance to PV industry growth.

Exhibit 14: Subros to follow MSIL’s volume growth

MSIL volume growth (%) Subros sales growth (%)

30.0% 24.9%
24.4%

20.0%
20.3% 14.0% 13.6% 13.7%
11.9% 10.6% 9.8%
10.0% 14.1%
13.4% 12.2%
3.3% 9.9%
2.4% 2.2%
-1.4% 7.4%
0.0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

-10.0%
-7.9%
-10.8%

-20.0%

Source: Company, MOSL

Focus on gaining SoB from other PV customers

Apart from MSIL, Subros supplies components to other PV manufacturers like M&M (30% SoB),
Renault-Nissan (20%) and TAMO (35%). Recently it tied up with Renault to supply condenser in
Brazil, where Renault sells ~ 0.3mn cars. Over the last 2 years, it has been able to increase its SoB
with M&M and Renault as well besides MSIL. Thus with SoB improving across OEMs, its overall
market share in the PV industry has augmented to 40% in FY18 from 34%/37% in FY16/FY17.

Sept 2018 6
 Subros Ltd.

It further aims to increase its SoB with these other OEMs, in order to improve its revenue mix and
expand its overall market share in the PV industry to 43% by FY21. While, MSIL would continue to
contribute significantly to Subros revenue, the robust sale of existing and new models (Kwid, KUV
100, Tiago, Hexa, Nexon, etc.) by these other OEM’s would drive growth for Subros.

Exhibit 15: Improving SoB with OEMs Exhibit 16: OEM-wise revenue mix in PV seg. (FY18)
FY16 FY17 FY18 MSIL M&M TAMO Renault Nissan
80%
68% 70%
65% 4% 2%
4%
58% 57%
60%

40% 35%
29% 30%
18%
18% 20%
20% 16%

0%
MSIL TAMO M&M Renault Nissan 90%

Source: Company, MOSL

Resumed supply of radiators to support revenue

In 2014, Subros entered into MoU with Denso to supply global standard cooling modules (radiators)
to them, which they in turn supply to MSIL. Radiators are the heat exchangers used to transfer
thermal energy from one medium to another for cooling and heating. With the initial investment of
INR250mn in FY16, it installed 0.50mn capacity p.a. at its existing Manesar plant and further
increased it to 0.75mn by FY17. The supply started from March 2016, but was halted due to a fire
incident at the plant in May 2016. It resumed from January 2017, post the repair work.

FY18 being its full year of production, management generated revenue of ~INR2.2bn this year. We
estimate revenue CAGR of 31% over FY18-20E to INR3.8bn from this segment. Due to minimal
investment incurred in setting up the radiator production line, we expect this segment to boost
profitability and improve return ratios.

Sept 2018 7
 Subros Ltd.

Non PV segment to provide diversification

Subros entered the non PV segments in FY14 in order to reduce the concentration risk and diversify
its revenue base. With the professional fleets going up in India, the demand for fully built CVs with
AC is rising. This is triggering shift from economy CVs to value added CVs. Subros plans to expand
in this CV segment by capturing the emerging prospects in trucks, bus and reefers market. It has
also entered the railways, metros and home AC segments to gain from the opportunities in these
spaces. We expect non PV segment to report revenue CAGR of 40% to INR 2.9bn over FY18-20E and
its contribution in overall revenue to reach 12% by FY20E from 8% in FY18.

Exhibit 17: Improving non PV seg. contribution Exhibit 18: Non-PV segment breakup (FY18)
PV segment (incl. ECM) Non PV segment 2%
9% After Mkt + Others
100.0%
4.0% 7.6% 7.9% 10.1% 11.5%
Bus
19%
80.0% 45%
Truck
96.0% 92.4% 92.1% 89.9% 88.5%
60.0%
Railways

40.0% 25% Tractor

FY16 FY17 FY18 FY19E FY20E
Source: Company, MOSL

Mandatory AC/ blower cabin for trucks – The next big opportunity
As per the notification from Ministry of Road Transport and Highway, ACs or blowers are mandatory
in N2 and N3 category of trucks (3.5 tonnes and above) from January 2018. Few OEMs had already
been offering AC cabins in their CVs but the demands were extremely low. With this notification
coming in, demand for AC/ blower in truck cabin will rise extensively. Currently, the majority of the
customers have opted for blowers as it’s one-fourth the cost of AC and only a few customers have
chosen AC fitment as an optional action. This segment is expected to generate revenue of INR1.2bn
by FY20E.

Post the notification, Subros leveraged its existing strong relations with the OEMs and acquired
~70% market share in the truck cabin AC/ blower space. It received orders to supply 2.4 lakh units
annual from the OEMs such as Ashok Leyland (supplying 90% of blower requirement), Tata Motors
(75%), M&M (100%) & Swaraj Mazda Isuzu (100%) in the blower space and Daimler (30%) in the AC
space. The above requirement will be catered through its existing Chennai and Pune plants where it
had earlier invested INR250mn (capacity of 300,000 units p.a.) for adding the truck business. Its key
competitors are Sanden (16% market share), Bergstorm (6%), Air International (5%), Mahle Bher
(2%) & others.

Sept 2018 8
 Subros Ltd.

Venturing into newer segments

Railways: Subros entered the Railway segment in FY14 by developing import substitute for driver
cabin AC for diesel locomotives. Currently, it caters to only driver cabin AC with market share of
~77%. Its key competitors are Cool Air (10% market share), Lloyd Electric & Engineering (7%) and
Sidwal Refrigeration Industries (6%) Pvt. Ltd. Recently, the company got shortlisted by two major
Tier 1 suppliers of Indian Railways i.e. Bombardier India and Medha Servo Drives Pvt Ltd. They have
engaged with Subros for future projects with Integral Coach Factory (ICF), Chennai. As part of this
engagement, both the companies have awarded trial orders to Subros. This opportunity can provide
strong business growth in this segment.

Apart from this, Subros also plans to enter railway coaches and evaluate opportunities in metro AC
coach segment. Currently, majority of AC’s are imported from China, Korea and Australia in this
space. Subros targets to achieve 25% market share in railways and 10% market share in metros. It
expects to generate INR1bn revenue by FY21.

Home AC: Subros forayed into the Home AC segment in FY17 by supplying 50k condensers to
Whirlpool. It is looking to tie up with others players and currently added E-Durables as its client
which is one of the largest and fully backward integrated OEM service provider in India, catering to
clients like LG Electronics, Haier, Voltas etc. If the arrangement works out well, Subros expects to
generate ~INR1bn by FY21 from this segment with 20% market share.

Aftermarkets: Subros will focus more on aftermarket in the coming years. So far the company
treated aftermarket business as only a support system for OEM business. But with 90 dealers across
the country, the company aims at increase its contribution from aftermarket to the total business
from 4% currently.

Buse AC: Subros is a 100% supplier to Force Motors for its Traveller AC buses, ranging from 4kw to
8kw. It has also launched a 45kW AC for low floor city bus application. Though the demand for AC
bus is at nascent stage currently, it is expected to grow at 20-25% p.a. over the next 3-4 years. Subros
is keen to secure business from State Transport Undertakings (STUs) as most of them are expanding
their AC bus fleet.

Reefers: Subros entered the reefers segment in FY14 anticipating huge demand. But the segment
did not grow for the company as the market still remains unexploited. However it has set-up a plant
in Greater Noida to manufacture the complete body of the truck along with the AC kit to provide a
ready solution to retailers and cold chain suppliers. Earlier clients used to get a chassis, source the
AC kit from Thermoking or Carrier and then get the body built. Despite the slow movement in the
refrigerated truck segment, the company is anticipating good demand in the coming years which
would be fuelled by the entry of multinational large retail chains. Subros is targeting to generate
~INR0.6bn by FY21 from this segment with 10% market share.

Sept 2018 9
 Subros Ltd.

Financial Analysis

Expect PAT CAGR of 39% over FY18-20E

We expect Subros to deliver revenue CAGR of 15.8% over FY18-20E to INR25.7bn as against CAGR
of 8.5% over FY13-18. This would be driven by steady growth in PV segment (14% CAGR over 18-
20E) and further supported by strong growth in the non PV segment (40% CAGR) on the back of low
base.

PAT is expected to grow at a higher CAGR of 39.5% over FY18-20E to INR1.2bn (vs. CAGR of 24.7%
over FY13-18) due to expansion of EBITDA margins by 56bps, lower depreciation and interest
burden. The decline in interest cost would mainly be driven by debt repayment as Subros is expected
to generate strong free cash flows. We expect the company to repay debt of ~INR0.7bn over FY18-
20E. The net debt to equity is thus expected to decline to 0.5x by FY20E from 1x in FY18.

Subros has further proposed to raise funds through issue of 5.2mn equity shares (~9% equity
dilution) on preferential basis to Denso Corporation. This money will also be used to reduce debt
and for technology collaboration. We expect dilution to be EPS accretive and will strengthen Subros’
balance sheet further (effect not yet incorporated).

Changing revenue mix, localization and operating leverage to boost margins

We expect EBITDA margin improvement of 56bps over FY18-20E to 11.5% and EBITDA CAGR of
18.7% to INR3bn due to 3 main reasons: 1) Subros has been focusing on diversifying its revenue mix
from PV to non PV segment which is slightly higher margin segment, 2) it aims at reducing the import
content of raw material to 25% from 38% in FY18 (already down from 60% in FY13) and bring raw
material cost down to 65% by FY21 from 69.8% in FY18 (was 71.7% in FY13) and 3) with pick up in
industry demand, we expect the capacity utilization to improve, which would drive the operational
efficiency; thus margin improvement.

Exhibit 19: Declining raw material cost Exhibit 20: Rising EBITDA margins
Raw material cost (INR mn) % of Sales EBITDA (INR mn) Margins (%)
24,000 75.0% 4,000 15.0%

69.5% 69.8% 69.5% 69.3% 3,000 11.6% 11.3% 11.5%

68.9% 11.2% 11.4% 10.9% 11.0%
16,000 68.0% 67.6% 70.0%

2,000 10.0%
17,773

2,960
15,427

2,512
13,349

8,000 65.0%
2,100
10,670

1,677

1,000
8,833

1,521
8,141
8,072

1,368
1,314

- 60.0% - 5.0%
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Source: Company, MOSL

Gujarat second new plant in line with Suzuki’s long term expansion plans
Suzuki plans to have three plants in Gujarat. The first plant became operational from February 2017
with annual production capacity of 0.25mn units. It started with the rolling out of Baleno model and
added Swift in January 2018. Its second plant is expected to start operations in the beginning of
CY’19, while the third plant is in planning stage. The total annual production capacity of these three
plants would 0.75 units.

Sept 2018 10
 Subros Ltd.

Subros had set up a 0.4mn unit plant at Sanand which was used to supply AC for Tata Nano model.
But with poor ramp up of Nano demand, the plant is now being used to supply ACs for Tata Motor’s
other models and Suzuki’s Gujarat plant. Subros plans to ramp up the capacity at Sanand by setting
up a new plant in order to meet Suzuki’s increasing requirements. It plans to add 0.5mn units by
May 2019 and would further ramp up the capacity to 1.4 by 2023, which would be in line with the
Suzuki Motors Gujarat expansion plans. The total expected project cost is INR1.3bn which will be
spread over three years. This new production unit will be used for manufacturing and backward
integration activities while the old facility will be used for assembling AC systems, made at Manesar.

Exhibit 21: Plant-wise snapshot

Source: Company, MOSL

Expect strong free cash flows going ahead

Subros generated FCF in FY15 and FY16 with the onset of recovery in PV industry. FY17 was an
exceptional year where there was a fire outbreak at its Manesar plant. Hence, the profitability was
impacted due to incurrence of extraordinary expense of INR 0.3bn in FY17 pertaining to
reinstatement of facility. It filed an insurance claim of INR3.7bn out of which INR1.6bn was paid and
remaining is likely to be settled by 2QFY19. With steady growth expected in the PV industry, we
expect Subros to generate strong FCF of INR1.7bn by FY20E. Robust earnings growth, limited capex
and lower working capital requirement will be the key driver for the same. This would help in
deleveraging the balance sheet.

Operational efficiency to drive return ratios

Subros had aggressively added capacity during FY10-12, from 1mn AC units’ p.a. to 1.5mn p.a., in
anticipation of robust demand. However, due to poor performance of the auto sector, Subros too
was impacted and its utilization levels fell to 60-65%. From FY16 onwards, with pick up in the auto
demand, capacity utilization improved to ~85%. With steady revenue growth expected going ahead;
the capacity utilization is likely to improve further. Thus operational efficiency along with debt
reduction would drive improvement in return ratios. We expect RoE/ RoCE of 22.3%/ 18.5% by
FY20E from 16.5%/12.7% in FY18.

Sept 2018 11
 Subros Ltd.

Valuation

Subros is all primed for growth phase as it: (i) is the largest player in the PV AC segment with rising
market share, (ii) is scaling up non-PV segment to diversify its business model, (iii) has various levers
in place to improve EBITDA margins and (iv) is expected to generate strong FCF due to low capex
and reducing working capital requirement. We expect Revenues/ EBITDA/ Adj. PAT CAGR of 15.8%/
18.7%/ 39.5% to INR25.7bn/ 3.0bn/ 1.2bn over FY18-20E. We expect RoE/ RoCE to improve to
22.3%/ 18.5% by FY20E from 16.5%/12.7% in FY18. The stock is trading at 20.7x FY19E and 16.3x
FY20E EPS. Given the strong earnings growth and sharp jump in return ratios, we believe the
premium valuation is likely to sustain. We value Subros at 22x FY20E EPS. We initiate coverage with
a Buy rating and target price of INR442, implying 35% upside.

Exhibit 22: Subros Ltd. 1-year forward P/E (x)

P/E (x) Max (x) Avg (x) Min (x)

25 22.8

20

15 14.2

10
5.7
5

0
Jun-15
Mar-12

Dec-12
Mar-13

Dec-13
Mar-14

Dec-14
Mar-15

Dec-15
Mar-16

Dec-16
Mar-17

Dec-17
Mar-18
Jun-12
Sep-12

Jun-13

Jun-14

Jun-16

Jun-17

Jun-18
Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18
Source: Company, MOSL

Exhibit 23: Peer comparison

Market Revenue EBITDA
PAT Growth ROE P/E EV/EBITD
Company Cap Growth Margins
(FY18-20E) (FY20E) (FY20E) A (FY20E)
(INR bn) (FY18-20E) (FY20E)
Endurance
Technologies Ltd 208.3 16.9% 15.0% 24.0% 22.6% 32.7 15.7
Minda
Corporation Ltd. 34.5 18.2% 11.0% 28.2% 18.5% 15.0 10.3
Suprajit
Engineering Ltd 33.0 15.6% 17.3% 19.5% 23.4% 16.4 10.8
Jamna Auto
Industries Ltd. 31.5 17.0% 14.9% 27.1% 34.0% 15.1 8.9
Lumax Industries
Ltd. 18.8 18.6% 9.1% 30.9% 22.0% 15.3 9.4
Subros Ltd. 19.7 15.8% 11.5% 39.5% 22.3% 16.3 7.7

Bloomberg Estimates, Market cap as on Sept 4, 2018 Source: Company, MOSL

Sept 2018 12
 Subros Ltd.

Story in Charts
Exhibit 24: Diversifying revenue model Exhibit 25: Expect revenue CAGR of 15.8% over FY18-20E
PV segment (incl. ECM) Non PV segment Revenue (INR mn) Growth (%)
30,000 24.6% 30.0%
100.0%
4.0% 7.6% 7.9% 10.1% 11.5% 17.4% 16.1% 15.5%
20,000 9.2% 15.0%
80.0%

25,660
2.2%

22,212
19,129
96.0% 92.4% 92.1% -7.9%
10,000 0.0%

15,348
89.9% 88.5%

13,069
11,972
60.0%

11,711
- -15.0%

FY19E

FY20E
FY14

FY15

FY16

FY17

FY18
40.0%
FY16 FY17 FY18 FY19E FY20E
Source: Company, MOSL Source: Company, MOSL

Exhibit 26: EBITDA margin improvement to continue Exhibit 27: Expect 39.5% adj. PAT CAGR over FY18-20E
EBITDA (INR mn) Margins (%) Adj. PAT (INR mn) Growth (%)
4,000 15.0% 68.2%
1,600 80.0%
53.7% 53.6%
3,000 11.6% 11.3% 11.5%
11.2% 11.4% 10.9% 11.0% 1,200
26.6% 40.0%
18.1%
2,000 10.0% 800
0.3%
2,960

-1.5%

1,206
2,512

0.0%

953
2,100
1,677

1,000 400
1,521
1,368

620
1,314

369
240
FY15 203
FY14 203

- 5.0% - -40.0%
FY16

FY17

FY18

FY19E

FY20E
FY20E
FY19E
FY14

FY15

FY16

FY17

FY18

Source: Company, MOSL Source: Company, MOSL

Exhibit 28: Strong free cash flow in future Exhibit 29: Improving ROE and ROCE
Free cash flow (INR mn) Operating cash flow (INR mn) ROE (%) ROCE(%)
30.0%
4,000
3,155 22.3%
21.4%
3,000
2,138 20.0% 16.5%
2,000 1,486 1,436
1,420 18.5%
943 1,108 1,467 10.7% 16.8%
807 844
1,000 461 327 10.0% 6.9% 6.6% 7.3%
214 12.7%
- 8.9%
6.6% 6.4% 7.3%
FY19E

FY20E
FY14

FY15

FY16

FY17

FY18

(1,000) 0.0%
(152)
FY17

FY19E

FY20E
FY14

FY15

FY16

FY18

Source: Company, MOSL Source: Company, MOSL

Sept 2018 13
 Subros Ltd.

Key Risks

 Subros is highly dependent on the growth of PV segment in India. Any slowdown in the
economy would impact the growth of automobile industry, which could adversely affect
Subros’s revenue

 Volatility in raw material prices (Polypropylene, steel and aluminum) could impact margins
and profitability

 Concentration risk due to high dependency on few customers (~75% turnover comes from
Maruti)

 Currency fluctuations (Yen denominated import)

 Much anticipated growth in the non-PV segment is highly dependent on the demand pickup
in the truck, rail, bus and Home AC segments

Sept 2018 14
 Subros Ltd.

Management Overview

Mr. Ramesh Suri, Promoter & Chairman

Mr.Ramesh is the Co-founder of Subros. He has more than 50 years
of experience in the automotive industry. He not only has created
India's largest automotive air conditioning manufacturing company
but is also among the largest Maruti Suzuki dealership in the country.
He has been the Chairman of ACMA, Northern Region and Vice
Chairman of CII, Uttar Pradesh State Council.

Mr. Shradha Suri Marwah, Managing Director

Ms. Shradha is an economics graduate from Delhi University with
Masters in International Marketing & Information Technology from
London, UK. She joined Subros in 2000 after a short stint with Six
Continents, UK and Reebok India. She has more than 11 years of
experience in Automotive and Telecom industries. She is a critical part
of the change management process in Subros and is responsible
for strategy formulation and deployment.

Dr. Jyotsna Suri, Chairperson and Managing Director of

Bharat Hotels Ltd
Dr. Jyotsna is the Chairperson and Managing Director of Bharat Hotels
Ltd. (“The Lalit” Brand). She has been working closely with trusts like
The Subros Education Society, Savera, 24/7 women's Security etc. She
has been recognized in Business Today's list of 20 most powerful
women in India 2009.

Dr. Y. Makino, Representative of Denso Corporation,

Japan
Mr. Y.Makino, aged 60 years, is MBA from Michigan University, Japan.
He has joined Denso Corporation Japan in 1978. He is presently
working as Senior Executive Director of Thermal Group. During these
38 years, he has worked in different capacity and few to highlight is
as below: Joined Denso Corporation, Japan in 1978. 2011-2013
President and CEO of Denso Europe International B.V Jan 2015-
present Senior Executive Director of Thermal Group.

Sept 2018 15
 Subros Ltd.

Financials and Valuations

Standalone - Income Statement (INR Million)
Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Net Sales 11,711 11,972 13,069 15,348 19,129 22,212 25,660
Change (%) -7.9 2.2 9.2 17.4 24.6 16.1 15.5
Total Expenditure 10,397 10,604 11,548 13,672 17,029 19,700 22,700
% of Sales 88.8 88.6 88.4 89.1 89.0 88.7 88.5
EBITDA 1,314 1,368 1,521 1,677 2,100 2,512 2,960
Margin (%) 11.2 11.4 11.6 10.9 11.0 11.3 11.5
Depreciation 772 787 864 879 920 778 873
EBIT 542 581 657 798 1,180 1,734 2,087
Int. and Finance Charges 372 387 417 479 412 445 405
Other Income 22 10 24 73 74 72 40
PBT 192 204 264 81 824 1,361 1,722
Tax -10 1 24 -52 218 408 517
Tax Rate (%) -5.3 0.4 9.2 -63.4 26.4 30.0 30.0
Min. Int. & Assoc. Share 0 0 0 0 0 0 0
Reported PAT 203 203 240 133 606 953 1,206
Adjusted PAT 203 203 240 369 620 953 1,206
Change (%) -1.5 0.3 18.1 53.7 67.9 53.8 26.6
Margin (%) 1.7 1.7 1.8 2.4 3.2 4.3 4.7

Standalone - Balance Sheet (INR Million)

Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Share Capital 120 120 120 120 120 120 120
Reserves 2,899 3,051 3,285 3,358 3,928 4,754 5,800
Net Worth 3,019 3,171 3,405 3,478 4,048 4,874 5,920
Debt 4,135 4,197 3,955 4,044 3,851 4,051 3,154
Deferred Tax (Net) 270 270 -81 -153 -114 -114 -114
Total Capital Employed 7,424 7,638 7,279 7,369 7,785 8,811 8,961
Net Fixed Assets 4,833 5,363 5,631 4,972 6,697 7,140 6,938
Capital WIP 1,029 885 541 1,492 898 898 898
Investments 25 25 25 25 25 25 25
Current Assets 3,248 3,454 3,468 4,615 5,244 5,004 5,689
Inventory 1,772 1,734 1,766 2,052 2,396 2,495 2,812
Debtors 604 776 986 1,302 1,614 1,765 2,109
Cash and Cash Equivalent 23 14 9 20 150 65 111
Bank Balance 82 55 46 18 49 49 49
Loans and Advances & OCA 766 874 661 1,222 1,036 630 608
Current Liability & Provisions 1,710 2,089 2,386 3,734 5,080 4,256 4,590
Account Payables 1,095 1,103 1,805 2,399 4,099 3,347 3,656
Current Liabilities 528 895 531 1,272 839 767 777
Other Long Term Liab. & Provs. 87 90 50 63 142 142 157
Net Current Assets 1,537 1,365 1,082 881 165 748 1,099
Appl. of Funds 7,424 7,638 7,279 7,370 7,785 8,811 8,961

Sept 2018 16
 Subros Ltd.

Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E

Basic (INR)
EPS 3.4 3.4 4.0 6.2 10.3 15.9 20.1
Cash EPS 16.3 16.5 18.4 20.8 25.7 28.9 34.6
BV/Share 50.3 52.9 56.8 58.0 67.5 81.3 98.7
DPS 0.7 0.7 0.8 0.5 1.1 1.7 2.2
Payout (%) 24.3 24.9 24.1 27.2 13.1 13.2 13.2
Valuation (x)
P/E 97.1 96.8 82.0 53.3 31.8 20.7 16.3
Cash P/E 20.2 19.9 17.8 15.8 12.8 11.4 9.5
P/BV 6.5 6.2 5.8 5.7 4.9 4.0 3.3
EV/Sales 2.0 2.0 1.8 1.5 1.2 1.1 0.9
EV/EBITDA 18.1 17.4 15.5 14.1 11.1 9.4 7.7
Dividend Yield (%) 0.2 0.2 0.2 0.2 0.3 0.5 0.7
FCF per share -2.5 7.7 13.5 5.5 14.1 3.6 24.5
Return Ratios (%)
RoE 6.9 6.6 7.3 10.7 16.5 21.4 22.3
RoCE 6.6 6.4 7.3 8.9 12.7 16.8 18.5
Working Capital Ratios
Asset Turnover (x) 1.6 1.6 1.8 2.1 2.5 2.5 2.9
Inventory (Days) 57 53 49 45 42 40 38
Debtor (Days) 16 21 25 27 28 28 28
Creditor (Days) 39 34 41 50 62 61 50
Leverage Ratio (x)
Net Debt/Equity 1.4 1.3 1.2 1.1 0.9 0.8 0.5

Standalone - Cash Flow Statement (INR Million)

Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E
OP/(Loss) before Tax 192 204 264 81 824 1,361 1,722
Depreciation 772 787 864 879 920 778 873
Interest & Finance Charges 372 387 417 479 412 445 405
Direct Taxes Paid -45 -44 -58 -22 -140 -408 -517
(Inc)/Dec in WC -337 94 2 -190 1,075 -668 -305
CF from Operations 954 1,428 1,489 1,227 3,091 1,507 2,179
Others -11 -7 -3 -119 64 -72 -40
CF from Operating incl EO 943 1,420 1,486 1,108 3,155 1,436 2,138
(Inc)/Dec in FA -1,094 -960 -679 -781 -2,312 -1,221 -671
Free Cash Flow -152 461 807 327 844 214 1,467
(Pur)/Sale of Investments 0 0 0 0 0 0 0
Others 17 9 7 29 5 72 40
CF from Investments -1,078 -951 -672 -751 -2,306 -1,149 -631
Issue of Shares 0 0 0 0 0 0 0
Inc/(Dec) in Debt 641 61 -296 186 -206 200 -897
Interest Paid -451 -491 -472 -475 -477 -445 -405
Dividend Paid -49 -49 -51 -58 -36 -126 -160
Others 0 0 0 0 0 0 0
CF from Fin. Activity 141 -479 -818 -346 -719 -371 -1,462
Inc/Dec of Cash 6 -9 -4 11 130 -85 46
Opening Balance 17 23 14 9 20 150 65
Closing Balance 23 14 9 20 150 65 111

Sept 2018 17
 Subros Ltd.

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Disclosure of Interest Statement Subros Ltd.
Analyst ownership of 1% or more securities No
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Sept 2018 18