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Subros Ltd
Earnings Call Analysis
Summary
Q1-2025
In Q1 FY25, Subros Limited saw a remarkable 17% revenue growth, achieving INR 807 crores, largely driven by a significant improvement in operational efficiency. EBITDA surged by 65% to INR 80.42 crores, while profit before tax rose by 138% to INR 47.16 crores. The company forecast sustained double-digit growth and plans to expand into the mandatory truck AC market, projecting annual revenue from this segment could reach over INR 150 crores by FY26. With a debt-free status and a focus on innovative solutions, Subros is well-positioned for long-term growth, targeting 10-12% margins moving forward.
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Ladies and gentlemen, good day and welcome to the Subros Limited Q1 FY '25 Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities India Private Limited. Thank you and over to you, sir.
Thank you. Welcome to Subros Limited 1Q FY '25 Post Results Conference Call. From Subros Limited management, we have with us today, Mr. Parmod Kumar Duggal, Chief Executive Officer and Mr. Hemant Kumar Agarwal, Chief Financial Officer and Vice President, Finance. I'll now hand over the call to Mr. Parmod Kumar Duggal for the opening remarks to be followed by question-and-answer session. Over to you, sir.
Thank you, Thank you, Jayaraj. Good morning, ladies and gentlemen and warm welcome to all of you on Subros investor call for quarter 1, FY '25. Let me give some brief background about the industry first.
The auto industry is navigating a complex environment with a mix of challenges and opportunities. The companies are adopting diversified product portfolio, improving operational efficiencies and leveraging new technologies. There has been a noticeable shift in the consumer preference towards SUVs and premium HVAC. Maruti Suzuki, traditionally strong in the small car segment, has been expanding into SUV lineup to capture a larger share of growing market. And this is where Subros also feel a great opportunity for us for future stores. Indian auto industry continued to experience a gradual shift towards electric and strong hybrid also.
Our traditional IC engine will continue to dominate the market and hybrid model will gradually be popularly bridging this gap between ICE and the CV. During the quarter, Passenger Vehicle industry has observed a growth of 5.8%. As a result, India upheld or sustained it's position as the third largest EV market globally. During the quarter, Passenger Vehicle industry has crossed production of 1.2 million, car production. Subros has grown in Passenger Vehicle segment by 16% due to various model mix and improvement in share of business with our OEMs.
Commercial vehicle segment also showed a negative growth during the quarter, that is 2.4% negative. And 2 and 3 categories have shown growth of 17%, whereas LC category has shown a degrowth of 4%. Overall, Subros growth in the truck segment and 2 and 3 categories is 8%. Commercial vehicle bus is also improving because of tourism sector and public transport system. AC [indiscernible] fitment ratio is having a variable impact on the overall industry for us. Industry has shown a growth of 6.7%. However, Subros being dominant in the small car segment has shown a degrowth of 5% just because of the AC fitment ratio variability.
Regarding Indian Railways, being the lifeline automation, there has been various actions taken by the government for improvement of railway infrastructure and also to provide the aircon driver cabin as well as the forged aircon. We have been consistently following up for this business acquisition. And last year, we got all the technical approval from RDSO for both cabin as well as for coach and we started executing the orders. There is a start-up production last quarter. And based on that, we started realizing the revenue on this segment also.
The result of quarter 1, FY '25 has been shared with the stock exchange and also posted on our website. So let me elaborate the summary of results one by one. So growth has performed very well in quarter 1 FY '25, growth of 17% with a significant improvement in the margin. This is the result of aggressive push towards operational efficiencies and cost on efforts. The company achieved sales amount of INR 807 crores.
In this quarter, current noncash segment has contributed 94% and 6%, respectively. Our share of business in passenger vehicle aircon market is 43%. In truck market, it is 53% and in bus segment, it is 16%. Now I will elaborate on operational performance, as I mentioned before, there is a lot of challenges and supply chain disruptions globally. And also there are cost escalations happening now.
For the last 2 years, we have been questioned very aggressively on the metal cost reduction program and also to offset the commodity fluctuation, logistics cost escalation with the customer settlement. The company has realized EBITDA of INR 80.42 crores in quarter 1, which is 9.96% of the net sales as against EBITDA of INR 48.80 crores, which was 7.06% of the net sales in corresponding quarter of the last year. There is an improvement of EBITDA by 65% as compared to the last year same quarter. Profit before tax in the quarter is INR 47.16 crores, which is 5.84% of the net sales.
Profit before debt has improved by 138% and PAT in quarter 1 is 34.91%, which is 4.33% of the net sales and this has improved by 159%.
Few business updates. As I mentioned before, in the previous few quarters, the performance has started improving and we are improving on EBITDA, PBT and PAT level. And we continue to pursue it the same and see the double-digit growth in the forthcoming quarters as well as the business conditions are positive so far, unless there is a big disruption coming in.
In addition to that, our efforts from cost down realization, both in fixed and variable costs, are also contributing well to the bottom line. Company is debt-free now. Lond-term [indiscernible] are nil. So we are able to now support our cash generation to our capital investment. Subros is first for our promising future and strong commitment to innovation. So based on that, our new business acquisition and product development in various segment is happening. We already secured almost 20% of our revenue businesses from alternative fuels, CNG, hybrid or electric and we'll be able to continue this further.
We also reported in past that Ministry of Road Transport, heavy industry has also initiated a notification for mandatory truck aircon, effective from October '25. So business acquisition towards that new notification realization is going on with the large OEMs. And we'll update you once we have final purchase orders received from them.
Also, our product development in BV segment, Born Electric with Mahindra & Mahindra and Maruti Suzuki are at final stage of evaluation and SOP are planned as per the milestone. So we are progressing well also on these 2 big initiatives. We are also now trying to build up certain capacities to meet the customer demand in next 5 to 7 years.
Based on that, we are happy to announce that we got in principal approval from our Board yesterday to set up our greenfield projects in Sonipat, Haryana, which is closer to the Kharkhoda plant of Maruti. This is a strategic expansion aligned to our commitment to growth and innovation and further strengthening our presence in the automotive industry. This is in principle approval to start land finalization activities and retail project approval -- and visibility is in progress, which we will be updating you in the subsequent meeting. So before I conclude, let me summarize the key points of the financial results.
So revenue from the operation is INR 810 crores in quarter 1 with a growth of 17%. EBITDA of INR 80.42 crores with a growth of 65%. PBT of INR 47.16 crores with a growth of 138%. PAT of INR 34.91 crores with a growth 159%. So thank you very much and now we are ready to take questions.
[Operator Instructions] The first question will be from the line of Ashutosh Tiwari from Equirus.
Congrats on very good numbers. Firstly, can you provide the breakup of sales between your passenger car ACs and the [indiscernible], trucks versus -- et cetera?
So out of this INR 807 crores, the passenger vehicle segment has contributed [ INR 840 crores ]. Engine cooling module is roughly INR 120 crores. Truck segment has contributed INR 25 crores, bus is around INR 8 crores to INR 10 crores and home aircon is around INR 3 crores.
The home aircon is?
INR 3 crores.
you said EV is how much?
INR 640 crores.
INR 640 crores, okay. Okay. Okay. And last year, how much was -- CV was how much last year?
Last year quarter, CV was around INR 19 crores, which has improved to around INR 26 crores now.
No, I asked this passenger vehicles.
Your voice is not clear. Can you be louder?
I'm asking about passenger vehicles.
Last year, passenger vehicles, INR 540 crores.
INR 540 crores?
Yes.
So we have grown pretty well compared to industry. Is it driven by the new orders and also Mahindra and all?
So it has 2 contributions. One is that within the industry, the growth in SUV is maximum and our share of business in SUV is substantially large. And also, we started the business with Mahindra & Mahindra that also started and we are realizing the revenue on that.
Okay. And what like from October '25, ACs will become compulsory in trucks. So what is the current share of ACs in trucks?
So right now, it is variable. 3 months that there is slightly different [indiscernible], but roughly 15% to 17% is the current penetration of optional AC. Blower, of course, is 100%, but optional AC is between 15% to 17%.
So this INR 25 crores number that we have done in trucks right now like can increase to how much, like in FY '26, when it completely becomes effective -- on an annual or quarterly basis considering maybe you have a 50% share in the truck segment.
So because this INR 25 crores a quarter is including the blower as well as AC. So once AC will get replaced to blower, definitely, there will be some delta realization per vehicle. Annualized basis, last year, we did, in trucks, around INR 85 crores. If all the business are engaged with all customers as per our plan, we should be able to cross INR 150 crores plus.
Okay. And you mentioned that in Maruti and Mahindra, you have worked on this AC development for the EVs that they have. As of now, we don't supply for Mahindra?
No. So this SOP will start next month now. And Maruti SOP will start maybe the last quarter of the financial year.
Okay. And I think we have discussed in the past about the content increase in EV is now that you probably just going to launch and supply. What exactly is the content increase in ACs for EVs versus ICE vehicles?
So minus the electric compression, we said before also, it is roughly -- if it is 100 basis, then it would be 180 without compressor. If compressor add, the compressor alone is roughly 3x to 4x.
3x to 4x of the current cost compressor in EV?
Correct.
And you supply both, right, in this case?
Right now, we are not supplying the electric compressor. This is still under plans for either we localize or we pass through from Japan, that discussion is still ongoing.
But this 1.8x will definitely you'll get?
Yes, that would be there in the existing.
Okay. And even for the Maruti products, like when you look like when you start supplying, compressor is, as of now, not part of your order?
They will be importing as of now.
[Operator Instructions] The next question will be from the line of Hitesh Goel from Riddhish Advisors.
Sir, I just wanted to ask 2 questions. First is on this AC regulation thing that's like on October '25, it will become mandatory. So what is the content addition per truck, is around INR 10,000, INR 20,000? How should we look at it?
So right now, there is a blower in all the trucks. So between blower to AC content, there may be a delta of 9,000 to 11,000, depends upon the different size and the configuration. So you can take it roughly between 8,000 to 11,000 would be the delta part once we move completely to aircon.
That's the additional business that people get if we get 50% of that business? So basically, what we are saying, there are 300,000 trucks which are sold every year, right? So we are talking about additional delta of INR 150 crores if you get 50% market share in this, is that right? Approximately, industry size has gone up by INR 300 crores?
That's the assumption as of now. We are yet to conclude our business engagement with OEM. So once we conclude that, what share of business finally we get realized on that still to -- please wait for that. .
Okay, okay. And on the second question, EV and hybrid. So in hybrid and EV vehicles, you've given the number for EVs that the content goes up by 1.8x. In hybrid versus petrol, does the content also go up for ACs?
No. Other than, again, I'm [indiscernible] the compressor part. But in case of hybrid, the delta would not be substantial because the change point in [indiscernible], there is no change point whether it's hybrid or ICE. So it's maybe 1.3x to 1.35x or so.
Okay. And in Tata Motors EV vehicles, are you present or not, or you're only in Mahindra?
We're not present in there.
And Mahindra's next year EV vehicles, you're present in all vehicles or you've got some?
We are not present in full system, but we'll be supplying some parts for Mahindra, all the 4 programs, which are coming.
[Operator Instructions] Next question will be from the line of [ Krish Shah ] from B&K Securities.
Congratulations on a good set of numbers. Sir, just wanted to get some light on this yen appreciation, which you have seen for Japan. So any impact on the margins going forward? Or would that be a pass?
Can you repeat your question? I could not catch you. What was the...
Yen Appreciation.
Yen appreciation?
Yes, yen appreciation and the impact.
So as you know that for all ForEx related contracts, we are back-to-back secured with the customer, but with a quarter lag. So whatever impact will be there in 1 quarter, which will be either upside, downside that will net normalize in the subsequent quarter. So on an annualized basis, we don't see a major impact coming in either on top line or the bottom line.
Understood, sir. And I believe in the presentation, you mentioned about EV orders. So on the component part, is there any localization of those components? Or is that imported?
So EV, first program since the number or the base is very small, so we are trying to source it wherever possible, but our major focus is on localization. But since the numbers are very, very small, so we don't want to invest right now for large capacities for EV localization. But gradually, once we move from 1 program to another program, the localization level will increase.
Contrary to this, once we started Mahindra & Mahindra, the program was for 4 platforms. So the localization level gradually is increasing now, after first program in next month, then subsequent would be after 6 to 8 months so our gradual localization levels will increase.
The next question is from the line of Ashutosh Tiwari from Equirus.
On the revenue side, we had got the approval. How should one look at the revenue and revenue last year was around INR 5 crores to railways?
So last year was INR 5 crores. And this year, we have already done almost INR 2 crores now. We have one order, which is in pipeline, which we are supposed to close by end of this year. So revenue will be between INR 10 crores to INR 12 crores this year. And subsequent orders are in a final stage of negotiation on a business award, so we'll update subsequently, too.
And these ACs are basically like the new orders are [indiscernible] passenger coaches, right?
So yes, this is for Indian Railway coaches and also for driver cabin. So both business discussions are on.
But [indiscernible], I believe we're supplying earlier also, right?
Yes. It is already there. So -- but there is some change in technology, which railway is expecting. So we are trying to align that.
And versus this INR 10 crores to INR 12 crores that we plan to do and expect to do this year, what is the opportunity size in this segment? What is the railway sourcing per year?
So I'll not be able to spell out what exactly is the total sourcing of Railway in thermal. But as a business segment, we are on full stream and all the projected -- projects are realized, we would be able to touch between INR 70 crores to INR 90 crores.
This will happen over how many years?
Maybe 2 to 3 years.
Okay. And does this include supplies to Metro also? Or that's not as of now with us?
No, this is excluding, this is only for Indian Railway. Metro purchase, we are now at a product development stage. Once that is completed, that would be substantially different.
Okay. And generally, just to understand this space a bit better, I mean in 1 train, there maybe are 4, 5 AC coaches, what will be the size content [indiscernible]?
One coach require 2 aircon. So that's how it is called in sets. And if 1 train has around 12 coaches, so it would be 24 aircons, so 12 sets would be there.
And what was the cost of that?
So roughly, it range between INR 8 lakhs to INR 10 lakhs per AC.
Per set of aircon [indiscernible]?
Per set.
INR 8 lakhs to INR 10 lakhs was per coach basically?
Yes.
Okay, okay. And who are the other players in this segment on railway?
There are many, Sidwal is there. [indiscernible] is there.
This is -- okay. And secondly, on the both side, like I think the [indiscernible] you did INR 12 crores, INR 13 crores -- INR 8 crores, INR 9 crores -- sorry, in this quarter, similar versus last year. Do we supply for EVs as well?
Yes. So EV, both 9-meter, 12-meter products is already evaluated by us, and it is now aligned to customer program. So that trials are going on once they are successful, we'll be able to convert this into business.
And like compared to non -- let's say, normalized bus, how does the content , I think there's substantial content increase when we go to EV buses what was the content in ICE and EV like for 9...
Not a substantial change point because in the ICE bus also, compressor get energy from the electric only. So the EV bus also, the status will remain same. So there would be hardly any differential other than battery cooling module, which would be a delta, but may be 1.2x or so.
And the battery cooling model, we supply or develop, anything on that?
Pardon?
This battery cooling module for buses, have you developed supply where we are on that product?
So that also is part of the evolution because once few customers will buy them in a sector. So it will be [indiscernible] with battery cooling or there may be a few cases where battery cooling would be add-on products.
Okay. And lastly, on the margin part, how -- like say, this margin is sustainable going ahead?
So far, based on the market condition, we see next 2 to 3 quarters, we'll be able to sustain these margins, unless there is a big disruption or geopolitical disruption, which may impact the overall industry. But minus that, we don't see any challenge.
And the CapEx plan for this year, next?
So this year, I think between INR 120 crores is the CapEx investment between new program, a small capacity as well as for replacement of assets. So we will try to maintain that.
And the new plant CapEx will mainly grow next year?
So that will go next year, but we have not yet made a final proposal of how much investment will be there. Please wait for 1 quarter for getting the final input on that.
The next question is from the line of Mayur Parkeria from Wealth Managers India Private Limited.
Sir, actually, my phone when -- due to network got disconnected, apologies. So if there is any repeat or anything I missed out, another apologies. On the margin front, I just wanted to understand, sir, while we have reached the 10% target we had set in this quarter itself and you just alluded that next 2 to 3 quarters you believe it is sustainable.
But when we look at your presentation, I just wanted to clarify, in one of the slides, you mentioned that it is -- the benefit is because of lower commodity prices. And in another one where we have mentioned that localization benefits have also started to play out. The first -- former one, the commodity prices, the benefit may be a little -- maybe not very sustainable first 2, 3 -- 2 quarters. So how should we see this? Which is the major driver here? And how should we see about the sustainability of margins beyond 2 quarters, sir?
On margin side, the major contribution of improvement is localization benefit, whatever cost down efforts we did last year or next 2 years before they started realizing now. So it is a sustainable part of that because the localization benefits will continue for till the life of the program. That is one.
On the second part, commodity price impact also is softening now. And in the previous calls, we did mention that there are certain contracts where multiplied indexation is allowed with the first one, but there are certain -- excluding commodities, where compensation is not indexed. So once these are softening, we are trying -- we are now getting the gain of that. So of course, that is, again, subject to some market condition. But as of now, in the next 2 to 3 quarters, we see that such commodities are softening and will continue to be at this level.
So sir, should we believe that this is the base and our long-term 2- to 3-year target of 11% and 12% to start from here? Or do you believe that there can be headwinds with the commodities prices actually reverse, which way one should look at? Is this the base one should look at? And then going forward in the medium term, we should start realizing 11% to 12%?
As informed by Mr. Duggal that major impact on the reduction of the metal cost [indiscernible] cost optimization initiative undertaken by the company. The commodity movement or a fluctuation where it is back-to-back reimbursed by the customer, has no impact. Wherever we have not declared the commodity, it has a very small impact on our bottom line.
So going forward, there is no major -- even if the community started moving up, it is not going to have a major impact on our bottom line. But definitely, it will have and the company has an endeavor to compensate [indiscernible] aggressive cost optimization plans. So we expect that going forward, these margins are sustainable even the better ones.
Great, sir. And another thing on the CapEx, the new plant, which you have announced. I understand that plans are still to form up and the project report you'll get more details in next quarters. But directionally, will this involve EV -- the plan for the EV localization?
So new plant setup is to meet the customer requirement since Maruti has already announced 1 million capacity in Kharkhoda. So we are trying to align the project to meet that requirement, so whatever share of business we get out of that plant location, we'll be trying to service that. So there is no direct increase to localization on nonlocaliztion.
But of course, we will be expanding this plant for meeting the additional [indiscernible] requirement of customers. But of course, once we set up these plants, it will be very highly efficient plant, which will be built up to take care of next 10 to 15 years of future requirements.
Right. Sir, I missed some numbers which you gave for the quarter in terms of the breakup of the sales. If we look at the overall top line, top line growth has been muted. But if you look at the passenger vehicle, the growth, I guess the numbers were INR 540 crores to INR 617 crores. So growth was much better than the industry, which were the other segments which did not do as well that the growth was a little moderate and how do we see going forward for the whole year? .
So I think you took the data for passenger vehicles. So it was INR 540 crores to INR 640 crores. So that's how the growth is around 18% in that segment. .
Sir, 640 or 614?
640. .
Okay, okay. Okay.
And then [indiscernible] growth is roughly 13%. Bus segment has not grown because of the AC fitment ratio not favorable to us. So it all depends upon AC fitment ratio. There is no mandate of AC buses only. Truck business is favorable to us because the numbers have improved from the last corresponding quarter. And tractor in a small term but started during the quarter. So -- but the base is very small, so that is not very significant. So that's how, overall, we have realized around 17%. .
Right. So we believe that despite the slowing passenger vehicle growth for FY '25, our growth will continue to be much better than the industry in the current light because of rising SUVs and Maruti sales on the SUV side, which is there M&M platform, right?
Hopefully, yes, if this trend continues.
The next follow-up question is from the line of Hitesh Goel from Riddhish Advisors.
Sir, just wanted clarification on the railway side. Are we supplying to Vande Bharat, also? And a follow-up question there also is in railways, there is generally L1, L2, right, in terms of suppliers, in terms of contracts. So that works in AC business also? Or there are many suppliers?
So railway always decide business on L1, L2, L3. And wherever there are new entrants for that, some development orders are being issued, that is out of the total order. So that pattern we will follow to the AC also. Vande Bharat, we are right now in ICF, MCF, Vande Bharat, I think in the next order, we'll be able to service that.
And then the number that you had given for the normal diesel trains, sorry, normal trains. For Vande Bharat, that INR 1 crore per train number for AC content is higher or lower?
INR 1 crore?
So maybe you said it's INR 8 lakhs per coach, right? So there are 12 coaches.
Per coach means we are counting by coach. We don't know how many coaches will be there in a train also. So we count by coach only. So the overall number of 2 to 3 years include Vande Bharat [indiscernible].
Okay. But Vande Bharat content would be higher, I mean, or similar?
The coach is same. The aircon quality will be same.
Next question will be from the line of Annamalai Jayaraj from Baltiwala & Karani Securities India Private Limited.
I have only 1 question. What is your current import content? And what is our target for global business?
So our total import content as of now is 16% of the sales. This is our current level. Next 2 to 3 years' time, we want to bring it less than 10%. That's a long-term target we have faced.
Out of the 16%, most of it will be yen, sir, or some other currency will also be here?
Yen would be between maybe 8% to 9% of the16%.
The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.
Congratulations on a good set of numbers. Sir, just on this localization plan. So effectively, what you just answered in the previous participant is essentially, we are -- even with our plan, we will have that 10%, 11% as imports. Essentially, what is the scale, one would require to actually move towards full localization? And this component, is it largely the compressor? And in terms of technology, are we there to set it up with our partners?
Whatever remaining localization is there in primary divided into 3 parts. One is raw material, which is getting imported, either from China or from Japan. Secondly, certain proprietary parts for which the value chain is not available in the country and the scale required for such localization, one investment high and the output has to be substantially consumed in India.
And the third part is where -- there are certain residual models where the localization is not viable because models are on a downside or maybe on the end of life side. So if we separate out of the 16%, maybe 3% will go to the last [indiscernible] 8% to -- 6% to 8% would be on the raw material side and between 4% to 6% would be on proprietary part.
So localization of raw material depends upon the economy of scale because huge investment required in the large companies like Hindalco or other big companies, Hindal, et cetera, would be required to localize these parts. So that's a separate strategic push. But for proprietary parts, discussions are ongoing. And we are trying to build up the value chain for such proprietary parts, but it's a gradual process.
Sure. And could you articulate which parts are these?
So there are certain electric motors, there are certain fees -- specially made fields, there are material for systems, which are a high-grade systems. There are [indiscernible] aluminum material, which is very specialized for these exchanges. So these are kind of parts.
Sure. And sir, as EV starts getting into a sales part of it over the next 12 months, one, would localization effectively come down? Because right now, you said we would be more bought out components. And two, does this mean that the margins come down in terms of percentage terms, absolute obviously will increase since you mentioned the salience of the part is 1.8x. But in terms of percentage margins, how should we look at it, sir?
I will not say it will substantially impact because the next 2 years, the base of EV will not be substantially high. If you are talking about 1 million EV, we are talking about 6 to 7 year scale, right? The number of EV just [indiscernible] 1 lakh and 2 to 3 years, it is not going to jump to maybe more than 10% to 15% or 20% growth or so.
So it is not going to impact the overall business on a negative way. But yes, it will start with high MSR, but gradually, it will come down, but it will not have a significant impact on the bottom line.
Sure. And in terms of margins, would it be significantly lower, just to understand the EV margins?
No, it will not be lower because the new technologies, slightly, will be better than this.
Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for closing remarks.
So thank you very much. We have already summarized most of the part of our business operation about the new product development, about the businesses in pipeline, technologies in pipeline and also the capacity expansion plan.
So overall, based on the current business situation, we see very encouraging year '24, '25, subject to any disruption, which may not impact us significantly. But overall, there are good positive sentiments and we try to utilize this favorable to whole business. Thank you so much. Thanks for your attendance.
On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.