Subros reported an 11.6% increase in net sales for the first quarter of FY2011 compared to the same period last year, aided by a 13.8% growth in volumes. Operating profit rose 17.3% while net profit jumped 117.1% due to lower raw material costs and expansion in operating margins. The company maintained its outlook for 15% annual volume growth over the next two years but expects pricing pressure to limit revenue growth to around 10% annually. The analyst maintains a 'Buy' rating with a target price of Rs60 per share based on projected earnings growth and reasonable valuation.

1. 1QFY2011 Result Update | Auto Ancillary
August 2, 2010
Subros BUY
CMP Rs50
Performance Highlights Target Price Rs60
Y/E March (Rs cr) 1QFY11 1QFY10 % chg (yoy) 4QFY10 % chg (qoq) Investment Period 12 Months
Net Sales 234.0 209.6 11.6 249.4 (6.2)
Operating Profit 21.2 18.1 17.3 26.2 (19.0) Stock Info
OPM (%) 9.1 8.6 44 10.5 (143) Sector Auto Ancillary
Reported PAT 7.1 3.3 117.1 9.0 (21.1) Market Cap (Rs cr) 301
Source: Company, Angel Research Beta 1.4
52 Week High / Low 53/29
Subros reported decent performance for 1QFY2011, aided by healthy growth in
Avg. Daily Volume 113,907
volumes. Average realisation however, registered a marginal decline yoy. Net
Face Value (Rs) 2
profit jumped substantially on a low base and due to expansion on the operating
BSE Sensex 18,081
margin front. We maintain a Buy on the stock.
Nifty 5,432
Overall performance marginally below expectation: For 1QFY2011, Subros Reuters Code SUBR.BO
clocked 11.6% jump in net sales to Rs234cr (Rs210cr), which was marginally Bloomberg Code SUBR@IN
below our expectation. Top-line increased primarily on the back of the 13.8%
growth in volumes. For 1QFY2011, Subros registered a marginal 44bp yoy
expansion in EBITDA margins on account of the 306bp yoy dip in raw material Shareholding Pattern (%)
costs. Input costs fell due to the ongoing localised procurement of raw materials Promoters 40.0
by the company. Net profit spiked by 117% yoy to Rs7.1cr (Rs3.3cr) during the MF / Banks / Indian Fls 10.8
quarter on a low base, robust volume growth and low raw material costs. FII / NRIs / OCBs 26.7
Indian Public / Others 22.5
Outlook and Valuation: We estimate the company’s volumes to post a CAGR of
around 15% over the next two years, considering the increasing requirements of
its OEM customers like Maruti and Tata Motors, and potential new client wins Abs. (%) 3m 1yr 3yr
from the passenger vehicle (PV) and commercial vehicle (CV) segments. However, Sensex 3.0 15.4 20.7
we expect realisations to be stable or decline marginally due to the aggressive Subros 5.5 63.9 10.4
pricing adopted by the OEMs. Thus, we estimate the company to clock EPS of Rs5
for FY2011E and Rs6 for FY2012E. At the CMP, the stock is trading at 8.3x
FY2012E earnings. We maintain a Buy on the stock, with a Target Price of Rs60.
Key Financials
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 694 905 990 1,119
% chg 4.8 30.4 9.4 13.0
Net Profits 13.4 27.7 30.0 36.2
% chg (53.2) 106.8 8.0 20.8
OPM (%) 9.1 10.3 10.0 10.2
EPS (Rs) 2.2 4.6 5.0 6.0
P/E (x) 22.4 10.9 10.0 8.3 Vaishali Jajoo
P/BV (x) 1.6 1.5 1.3 1.2 022-4040 3800 Ext: 344
RoE (%) 7.5 14.2 13.7 14.8 vaishali.jajoo@angeltrade.com
RoCE (%) 10.1 15.5 14.8 16.6
EV/Sales (x) 0.5 0.4 0.4 0.3 Yaresh Kothari
022-4040 3800 Ext: 313
EV/EBITDA (x) 6.7 4.8 4.4 3.3 yareshb.kothari@angeltrade.com
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1

2. Subros | 1QFY2011 Result Update
Exhibit 1: Quarterly performance
Y/E Mar (Rs cr) 1QFY11 1QFY10 % chg FY10 FY09 % chg
Net Sales 234.0 209.6 11.6 905.5 694.5 30.4
Consumption of RM 173.1 161.5 7.2 671.9 516.4 30.1
(% of Sales) 74.0 77.0 74.2 74.4
Staff Costs 15.4 11.8 31.1 54.5 44.2 23.3
(% of Sales) 6.6 5.6 6.0 6.4
Other Expenses 24.3 18.3 32.7 86.2 70.8 21.7
(% of Sales) 10.4 8.7 9.5 10.2
Total Expenditure 212.8 191.5 11.1 812.5 631.3 28.7
Operating Profit 21.2 18.1 17.3 93.0 63.2 47.2
OPM (%) 9.1 8.6 10.3 9.1
Interest 3.7 4.6 (18.4) 16.0 14.6 9.9
Depreciation 9.5 9.5 (0.1) 38.6 31.6 22.4
Other Income 0.3 0.3 (10.0) 1.1 1.6 (26.9)
PBT (excl. Extr. Items) 8.0 4.0 99.7 38.4 17.0 125.3
Extr. Income/(Expense) - - - - - -
PBT (incl. Extr. Items) 8.2 4.3 92.1 39.5 18.6 112.5
(% of Sales) 3.5 2.0 4.4 2.7
Provision for Taxation 1.1 1.0 10.9 11.8 5.2 127.5
(% of PBT) 0.5 0.5 1.3 0.7
Reported PAT 7.1 3.3 117.1 27.7 13.4 106.8
PATM (%) 3.0 1.6 3.1 1.9
Equity shares (cr) 12.0 12.0 12.0 12.0
EPS (Rs) 1.2 0.5 117.1 4.6 2.2 106.8
Source: Company, Angel Research
Net sales up 11.6%, marginally below expectation: For 1QFY2011, Subros
clocked 11.6% jump in net sales to Rs234cr (Rs210cr), which was marginally
below our expectation. Top-line increased primarily on the back of the 13.8%
growth in volumes. Average realisation however, fell marginally by 1.9% yoy.
Subros sold around 195,417 (171,699) AC units in 1QFY2011.
Exhibit 2: Volumes up 13.8% yoy Exhibit 3: Realisations drops marginally
(units) Volume (LHS) Volume Growth (RHS) (%) (Rs) Net Realisation (LHS) Net Realisation Growth (RHS) (%)
225,000 60 12,500 15
48.5 13.2
12.0
12,000
10
150,000 40
11,500 7.3
5
11,000
75,000 20 1.4
15.8 14.2 0
10,500
11.5 13.8
(1.9)
0 0 10,000 (5)
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Source: Company, Angel Research Source: Company, Angel Research
August 2, 2010 2

3. Subros | 1QFY2011 Result Update
Margins expand by 44bp to 9.1%: For 1QFY2010, Subros registered a marginal
44bp yoy expansion in EBITDA margins on account of the 306bp yoy dip in raw
material costs, which as a percentage of sales, stood at 74% (77%). Input costs
registered a decline owing to the ongoing localised procurement of raw materials
by the company and favourable currency movement (especially rupee and yen).
Staff costs and other expenditure however, increased by 100bp and 165bp yoy
respectively, during the quarter.
Exhibit 4: Dip in raw material cost boosts EBITDA margins Exhibit 5: Net profit rises 117%, due to base effect
(%) EBITDA Margin Raw Material Cost/Sales (Rs cr) Net Profit (LHS) Net Profit Margin (RHS) (%)
100 10 6
77.0 74.0
80 73.4 73.3 73.3 8
3.6 4
60 6
3.8
3.1
40 4 3.0
2
1.6
20 8.6 10.6 11.3 10.5 9.1 2
0 0 0
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Source: Company, Angel Research Source: Company, Angel Research
Net profit jumps substantially on low base: Net profit spiked 117% yoy to Rs7.1cr
(Rs3.3cr) in 1QFY2011 on a low base, robust volume growth and low raw material
costs. Depreciation and interest costs also fell 0.1% and 18.4% yoy respectively,
which supported the jump in NPM and net profit during the quarter.
August 2, 2010 3

4. Subros | 1QFY2011 Result Update
Investment Arguments
Improved PV volumes to boost growth: We have estimated the PV segment to
clock healthy CAGR of around 15% over FY2010-12E. Given the company’s
dependence on the PV segment, we expect it to gain from India’s small car
growth story. The company’s volumes would also get a push due to the
continuous capacity ramp up by the new and existing players. Accordingly, we
expect Subros to register volume CAGR of 16% over FY2010-12E.
Maintaining leadership position and expanding product base: A market leader
and largest player in the domestic car AC market, Subros enjoys more than
40% market share. The company has managed to garner high market share
on the back of its strong technological expertise backed by Denso and Suzuki.
Further, in view of the growing PV volumes, the company has ramped up
capacity to 7,50,000 units per annum and proposes to further expand
capacity to 1,000,000 million units per annum going ahead. The company
also proposes to foray into the commercial vehicle (CV) segment targeting
leaders such as Ashok Leyland and Eicher, to expand its product base and
explore new avenues.
Outlook and Valuation
We estimate the company’s volumes to post a CAGR of around 15% over the next
two years, considering the increasing requirements of its OEM customers like
Maruti and Tata Motors, and potential new client wins from the PV and CV
segments. However, we expect realisations to be stable or decline marginally due
to the aggressive pricing adopted by the OEMs. Thus, we estimate the company to
clock EPS of Rs5 for FY2011E and Rs6 for FY2012E. At the CMP, the stock is
trading at 8.3x FY2012E earnings. We maintain a Buy on the stock, with a Target
Price of Rs60.
August 2, 2010 4

5. Subros | 1QFY2011 Result Update
Exhibit 6: One year forward P/E band
(Rs) Price 4x 7x 10x 13x
80
60
40
20
0
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Source: Company, Bloomberg, Angel Research
Exhibit 7: Auto Ancillary - Recommendation summary
CMP Tgt Price Upside P/E (x) EV/EBITDA (x) RoE (%) FY10-12E EPS
Company Reco.
(Rs) (Rs) (%) FY11E FY12E FY11E FY12E FY11E FY12E CAGR (%)
^
Automotive Axle Buy 486 578 19.0 14.8 12.6 7.3 6.1 25.9 25.9 145.5
Bharat Forge*& Accumulate 329 351 6.7 26.1 17.2 13.7 10.4 17.1 20.6 -
#
Bosch India Neutral 5,681 - - 23.9 21.1 20.2 16.9 20.8 20.1 26.7
Exide Industries Accumulate 142 153 8.1 16.6 14.2 9.8 8.5 28.7 26.5 25.8
#
FAG Bearings Buy 803 931 15.9 11.3 10.4 5.8 5.0 22.9 20.6 40.3
Motherson Sumi* Neutral 168 - - 18.5 15.1 7.0 6.0 27.7 29.7 33.4
Subros Buy 50 60 19.6 10.0 8.3 4.4 3.3 13.7 14.8 14.2
# ^ &
Source: Company, Angel Research; Note: * Consolidated Results; December Year end; September Year end; FY11E and FY12E EPS adjusted for
FCCB interest after tax
August 2, 2010 5

6. Subros | 1QFY2011 Result Update
Profit and Loss Statement
Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E
Gross sales 755 774 787 984 1,119 1,265
Less: Excise duty 108.0 111.4 92.1 78.4 128.7 145.4
Net Sales 647 663 694 905 990 1,119
Total operating income 647 663 694 905 990 1,119
% chg 14.5 2.4 4.8 30.4 9.4 13.0
Total Expenditure 573 579 631 812 891 1,006
Net Raw Materials 458 455 516 672 735 828
Other Mfg costs 30.4 32.6 31.3 - 42.1 47.6
Personnel 38.2 46.2 44.2 54.5 60.4 68.3
Other 45.7 45.4 39.5 86.2 53.5 61.6
EBITDA 74.2 83.4 63.2 93.0 99.0 114
% chg 20.6 12.4 (24.2) 47.2 6.5 14.7
(% of Net Sales) 11.5 12.6 9.1 10.3 10.0 10.2
Depreciation & Amortisation 27.5 32.5 31.6 38.6 43.0 47.5
EBIT 46.7 50.8 31.6 54.4 56.0 66
% chg 25.5 9.0 (37.8) 72.0 3.0 18.0
(% of Net Sales) 7.2 7.7 4.6 6.0 5.7 5.9
Interest & other Charges 8.0 10.9 14.6 16.0 15.0 15.1
Other Income 1.3 1.2 1.6 1.1 1.2 1.3
(% of PBT) 3.3 2.8 8.5 2.9 2.8 2.4
Recurring PBT 40.0 41.1 18.6 39.5 42.2 52
% chg 14.0 2.8 (54.8) 112.5 7.0 23.7
Extraordinary Items - 0.0 0.3 - - -
PBT 40.0 41.1 18.3 39.5 42.2 52
Tax 12.2 12.5 5.2 11.8 12.3 16.1
(% of PBT) 30.5 30.4 28.3 29.8 29.1 30.8
PAT 27.8 28.6 13.1 27.7 30.0 36.2
Adj. PAT 27.8 28.6 13.4 27.7 30.0 36.2
% chg 14.6 2.9 (53.2) 106.8 8.0 20.8
(% of Net Sales) 4.3 4.3 1.9 3.1 3.0 3.2
Basic EPS (Rs) 4.6 4.8 2.2 4.6 5.0 6.0
Fully Diluted EPS (Rs) 4.6 4.8 2.2 4.6 5.0 6.0
% chg 14.6 2.9 (53.2) 106.8 8.0 20.8
August 2, 2010 6

7. Subros | 1QFY2011 Result Update
Balance Sheet
Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E
SOURCES OF FUNDS
Equity Share Capital 12.0 12.0 12.0 12.0 12.0 12.0
Preference Capital - - - - - -
Reserves & Surplus 139 162 172 195 219 245
Shareholders’ Funds 151 174 184 207 231 257
Total Loans 126.1 111.0 135 154 144 144
Deferred Tax Liability 8.8 7.5 11.7 11.2 11.2 11.6
Total Liabilities 286 293 331 372 387 413
APPLICATION OF FUNDS
Gross Block 331 363 436 506 566 629
Less: Acc. Depreciation 166 194 218 256 299 347
Net Block 165 169 219 250 267 282
Capital Work-in-Progress 22.6 39.7 38.2 46.1 28.3 18.9
Goodwill - - - - - -
Investments - - 0.4 0.4 0.6 0.6
Current Assets 162 151 182 193 214 243
Cash 7.7 7.5 11.3 12.8 7.9 9.1
Loans & Advances 26.7 25.3 29.3 34.9 39.6 44.8
Other 127 118 141 146 167 189
Current liabilities 63 67 109 117 123 133
Net Current Assets 98.4 83.9 73 76.3 90.9 110.2
Mis. Exp. not written off - - - - - -
Total Assets 286 293 331 372 387 413
August 2, 2010 7

8. Subros | 1QFY2011 Result Update
Cash Flow Statement
Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E
Profit before tax 40.0 41.1 18.3 39.5 42.2 52.3
Depreciation 27.5 32.5 31.6 38.6 43.0 47.5
Change in Working Capital 12.5 (11.6) (20.1) (2.9) 14.8 13.4
Less: Other income 21.2 (35) (56) (13) 16.9 21.8
Direct taxes paid 12.2 12.5 5.2 11.8 12.3 16.1
Cash Flow from Operations 46.6 85 80.6 76 70.8 75.3
(Inc.)/Dec. in Fixed Assets 78.2 48.8 72 77.4 42.4 53.4
(Inc.)/Dec. in Investments - - 0.4 - 0.2 -
(Inc.)/Dec. in loans and adv. 0.6 0.1 (0.9) - - -
Other income 0.1 (4.8) (7.7) - - -
Cash Flow from Investing (78.5) (58.5) (87) (77) (42.6) (53.4)
Issue of Equity - - - - - -
Inc./(Dec.) in loans 44.1 (15.1) 24.0 19.1 (10.0) -
Dividend Paid (Incl. Tax) 4.8 5.6 5.6 3.5 4.9 5.6
Others (0.1) 0.1 - - - -
Cash Flow from Financing 32.5 (20.8) 18 15.6 (14.9) (5.6)
Inc./(Dec.) in Cash 0.6 (0.2) 3.8 (1.7) (1.6) 1.1
Opening Cash balance 7.1 7.7 7.5 11.3 9.6 7.9
Closing Cash balance 7.7 7.5 11.3 9.6 7.9 9.1
August 2, 2010 8

9. Subros | 1QFY2011 Result Update
Key Ratios
Y/E March FY07 FY08 FY09 FY10 FY11E FY12E
Valuation Ratio (x)
P/E (on FDEPS) 10.8 10.5 22.4 10.9 10.0 8.3
P/CEPS 5.4 4.9 6.7 4.5 4.1 3.6
P/BV 2.0 1.7 1.6 1.5 1.3 1.2
Dividend yield (%) 1.6 1.6 1.0 1.4 1.6 2.8
EV/Sales 0.6 0.5 0.5 0.4 0.4 0.3
EV/EBITDA 5.7 4.9 6.7 4.8 4.4 3.3
EV / Total Assets 1.5 1.4 1.3 1.2 1.1 0.9
Per Share Data (Rs)
EPS (Basic) 4.6 4.8 2.2 4.6 5.0 6.0
EPS (fully diluted) 4.6 4.8 2.2 4.6 5.0 6.0
Cash EPS 9.2 10.2 7.5 11.1 12.2 13.9
DPS 0.8 0.8 0.5 0.7 0.8 1.4
Book Value 25.2 29.0 30.7 34.5 38.5 42.8
Dupont Analysis
EBIT margin 7.2 7.7 4.6 6.0 5.7 5.9
Tax retention ratio 0.7 0.7 0.7 0.7 0.7 0.7
Asset turnover (x) 2.6 2.4 2.3 2.7 2.7 2.9
RoIC (Post-tax) 13.3 12.6 7.5 11.2 10.8 11.7
Cost of Debt (Post Tax) 5.3 6.4 8.5 7.8 7.1 7.3
Leverage (x) 0.7 0.7 0.6 0.7 0.6 0.6
Operating RoE 18.8 16.8 6.9 13.6 13.1 14.2
Returns (%)
RoCE (Pre-tax) 18.5 17.6 10.1 15.5 14.8 16.6
Angel RoIC (Pre-tax) 16.8 17.8 9.9 15.1 14.8 16.4
RoE 19.9 17.6 7.5 14.2 13.7 14.8
Turnover ratios (x)
Asset Turnover (Gross Block) 2.3 1.9 1.7 1.9 1.8 1.9
Inventory / Sales (days) 52 53 47 37 43 43
Receivables (days) 16 15 21 24 18 18
Payables (days) 31 31 42 43 42 39
WC cycle (ex-cash) (days) 46 46 36 25 27 30
Solvency ratios (x)
Net debt to equity 0.8 0.6 0.7 0.7 0.6 0.5
Net debt to EBITDA 1.6 1.2 2.0 1.5 1.4 1.2
Interest Coverage (EBIT/Interest) 5.8 4.7 2.2 3.4 3.7 4.4
August 2, 2010 9

10. Subros | 1QFY2011 Result Update
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Subros
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
August 2, 2010 10