Accumulate Bosch – 4QCY2010 Result Update - Angel Broking

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Bosch – 4QCY2010 Result Update

Angel Broking maintains an Accumulate on Bosch with a Target Price of Rs. 6,753.

Bosch reported strong set of numbers for 4QCY2010, which were better than our

expectations on the top-line front. However, lower-than-expected EBITDA margins

on account of raw-material cost pressures led to in-line growth in the bottom line.

Growth was largely aided by sustained momentum in commercial vehicle (CV)

sales. We broadly maintain our earnings estimates for the company and maintain

our Accumulate view on the stock.

Better-than-expected top-line growth aides overall performance: For 4QCY2010,

Bosch registered better-than-expected top-line growth of 29.5% yoy (10% qoq) to

`1,884cr (est. `1,729cr), aided by a robust 35% yoy jump in the auto segment’s

revenue and a 24% increase in others segment’s revenue. The company’s revenue

in the diesel systems segment grew by ~30% yoy and the automotive aftermarket

segment registered growth of ~22% yoy during the quarter. On the operating

front, EBITDA margin came in 233bp below our estimate at 16.4%, down 75bp

yoy and 335bp qoq, as commodity pressures continued to mount during the

quarter. As a result, raw-material cost increased during 4QCY2010, with higher

proportion of trading goods leading to raw-material cost to net sales ratio of

53.7% as against 51% in 4QCY2009. However, led by strong top-line growth, net

profit posted an in-line increase of 33% yoy (down 10.8% qoq) to `211cr.

Outlook and valuation: We estimate Bosch to post EPS of `302 and `337.6 for

CY2011E and CY2012E, respectively, owing to the anticipated good growth in

auto demand. At `6,141, the stock is quoting at 20.3x CY2011E and 18.2x

CY2012E EPS, respectively. We maintain our Accumulate view on the stock with a

Target Price of `6,753. At our target price, the stock will trade at 20x (based on

historical average multiple) CY2012E EPS.

Top-line growth aided by healthy growth in the automotive segment: Bosch

reported strong net sales growth of 29.5% yoy during 4QCY2010, led by

sustained growth in overall automotive sales and favourable CV cycle in particular.

The company continued to maintain its sales growth momentum, resulting in an

impressive growth in the overall business. The automotive segment grew by 35%

yoy, while the others segment posted growth of 24% yoy during 4QCY2010.

During the quarter, exports revenue registered an increase of ~24%.

EBITDA margin at 16.4%, down 75bp yoy and 335bp qoq: For 4QCY2010, Bosch

reported a 75bp yoy and 335bp qoq decline in EBITDA margin to 16.4% due to

commodity cost pressures. The company’s raw-material cost during the quarter

increased with higher proportion of traded goods, resulting in a 267bp yoy

increase in raw-material cost/net sales ratio at 53.7% in 4QCY2010 v/s 51% in

4QCY2009. However, a yoy decline of 429bp in other expenditure arrested the

further fall in EBITDA margins. Employee cost rose by 32.6% yoy to `222.3cr on

the back of increased head counts and higher incentive payouts. Overall,

operating profit grew by 23.9% yoy (down 8.6% mom) to `309cr.

Purchase of traded goods jumped by 91.4% yoy because of higher imports of

finished goods in the power tools and security equipment space. The company

continues to import these products from overseas markets, mainly from Germany.

Imports from Germany account for 35–40% of the company’s raw-material cost.

On a segmental basis, EBIT margin of the automotive segment posted a marginal

48bp yoy (down 364bp mom) increase to 15.2%. Overall EBIT for the automotive

segment reported strong growth of 39.6% yoy during the quarter. However, for the

others segment, loss at the EBIT level declined to `7cr from `11cr in 4QCY2009.

Net profit up 33.1% yoy: Net profit during the quarter grew by 33.1% yoy (down

10.8% qoq) to `211cr mainly due to robust top-line growth. Higher interest income

and lower tax rate also supported the company’s bottom-line performance

during 4QCY2010.

Conference call – Key highlights

􀂄 Top-line performance during 4QCY2010 was led by ~30% growth in the

diesel systems segment, ~22% growth in the automotive aftermarket segment

and ~24% growth in the exports segment.

􀂄 Management expects the diesel engine market to remain at ~51% over the

next couple of years. Currently, Bosch derives ~65% of its revenue from

component sales for diesel vehicles.

􀂄 Royalty payments to the parent company range between 2% and 6%,

depending on the products.

􀂄 Employee costs increased during the quarter on account of increased

employee count, bonus payouts and salary hikes. Employee costs are expected

to be stable going ahead.

􀂄 On the raw-material front, steel and aluminium prices continues to inch

upward, which is a cause of concern. Also, the proportion of traded goods

compared to manufactured goods was high.

􀂄 Capital expenditure of `1,300cr has been planned over the next three years.

During CY2010, `300cr was incurred as capex, mostly at its facilities in

Bangalore and Nashik. Bosch intends to incur ~`400cr capex in CY2011.

Investment arguments

􀂄 Technology-intensive industry supplemented by high bargaining power: We

estimate the company to post a ~16% CAGR in the top line and ~11% CAGR

in net profit over CY2010–12E, assuming better outlook and growth in the CV

and CRS segments. Further, Bosch enjoys high margins in the auto component

segment due to high entry barriers and its dominant position in the market.

Moreover, better utilisation of new capacities and gradual localisation of

component supplies would help the company sustain margins at 17–18%

going ahead.

􀂄 CV cycle helps to post robust growth: Bosch's medium-term prospects are

largely derived from demand arising in the CV and tractor segments, which

are estimated to post CAGRs of around ~13% and ~7%, respectively, over the

next couple of years. Further, greater visibility on newer growth opportunities is

emerging for the company, following its investments in new and innovative

technologies such as CRS and gasoline systems. We believe the company will

continue to enjoy premium valuations, owing to strong parental focus and

increasing long-term growth opportunities in the Indian market, facilitated by

changes in emission norms. Moreover, Bosch has been a consistent performer

with strong cash flows in the Indian auto component industry.

Outlook and valuation

We estimate Bosch to post EPS of `302 and `337.6 for CY2011E and CY2012E,

respectively, owing to the anticipated good growth in auto demand. At `6,141, the

stock is quoting at 20.3x CY2011E and 18.2x CY2012E EPS, respectively.

We maintain our Accumulate view on the stock with a Target Price of `6,753.

At our target price, the stock will trade at 20x (based on historical average

multiple) CY2012E EPS.