Bosch - Domestic M&HCV and Europe impact performance - BRICS

Bosch Ltd.'s Q1CY13 numbers came in below the Street's expectations. Revenue declined 4% yoy, despite a growth of 11% yoy in revenue of non-auto segment to Rs22bn. Revenue was up 4% qoq, but PAT grew 51% qoq to Rs2.6bn, due to increasing efficiencies. Low volume and unfavourable exchange rates impacted margins, down 349bps qoq to 17.3%. In CY05-12, the stock traded at an average P/E of 21.5x. We expect the stock to trade at a premium to the market and maintain our DCF based TP of Rs10,094. Maintain Buy.

Revenue down 4% yoy: Revenue declined 4% yoy to Rs22bn, as weakness in the auto segment continued. Strong auto sales in Q1 CY12 resulted in higher base - PV production declined 5.6% yoy, M&HCV fell 39% yoy, tractor was down 8% yoy, while LCV and 3W were up yoy by 12% and 4%. Revenue of the automotive segment stood at Rs19bn (down 7% yoy), while non-auto segment's revenue grew 11% yoy and contributed Rs3bn. Exports declined 9.5% yoy, while domestic market was down 2.5% yoy. OEM diesel system sales declined yoy in the double-digits, while after-market sales remained flat yoy.

EBITDA declines 20% yoy, margin down 349bps yoy: The impact of unfavourable exchange rates on raw material prices was partly negated by softening rates and efficiency management actions by the company. Net imports remained at 20% of sales. Other expenses increased yoy, on account of incentive schemes and services tied in with sales. EBITDA declined 20% yoy to Rs3.8bn, resulting in EBIDTA margin of 17%.

PAT down 23% yoy, but up 51% qoq: Depreciation increased significantly yoy due to investments of Rs5.8bn during CY12. Other income was up yoy, owing to interest from fixed deposits. The company's cost efficiency measures - in heads like repair and maintenance of plant, packaging, power and lighting, and administrative expenses - drove a qoq improvement in PBT margin and PAT margin. The company made a tax provision of Rs1.2bn, or at a tax rate of 33%, resulting in PAT coming in at Rs2.6bn - down 23% yoy, but up 51% qoq.

Bosch's auto segment depends largely on the CV and tractor segments. However, due to the slowdown in the overall economy and weak industrial production, the CV segment is likely to remain weak and the tractor segment is expected to pick up in FY14 with a growth of 4%. We expect the overall economy to witness a revival in H2FY14 and benefit Bosch. We see Bosch's recent entry into packaging and thermo solar products as a foray into a big potential market. These strategic steps will help the company record a higher growth in the non-auto segment.

We estimate a CAGR of 23% in the company's net profit over CY12-15 and expect RoE and RoCE to improve to 20.9% and 21.8% in CY15. In CY05-12, the stock traded at an average P/E of 21.5x. We expect the stock to trade at a premium to the market, due to Bosch's strong earnings growth, high return ratios, parent support, unbeatable technology and rapid dieselization in India. We have arrived at a TP of Rs10,094, based on the DCF method. Maintain Buy.

Source : Equity Bulls

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