Bosch Ltd - Future Needs a Past; Initiating Coverage :: Edelweiss PDF link

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Bosch Ltd. is the listed Indian subsidiary of the Robert Bosch Group and is the market leader in India with ~80% share in diesel fuel injection systems for commercial vehicles (CVs). With the impending change in domestic emission norms from BS-III to BS-IV and its global parent being a frontrunner in automotive technology, we believe the company is well placed to capture a large share of incremental INR 4000 cr opportunity (at current industry sales) by 2017 (Bosch Sales: INR 8820 cr). Moreover, the recently introduced e-clutch has received good response from the customers. Bosch will be a key beneficiary, as Daimler and Volvo (fully ramped-up capacity at 1.7 lacs) look at India as engine hubs. We have not fully factored in new product opportunities, innovations and India engine hub story, which will provide positive surprise to our EPS estimates. Over the next three years, Bosch sales and margins will expand on the back of demand uptrend, introduction of new products and change in domestic emission norms.

Change in Emission Norms - INR 4000 cr+ opportunity

Bosch is the market leader in diesel engine systems with a market share of ~80% (85% + market share in CVs). The company has historically benefitted from change in domestic emission norms and same will also be the case in the future. We believe that the nationwide implementation of BS-IV norms by 2017 would lead to additional opportunity of INR 4000 cr (on current industry sales) for Bosch due to upgradation of existing products (from direct injection to CRDi) and introduction of new after-treatment products (SCR).

Bosch to sustain leadership position

From its inception in 1951, the Diesel Fuel Injection Systems (FIS) has been the core business of Bosch. It supplies FIS to a majority of Original Equipment Manufacturers (OEMs) and commands market leadership with a share of 80%. Globally, Bosch leads the powertrain component segment with a significant market share due to dominance in the diesel-powered light & heavy vehicles. We believe that Bosch will sustain its leadership position due to 1) economies of scale/higher localisation Vs peers 2) significant presence in after-markets 3) 50% more global R&D spend Vs nearest competitor, and 4) global products customised to Indian requirements.

Advanced technology + MHCV revival = Higher margins

We believe that EBITDA margin for Bosch will improve from here onwards in the medium term due to revival in domestic MHCV cycle and improvement in non-auto margins. Historically, EBITDA margin has shown positive correlation with the MHCV cycle, which in our view is on the cusp of a revival. Also, over the long-term, Bosch's margin will be driven by the introduction of new technology products. Globally, Bosch margin (ex-R&D) is above 20% while Bosch India EBITDA margin is sub-20%, despite a high differential in employee costs.

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https://www.edelweiss.in/research/Bosch-Ltd--Future-Needs-a-Past;-Initiating-Coverage/10005274.html