Bosch - 1QCY2013 Result Update - 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. We revise our earnings estimates upwards (by 5.3%/3.6% for CY2013E/14E) to factor in the better-than-expected EBITDA margin performance during the quarter led by the cost reduction initiatives undertaken by the company which will continue to benefit the company going ahead. While we are positive on the long term prospects of BOS, current valuations leave limited room for any potential upside. Hence, we maintain our Neutral rating on the stock.

Better-than-expected performance for 1QCY2013: For 1QCY2013, the 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. The EBITDA margin declined by a sharp 349bp yoy to 17.3% as employee and other expenditure as a 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, the 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.

Outlook and valuation: 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. The current valuation of 20.3x 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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