Subros: The automobile industry has undergone a remarkable transformation over the years, with significant shifts in both technology and consumer preferences. As vehicles evolved from basic transportation to sophisticated machines, comfort features have become increasingly important. Among these, automotive air conditioning has emerged as a crucial element, transitioning from a luxury to a standard expectation in most vehicles.
In tropical and warm climates, air conditioning is not just a comfort feature but a necessity, enhancing the driving experience and ensuring passenger well-being during long journeys or in congested traffic. The importance of automotive AC has grown in tandem with rising global temperatures and changing consumer demands for a more comfortable in-car environment.
In this article, we will look at Subros, a market leader in the manufacturing of AC for vehicles in Automotive space.
Company Overview Of Subros
Subros, Founded in 1985 as a joint venture public limited company, it is the leading manufacturer of thermal products for automotive applications in India, working in technical collaboration with Denso Corporation. Denso Corporation owns 20% of the company, while Suzuki Motor Corporation owns 11.96%. The promoters own 36.79% of the company.
From its inception in 1985, when it could only produce 15,000 air conditioners mostly through assembly, the company has expanded and being market leader in India which holds largest and sole integrated auto air conditioning manufacturing facility. Compressors, condensers, heat exchangers, and all other connecting parts needed to finish an AC loop are produced by Subros, which serves a variety of markets including trucks, buses, cars, off-roaders, domestic air conditioners, and railroads.
Along with a well-equipped R&D Centre and Tool Room in Noida, Subros has production facilities with an annual capacity of 1.5 million AC Kits in Noida, Manesar, Pune, Chennai, Nalagarh, and Karsanpura. The company’s clients include Maruti Suzuki, Renault Nissan, Denso, Mahindra, Force Motors, and Tata.
Companies in the railway segment include Indian Railways and BHEL. Residential and commercial brands include Voltas, Haier, Havells, Cruise, and Amstrad. Customers for refrigeration include Maruti Suzuki, Tata, and Ashok Leyland. Customers for tooling include Talbros and Daikin, among others. They have a broad set of top clients across segments, giving them an advantage and stability.
Industry Outlook Of Subros
The automobile industry has grown in response to COVID-19 and the Indian economy’s recession. In 2023, the automotive air conditioning market was estimated at USD 34.2 billion. The Automotive Air Conditioning market is expected to increase from USD 36.29 billion in 2024 to USD 55.1 billion by 2032, with a compound yearly growth rate (CAGR) of 5.35% over the forecast period (2024-2032).
Increased demand for a better cabin experience, rising consumer incomes, an expanding middle-class population, and quickly changing lifestyles are all contributing causes to market expansion. The EV market is predicted to develop at a CAGR of 49% between 2022 and 2030, with the EV industry providing 5 million direct and indirect jobs by 2030.
By 2050, India’s transportation market is predicted to have grown by more than four times. The number of trucks is predicted to more than quadruple, from 4 million in 2022 to over 17 million by 2050.
In India’s automobile market, two-wheelers and passenger automobiles accounted for 75.3% and 17.6%, respectively. Small and medium-sized vehicles make for the great bulk of passenger car sales.
Government Initiatives on the Industry
The Union Cabinet in recent times announced the Production-Linked Incentive (PLI) Scheme for the Automobile and Auto Components sectors. scheme for the automobile sector (with a $3.5 billion budget) promises financial incentives of up to 18% to increase domestic manufacturing of innovative automotive technology items and attract investments in the automotive manufacturing value chain.
Even in recent times, Union Minister Nitin Gadkari announced automobile manufacturers should have AC inside the truck cabins. This can ensure the safety of those inside the vehicle and shield them from heatwaves across the country. Truck drivers mostly drive their vehicles at any weather conditions due to time constraints and these initiatives can also help the AC companies as demand will be more. Anyway, the costs for the manufacturer and the logistics cost might increase due to fuel charges.
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Financial Aspects & Segment Analysis Of Subros
The company posted its results of revenue from operations of Rs. 3,070.57 crore in FY24 compared to the revenue of Rs. 2,806.28 crore in FY23. The net profit in FY24 stood at Rs. 97.61 crore, up from Rs. 47.92 crore in FY23. Revenues and net profits increased YoY by 9.41% and 103.69%, respectively.
This is due to an improvement in material costs, which were 74.20% in FY24 compared to 76.18% in FY23 in terms of revenue. Employee and finance costs increased marginally year on year.
The company’s operations are classified as Thermal products because they consider revenue from only one segment.
The dividend payout of the company is around 12% in FY24 and their RoE is around 10%. The company can maintain its ratio due to a consistent dividend payout. If they increase their payout the ratio might improve.
| Particulars/ Financial Year | 2019-20 | 2020-21 | 2021-22 | 2022-23 | 2023-24 |
|---|---|---|---|---|---|
| Revenue (Cr.) | ₹1,993 | ₹1,796 | ₹2,239 | ₹2,806 | ₹3,071 |
| Net Profit (Cr.) | ₹85 | ₹47 | ₹32 | ₹48 | ₹98 |
| RoE (%) | 7.82% | 6.13% | 4.01% | 5.67% | 10.21% |
| RoCE (%) | 12.88% | 8.18% | 6.51% | 8.79% | 14.85% |
Future Plans Of Subros
- They want to lower their material costs through value analysis and engineering. Focusing on localisation improves their supply chain.
- Targeting 5-6% growth for FY2025, slightly above industry expectations of 3-4%, driven by new model launches, especially in the EV space.
- They are aiming to improve gross margins from 25% to 26 gradually-27% in coming quarters, with a target to achieve and cross 10% EBITDA margin over the next 6-8 quarters.
- The company is planning to increase passenger vehicle AC market share from 44% to 45-48%, and truck AC segment share from 54% to 56-58% by FY2025-26.
- Focusing on electric and hybrid vehicles, with substantial growth expected in the electric bus AC segment. Also targeting Rs 75-100 crore revenue from railway AC business in 3-5 years.
- Regular annual capex of Rs 100-140 crore, with potential additional strategic investments for greenfield expansion or large localization projects.
- Secured incremental revenue of around Rs 400 crore from new orders, to be executed over FY2025-26, with the maximum start of production expected in FY2026.
- For electric vehicles, the content value per vehicle is expected to be 1.9x-2.1x compared to equivalent internal combustion engine vehicles.
Key Metrics Of Subros
Here we will look at some of the key metrics of Subros.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹649.50 | Market Cap (Cr.) | ₹4,401 |
| Stock P/E (TTM) | 45.1 | EPS (TTM) | ₹14.96 |
| RoE (%) (TTM) | 10.21% | RoCE (%) (TTM) | 15.85% |
| Promoter Holdings (%) | 36.79% | FII Holdings (%) | 32.83% |
| Debt to Equity Ratio (TTM) | 0.01 | Price to Book Value (TTM) | 4.6 |
| Current Ratio (TTM) | 1.29 | EV to Sales (TTM) | 1.4 |
Conclusion
As we near the end of the article, we will look at the company in brief. Subros business and their revenue have been in the growth stage due to the demand for automobiles. They are a leader in integrated AC manufacturers. Subros boasts a diverse client portfolio spanning major automotive brands, railways, and residential AC manufacturers.
The company’s recent financial performance is impressive, with significant year-over-year increases in both revenue and net profit for FY24. Looking ahead, Subros aims to outpace industry growth by expanding its market share, particularly in passenger vehicles and trucks, while also adapting to the shift towards electric and hybrid vehicles.
Despite facing industry challenges such as economic fluctuations and technological shifts, Subros appears well-equipped to capitalize on the growing demand for automotive air conditioning systems in India. What do you think about Subros potential? Let us know your views in the comments section below.
Written by Santhosh
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