Bosch - 1QCY2013 Result Review - Angel Broking

Bosch (BOS) reported better-than-expected results for 1QCY2013 led by sequential expansion of 482bp in operating margins to 17.3% driven by a sharp 23.4% qoq decline in other expenditure. However, on a yoy basis the performance was impacted due to the ongoing slowdown in the automotive industry.

For 1QCY2013, top-line posted a decline of 3.8% yoy to Rs. 2,207cr as medium and heavy commercial vehicle and tractor segments of the automotive industry, the key drivers of the company's performance, witnessed a decline of 39% and 8.5% yoy respectively. As a result, the diesel systems segment of the company posted a decline of 13% yoy. While domestic sales declined 2.5% yoy, export sales posted a decline of 9.5% yoy during the quarter. On the operating front, EBITDA margin declined by a sharp 349bp yoy to 17.3% as employee and other expenditure as percentage of sales surged 210bp and 180bp yoy respectively. However, on a sequential basis, EBITDA margins improved 482bp led by lower other expenditure which benefitted from the cost reduction initiatives undertaken by the company. Hence, operating profit grew by a strong 43.5% qoq to Rs. 382cr, significantly higher than our estimates of Rs. 258cr. Led by a strong sequential operating performance, net profit posted a better-than-expected growth of 51% to Rs. 260cr. Nonetheless, it declined 22.6% yoy largely due to contraction in operating margins.

While we are positive on the long term prospects of BOS due to its technological leadership and strong and diversified product portfolio, we expect the near-term environment to remain challenging given the continued slowdown in the domestic automotive industry. Nevertheless, current valuations of 20.5x CY2014E earnings, leaves limited room for any potential upside. Hence, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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