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S. Muralidhar

Riding piggy back on the high growth rates in demand for cars, especially Maruti.

SHAREHOLDERS of Subros Ltd can consider paring exposures at the current level of Rs 102. The stock trades at a multiple of about nine times FY03 earnings per share.

If the annualised EPS of Rs 18.82 based on the current fiscal's first quarter is considered, the stock trades at a price-earnings multiple of 5.4 times. The stock went up from Rs 30 at the beginning of May.

Automobile components suppliers and vendors have ridden the wave of demand that has been sweeping the passenger car industry during the past few months.

Subros Ltd, the country's leading supplier of air-conditioning systems and components, is one of the key beneficiaries of this uptrend.

The company, which has been focussing solely on air-conditioning systems as a product category, has a technical collaboration with Denso Corporation of Japan.

Subros' performance in the first quarter of this fiscal indicates how the auto industry's prospects are benefiting this component company.For the quarter ended June 2003, Subros reported net sales of Rs 136.39 crore and a net profit of Rs 2.83 crore compared to net sales of Rs 88.91 crore and net profit of Rs 37 lakh respectively in the corresponding previous quarter.

This helped the company post a healthy 53 per cent increase in sales and a more than seven-fold increase in its bottomline over the corresponding previous period.

But the real story of how Subros managed to improve its bottomline lies in the smaller details of its performance.

For one, the company managed to improve its operating profit margins (OPM), which jumped to 7.1 per cent for the quarter ended June 2003, up from 5.6 per cent during the previous fiscal's first quarter.

Operating margins were 6.9 per cent and 5.2 per cent respectively for 2002-03 and 2001-02.

The increase in operating margins for Subros was achieved through tighter control on costs. Costs were also lowered because of a reduction in the excise duty outgo for the company.

The total excise duty paid as a percentage of sales was down to 18.3 per cent during the quarter under review as compared to 23.2 per cent during the corresponding previous quarter. The company has also managed a marginal reduction in its interest outgo.However, the substantial jump in sales revenues also helped the company post higher profits, despite a higher wage bill, increased depreciation and higher taxation.

As a result, the net profit margin (NPM) for Subros also registered a healthy, near five-fold increase during the quarter under review.

The Q1 2003 NPM at 2.08 per cent was much higher compared to 0.42 per cent in the corresponding previous year quarter, and the 2002-03 level of 1.57 per cent. The NPM has been rising during the last two fiscals and was even lower at 1.06 per cent in 2001-02.

Subros was established in 1985 in technical collaboration with Denso Corporation of Japan. The company now has a financial collaboration with Denso Corporation and Suzuki Motor Company (SMC), Japan.

Maruti Udyog, now a subsidiary of SMC, was Subros' first customer and even now continues to be its largest client. Subros' customer base has expanded over time, from supplying to only 800 cc cars in 1985 to all the models of Maruti and Tata Motors as well as other OEMs such as Hindustan Motors and Bajaj Trax.

Besides these, the company also supplies parts and components to other car manufacturers.

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