HSBC has initiated Coverage on Subros Ltd which is on a strong footing to benefit from the rising automobile sales and improving global economic outlook.
Growth Drivers for the company are,
Rising passenger car sales means more business: Thanks to quick economic recovery and government stimuli, our automobile industry has picked up momentum since February 09.
Market leader with over 40% share: The organised auto air conditioner market is estimated between 1.5–1.7mn units per annum.
Foray into commercial vehicle space: After tasting success in supplying ACs to small busses (Tempo Traveller - Force Motors). Subros has recently forayed into the supply of ACs for cabins of CVs.
Rising outsourcing of cars from India: With the already proven benefits of outsourcing from low cost countries like India, an increasing number of MNC auto-makers are eyeing to set up shop in India.
Strong and sustainable business outlook: Strong technological support from promoters shall continue to help Subros command an edge over its competitors.
Valuation and recommendation: HSBC values the company at a PE of 11x FY11e earnings (Rs 5.6) for a long term target of Rs 61.6 per share. Potential Upside of 32%. BUY
