Results beat but best yet to come! • Bosch Ltd :: ICICI Securities, PDF link

Please Share::

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

��

-->
Results beat but best yet to come!
• Bosch Ltd’s (Bosch) Q3CY14 results were ahead of expectations on
the margins and profitability front while topline estimates were
lower-than-expected
• Reported revenues were at ~| 2394 crore vs. our estimate of | 2525
crore, with automotive revenues at | 2119 crore, up 4.2% YoY while
non-automotive revenues at | 279 crore grew 1.8% YoY
• Operating margins at 18.1% (~180 bps QoQ, ~240 bps YoY
increase) were a strong beat vis-à-vis our estimate of 16.6%
• Thus, despite lower-than-estimated other income (| 98 crore), PAT at
~| 306 came in higher than our estimate of ~| 303 crore
Bosch an attractive play on automotive recovery; emissions change!
Bosch India (Bosch) with its strong technology leadership and market
share (>70%), is one of the few ancillary companies with significant
bargaining power with original equipment manufacturers (OEMs). Thus,
in an automotive market (ex-2-Ws/inclusive of tractors) that has witnessed
paltry ~4.9% CAGR (FY11-14) (to 5.2 million units) we feel both latent
consumptive & necessary commercial could spur growth faster than
expectations. We forecast the CV segment will grow at ~14% CAGR in
FY14-17E (owing to weaker base) while in the PV space we expect ~13%
CAGR in FY14-17E on the back of new products. The tractor segment is
likely to grow at ~8-9% CAGR (FY14-17E) on increasing mechanisation of
farms on paucity of rural labour and steady replacement demand.
Another revenue trigger may emanate from pending emission changes in
CY16E that can potentially lead to increment of ~30% to net sales.
Engine business remains one of the most lucrative ancillary segments!
Engine parts constitute the largest chunk (~31%) of the auto ancillary
segment industry (~$40 billion) in value terms. The engine parts business
has much better average RoCE than closer revenue peers like tyre
companies. On top of this, the high market share commanded by Bosch
aids it to generate stable and above-average cash returns relative to both
domestic ancillary peers and even parent’s global comparables.
Strong focus on R&D and new product development!
The Bosch group spends ~$5.5 billion every year on R&D and ~8% of net
sales. It is comparable with the R&D spends of global auto OEMs like
Volkswagen, GM and Toyota. Bosch Group offers most of its technologies
at a low royalty rate (~1.5-2%) to the Indian arm. Bosch India, thus,
stands to benefit from the technology leadership profile of its parent as
implementation of new innovations pick up pace in India. A case in point
is a new product like electronically controlled fuel injection system
developed by Bosch Gmbh, which would be available to Bosch India.
Unchallenged business, unlisted behemoth parent= “scarcity premium”
We believe on the valuations front Bosch would tend to remain at a
premium to both its peers and the market. This stems from its dominant
business position as well as presence of a key behemoth foreign unlisted
promoter. On financials, we anticipate a CAGR of ~18%, ~28% in
revenues, earnings, respectively, over CY13-16E. Return ratios are likely
to remain healthy at ~18-19%. Although valuations at ~17x CY16E
EV/EBITDA appear optically high, we ascribe an up cycle premium of 10%
to its long-term average of 18.3x considering strong growth potential and
triggers on a four to five year timeframe. We value the stock at 20x CY16E
EV/EBITDA to arrive at a target price of | 18,500 and recommend BUY.

LINK
http://content.icicidirect.com/mailimages/IDirect_Bosch_Q3CY14.pdf