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Removed from Asia Pacific Conviction Buy List
Bosch India (BOSH.BO)
Equity Research
Off Conviction List; retain Buy on stable top quartile cash returns
What happened
We remove Bosch India from the Conviction List following the stock’s
outperformance and increased macro headwinds. We believe the
outperformance was driven by the relatively defensive nature of Bosch India’s
technology-driven business model, amid a worsening demand cycle for
automobiles. We raise our 12 month CY11E P/E-based TP to Rs7,816 (from
Rs7,414) and revise our earnings estimates by 3%-6% for 2011E-13E, following
the positive earnings surprise in 1QCY11. Since adding it to the Conviction List
on Nov. 16, 2010 the stock is up 8% vs Sensex down 13%. In the last 12
months the stock is up 16% vs the Sensex down 5%.
Current view
Despite Bosch India’s recent outperformance, we maintain our Buy rating
on: (1) high stability in margins and cash returns across the cycle, driven
by a well-differentiated technology-driven industry position; (2) lowest
stock beta and covariance in P/E multiple relative to the sector; and (3) in
the near term, Bosch India is also likely to benefit from the relative
demand differential between petrol vs. diesel fuel-based vehicles.
In 2Q CY2011, the company reported net income of Rs2.8bn, up 18% yoy,
2% qoq and higher than our estimates by 16%, and 8% vs. Bloomberg
consensus. The surprise was mainly driven by revenue up 20% yoy, and
6% above our and 4% above consensus. Key takeaways: 1) Management
observed that demand for LCVs and tractors continues to be robust where
as for passenger cars and HCVs it seems to have peaked during the first
half of CY2011. 2) Management believes that the diesel vehicle segment
should continue to grow faster than the petrol segment due to relatively
favourable economics, and despite any potential fuel or excise duty hikes.
3) Raw material costs increased by 250bps owing to rising metal costs,
Euro increase vs. INR rates and product mix. 4) Other income for the
quarter was higher owing to higher treasury income.
Key risks: commodity costs, worse-than-expected fuel price environment.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Removed from Asia Pacific Conviction Buy List
Bosch India (BOSH.BO)
Equity Research
Off Conviction List; retain Buy on stable top quartile cash returns
What happened
We remove Bosch India from the Conviction List following the stock’s
outperformance and increased macro headwinds. We believe the
outperformance was driven by the relatively defensive nature of Bosch India’s
technology-driven business model, amid a worsening demand cycle for
automobiles. We raise our 12 month CY11E P/E-based TP to Rs7,816 (from
Rs7,414) and revise our earnings estimates by 3%-6% for 2011E-13E, following
the positive earnings surprise in 1QCY11. Since adding it to the Conviction List
on Nov. 16, 2010 the stock is up 8% vs Sensex down 13%. In the last 12
months the stock is up 16% vs the Sensex down 5%.
Current view
Despite Bosch India’s recent outperformance, we maintain our Buy rating
on: (1) high stability in margins and cash returns across the cycle, driven
by a well-differentiated technology-driven industry position; (2) lowest
stock beta and covariance in P/E multiple relative to the sector; and (3) in
the near term, Bosch India is also likely to benefit from the relative
demand differential between petrol vs. diesel fuel-based vehicles.
In 2Q CY2011, the company reported net income of Rs2.8bn, up 18% yoy,
2% qoq and higher than our estimates by 16%, and 8% vs. Bloomberg
consensus. The surprise was mainly driven by revenue up 20% yoy, and
6% above our and 4% above consensus. Key takeaways: 1) Management
observed that demand for LCVs and tractors continues to be robust where
as for passenger cars and HCVs it seems to have peaked during the first
half of CY2011. 2) Management believes that the diesel vehicle segment
should continue to grow faster than the petrol segment due to relatively
favourable economics, and despite any potential fuel or excise duty hikes.
3) Raw material costs increased by 250bps owing to rising metal costs,
Euro increase vs. INR rates and product mix. 4) Other income for the
quarter was higher owing to higher treasury income.
Key risks: commodity costs, worse-than-expected fuel price environment.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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