Whalesbook
The margin compression was largely driven by a persistent uptrend in commodity prices and unfavorable currency movements, which combined to reduce EBITDA margins by 65 basis points year-on-year to 8.6 percent. An additional Rs 8 crore in expenses was attributed to the new labor law implementation.
Margin Pressures Mount
Commodity prices have been on an uptrend lately and currency movement is unfavourable. All these factors led to a 65-basis point (bps) dip in EBITDA (Earnings before interest, tax, depreciation and amortisation) margin, which stood at 8.6 percent, compared to 9.2 percent last year. The new labor law also took effect and added Rs 8 crore to the expenses. Net profit margin was down 32 bps YoY.
EV Ambitions Take Shape
Passenger vehicles (PVs) remain the stronghold of Subros, with the company commanding ~41 percent market share. Leveraging this dominance, Subros is now positioning itself to capture the next leg of growth from electric mobility, where thermal management content per vehicle structurally increases. It has already commenced supplies for the EV programmes of Maruti Suzuki and Mahindra, both of which are currently in the ramp-up phase and is in advanced discussions with Tata Motors and Hyundai/Kia, widening its EV opportunity pipeline.
Additionally, in Q3, Subros secured a Rs 1,280-crore order for the supply of locally manufactured electric compressors for the upcoming EV and SHEV (strong hybrid) vehicles, spanning a 7-year life cycle. To support this growth, the company is expanding capacity at the Karsanpura facility for both e-compressor and fixed displacement compressors (FDC) for ICE vehicles. This expansion strengthens Subros’ manufacturing footprint and supply-chain reliability in India, reinforcing its role as a preferred Tier-1 supplier. As localisation remains a key growth lever, execution on indigenisation of e-compressors and timely ramp-up of new capacity will be a critical factor to watch.
Diversification Beyond Passenger Vehicles
Subros has also built a meaningful presence in the commercial vehicle (CV) segment, enjoying ~42 percent market share in CV ACs and blowers. It has also established operations in buses and railways, providing a natural diversification beyond the PV cycle. In the CV segment, demand tailwinds are turning supportive, driven by the recent regulatory mandates and replacement demand from an ageing vehicle fleet.
The railways segment is emerging as an additional growth lever. In Q3, Subros secured a Rs 52-crore comprehensive annual maintenance contract from Indian Railways for cab HVAC units over a three-year period. The management has also indicated that the company has started bidding for HVAC tenders in Vande Bharat trains. Subros’s growing footprint across CVs, buses and railways complements its PV-led growth strategy, albeit with execution and timing risks inherent to the tender-based nature of these businesses.
Outlook and Valuation
While both the PV and CV segments are expected to see moderate sales growth in FY26, the company remains confident of outperforming the industry and delivering high single-digit top-line growth. However, elevated raw material costs are likely to persist in the near term, keeping Q4 margins under pressure. Subros continues to benefit from its long-standing technology and supply partnership with Denso Corporation, Japan, which provides access to critical components and advanced HVAC technologies. While the management is actively pursuing higher localisation to improve cost-efficiency and margin resilience, reducing dependence on Denso’s supply chain remains structurally challenging. At the current valuation of ~23x FY27e earnings, the stock does not appear expensive. However, with limited near-term catalysts and margin headwinds, we see a limited upside in the stock.