In the world of investments, small-cap stocks often stand as both a symbol of volatility and a beacon of opportunity. These companies, with a smaller market capitalisation compared to their larger counterparts, can deliver surprises to investors who are willing to navigate the unpredictable terrain of the stock market.
Amidst this backdrop of risk and reward, Subros, an automotive air-conditioning solution provider, has emerged as one of the biggest wealth creators. From a trading price of ₹27.75 apiece ten years ago, the stock has seen a remarkable rise of 2173% to trade at the current level of ₹631.
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To put this into perspective, if an investor had invested ₹one lakh into these shares a decade ago and held onto them until today, their investment would have ballooned to an astonishing ₹23 lakh.
Over the last ten years, it concluded seven years with gains. The standout year was CY14, when it delivered a remarkable return of 140%. This was followed by robust returns of 90% in CY17 and 81% in CY23.
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About Subros
Founded in 1985 as a joint venture between the Suri family of India, DENSO Corporation, and Suzuki Motor Corporation, the company is a leading manufacturer of thermal products for automotive applications in India. It is the only integrated manufacturing unit in India for auto-air conditioning system products.
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The company manufactures compressors, condensers, heat exchangers, and all connecting elements. It serves various sectors, including passenger vehicles, buses, trucks, refrigeration transport, off-roaders, residential air conditioners, and railways.
Market positioning
According to a recent note from domestic brokerage firm Sharekhan, the company holds a dominant position in the automotive air-conditioning segment. In Q2FY24, it commanded a 42% market share in the passenger vehicle segment and a 51% share in the commercial vehicle (truck air conditioning/blower) segment.
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The company serves both auto and non-auto sectors, with Maruti Suzuki being a key customer, contributing to almost 86% of its Q2FY24 revenue.
CV AC segment key opportunity in coming years
The Ministry of Road Transport & Highways (MoRTH) has made air-conditioned cabins in the domestic truck (N2/N3 category) industry mandatory effective January 2025. The drivers’ unavailability has been a critical issue that most fleet operators are facing, as new-age drivers do not prefer driving as a lifelong occupation.
Mandatory AC cabins for trucks would expand the addressable market and help further increase non-PV revenue for Subros, as it has been one of the leading players in the domestic automotive air-conditioning segment, said Sharekhan. This will create a market opportunity of ₹400–450 crore by FY26, it noted.
Recent developments
On December 9, 2023, the company bagged a new order worth ₹25 crore from Indian Railways for the supply and commissioning of coach roof-mounted air conditioners.
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The company is already a supplier of rail driver cabin air conditioning systems to Indian Railways, and the focus on coach air conditioners is in line with the strategic direction to expand the company’s business in the railway electric mobility segment.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 03 Jan 2024, 01:48 PM IST
