bosch icici direct

8/10/2019 Bosch Icici Direct

1/8

February 28, 2014

ICICI Securities Ltd Retail Equity Research

Result Update

WHATS CHANGEDPRICETARGET..................................... ............................ Changed from | 9360 to | 10700

EPS (CY14E).................................................. ................... Changed from | 350.7 to | 340.9

EPS (CY15E).................................................. ................... Changed from | 437.1 to | 443.4

RATING................. .................................. .................................. .. Changed from Hold to Buy

Quarterly blip does not mar long-term story

Bosch Ltd (Bosch) reported its Q4CY13 results that were largely in-line on

the topline front but came lower on the margins, profitability fronts.

Revenues at | 2162 crore grew 1.4 YoY as the significant slowdown in

automotive demand led to ~2 YoY decline while the non-auto segment

grew ~30 YoY to ~| 300 crore. Impact of tooling write-off and rupee

depreciation led to lower margins of 9.9 in a seasonally weak quarter.

Lower other income and impact of higher-than-expected depreciation

also led to lower PAT that was at ~| 139 crore. With the tractor segment

growing rapidly (~22 YoY in Q4), normalised export growth (~15

YoY) and replacement segment holding ground despite the slowdown,

Boschs automotive business has continued to be resilient. The non-

automotive segment has continued to grow at ~30 YoY albeit on a low

base. We believe it is adequately ready for any benefits accruing from

emission changes in CY15E & is working on modernising facilities (~| 600

crore for CY14E, CY15E each) for the future. With a strong monopolistic

product portfolio, backed by robust R&D, we believe Boschs business

profile remains unblemished. We expect it to witness ~25 CAGR (CY13-

15E). We upgrade our rating to BUY with an enhanced TP of | 10700.

Future holds promise as regulation changes imminent

Boschs topline performance has been resilient to the overall weakness in

the auto sector due to its diversified business across the UV, CV, tractor,

3W segments, with export/aftermarket segments providing additional

cushion. We expect the severely suppressed M&HCV segment (5%, 16%

growth in FY15E, FY16E) to aid improvement in margins, utilisation. With

emissions norms likely to kick-in from CY15E, we expect a further boost

to the business, as was the case in CY05 and CY10 as content per vehicle

increases on product enrichment/up-gradation.

Solid play on recovery; multiples to expand as cycle bottoms out

Bosch will be a key beneficiary of a recovery in the automotive space andcould benefit significantly from the likely emission norm changes in

CY15E. Bosch has justifiably traded at a premium to the rest of the auto

ancillary pack considering its business profile strength/financial profile.

With the economic cycle likely to have bottomed out, we expect multiples

to further expand going into elections. We value Bosch at 16x EV/EBIDTA

CY15E and recommend BUY with a TP of | 10700.Exhibit 1:

Financial Performance

(| Crore) Q4CY13 Q4CY13E Q4CY12 Q3CY13 QoQ (Chg %) YoY (Chg %)

Total Operating Income 2162.0 2266.7 2131.8 2149.9 0.6 1.4

EBITDA 213.4 318.1 266.1 326.6 -34.7 -19.8

EBITDA Margin (%) 9.9 14.0 12.5 15.2 -532 bps -261 bps

Depreciation 124.2 110.7 129.2 89.4 38.9 -3.9

Interest 2.5 0.1 5.4 0.0 8166.7 -54.1

Other Income 93.1 120.0 113.3 86.5 7.7 -17.8

Reported PAT 139.0 224.2 172.1 234.3 -40.7 -19.2

EPS (|) 44.3 71.4 54.8 74.6 -40.7 -19.2 Source: Company, ICICIdirect.com Research

Bosch Ltd (MICO)

| 9405

ing matrix

ng : Buy

get : |10700

get Period : 12 months

ential Upside : 14%

y Financials (Consolidated)

Crore CY12 CY13E CY14E CY15E

t Sales 8,417 8,641.1 9,554.0 11,180.9

TDA 1,349.5 1,291.0 1,486.0 1,858.7

t Profit 958.3 884.7 1,070.4 1,392.2

S (|) 305.2 281.8 340.9 443.4

uation summary(Consolidated)

CY12 CY13E CY14E CY15E

E (x) 30.8 33.4 27.6 21.2

/ EBITDA (x) 20.1 20.9 17.9 13.8

rget EV / EBITDA (x) 23.1 24.1 20.6 16.0

BV (x) 5.3 4.7 4.2 3.6

NW (%) 17.2 14.1 15.1 16.9

CE (%) 17.1 14.1 14.5 16.7

ck data

rket Capitalization | 29529.9 Crore

al Debt (CY13E) | 131.5 Crore

sh and Investments (CY13E) | 2642.9 Crore

| 27018.5 Crore

week H/L 10599 / 8026

ity capital | 31.4 Crore

e value | 10

Holding (%) 11.7

Holding (%) 7.3

ce movement

6,000

7,000

8,000

9,000

10,000

11,000

Feb-14Dec-13Sep-13Jun-13Mar-13

(|)

5,200

5,500

5,800

6,100

6,400

(unit)

Price (R.H.S) Nifty (L.H.S)

alysts name

shant Vass

[email protected]

nil Shah

[email protected]


2/8

ICICI Securities Ltd|Retail Equity Research Page 2

Exhibit 2:

Assumption

CY11 CY12 CY13E CY14E CY15E

Revenue (| crore)

Automotive 7,241.4 7,726.4 7,696.6 8,470.9 9,915.0

19.2 6.7 (0.4) 10.1 17.0

Non-automotive 847.4 979.5 1,136.4 1,290.4 1,508.4

29.1 15.6 16.0 13.6 16.9

EBIT margins (%)

Automotive 17.3 13.3 12.9 13.9 15.4

Non-automotive 6.8 9.1 4.9 5.7 6.7

Source: Company, ICICIdirect.com Research

Exhibit 3:

Net sales and PAT margin trend

8,1668,659 8,820

9,756

11,41822.2

6.0 1.9

10.6

17.0

5000

6000

7000

8000

9000

10000

11000

12000


(|crore)

-

5

10

15

20

25

(%)

Total operating income % increase


Exhibit 4:Return ratios profile

23.7

25.2

17.2

14.115.1

16.9

17.1

14.1 14.5

16.7

12

15

18

21

24

27


(%)

RoE RoCE

Source: Company, ICICIdirect.com Research * (net of Interest & Inter segment eliminations)

With Bosch entering a high capex cycle to cater to the

investments required for future, return ratios are likely to

remain subdued. However, they are likely to improve from

current levels in the next two years as profitability

improves


3/8


Exhibit 5:Import content trending down

718

833

1,4

40 2

,055

1,8

77

1,7

28

15.817.5

21.725.9 22.3 20.0

200

600

1,000

1,400

1,800

2,200

CY08 CY09 CY10 CY11 CY12 CY13*

(|crore)

10

14

18

22

26

30

(%)

Net Forex Exposure % of Sales

Source: Company, ICICIdirect.com Research * CY13 is estimated

Key management takeaways

The management indicated that growth in Q3 was mainly driven by the

tractor segment, which grew ~22% YoY at an industry level. The other

segments have witnessed a decline in volumes despite new product

launches.

Exports at ~| 300 crore witnessed growth of ~15% YoY in Q4 and grew

12.2% for CY13 (| 1058 crore). On the exports front, despite the clearly

defined local for local policy, India is a lone production centre for the in-

line pump segments, which are exported to a few countries with lower

emission standards.

The after-market segment, which contributes 20-25% of the turnover, has

also been stable despite the sharp slowdown in the OEM segment.

The company is targeting a ~| 600-crore capital expenditure in CY14E for

a new manufacturing facility at Bidadi and augmenting the existing facility

at Adugodi, which will be transformed into an R&D hub. Bosch has also

signed an MoU with the Government of Maharashtra to invest ~| 750

crore over a five-year period.

Outlook & valuation

We believe the M&CV and tractor segments will be growth drivers forBoschs earnings in CY14E and CY15E, as we expect a recovery in the

M&HCV segment in H2FY15E, FY16E after seven to eight quarters of

demand slowdown. An increase in the non-automotive business also

lends earnings stability across cycles.

We believe as emission norm changes will trigger an increase in content

per vehicle on product enrichment/upgradation (e.g. change from

conventional in line/mechanical pumps to common rail systems), this will

drive higher topline, profitability growth for Bosch as engine parts are the

most impacted by emission norm changes. Faster localisation of content

post the product acceptance by OEMs post-norm changes will also aid

margins and space to continue.

Bosch is the largest importer in the auto ancillary space.

Hence, it is impacted more by the volatility in the

currency markets than other ancillary players. Over the

years, net imports have crept up due to an increase in the

traded goods component. For Bosch, a majority of the

exposure is in the form of raw materials and traded goods

while a small portion is also from royalty and other

technical expenses


4/8


With a strong balance sheet supported by robust FCFs, strong return

ratios and stable high margin profile, the financials are impressive. Bosch

has justifiably traded at a premium to the rest of the auto ancillary pack

considering its business profile strength and financial profile. With the

economic cycle likely to have bottomed out, we expect multiples to

further expand going into elections. With the current uncertainty in the

markets, we value Bosch at ~15% discount to its three-year average one-year rolling EV/EBIDTA multiple of ~18x to 16x EV/EBIDTA CY15E and

recommend Ywith a target price of | 10700.

Exhibit 6:

One-year rolling EV/EBIDTA band

0

5000

10000

15000

20000

25000

30000

35000

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

(|)

EV 20.3x 17.9x 16.2x 13.8x 13.0x 11.4x


Exhibit 7:

Revised financials (Consolidated)Particulars

Old New % Change Old New % Change

Revenue 9,706.3 9756.2 0.5 11,115.5 11418.2 2.7

EBITDA 1,544.8 1486.0 (3.8) 1,872.0 1858.7 (0.7)

EBITDA Margi 15.9 15.2 -67 bps 16.8 16.3 -52 bps

PAT 1101.3 1070.4 (2.8) 1372.4 1392.2 1.4

EPS 350.7 340.9 (2.8) 437.1 443.4 1.4

CY14E CY15E


Exhibit 8:

ValuationRevenues Growth EPS Growth PE EV/EBITDA RoNW RoCE

(| cr) (%) (|) (%) (x) (x) (%) (%)CY12 8659.1 305.2 30.8 20.1 17.2 17.1

CY13E 8820.1 1.9 281.8 -7.7 33.4 20.9 14.1 14.1

CY14E 9756.2 10.6 340.9 21.0 27.6 17.9 15.1 14.5

CY15E 11418.2 17.0 443.4 30.1 21.2 13.8 16.9 16.7 Source: Company, ICICIdirect.com Research

Bosch is trading near the higher end of its one-year

EV/EBIDTA valuation band. However, we believe in these

uncertain times, the earnings pedigree and business

profile strength of Bosch will ensure valuations remain at

these elevated levels. We have still valued Bosch at

~15% discount to its three-year average one-year rolling

EV/EBIDTA multiple to 16x


5/8


6/8


Company Description

Bosch is a leading supplier of technology and services in the areas of

automotive and industrial technology, consumer goods and building

technology. In India, Bosch Ltd is the flagship company of the Bosch

Group and is a leading global supplier of technology & services. The

Bosch Group is a leading global supplier of technology and services andcomprises Robert Bosch GmbH and ~360 subsidiaries and regional

companies in ~50 countries with ~77,000 patents and utility models to its

name. Bosch Ltd also has among the largest distribution networks of

spare parts in the country with after-market sales contributing ~25% of its

turnover. It has plants spread across Nashik, Pune, Ahmedabad, Jaipur,

Goa, Bangalore, Coimbatore and Chennai, which are close to its major

clients. Bosch also has a strong dealer network, which spans ~1000

towns across the country, facilitating product availability and after-sales

services.

Exhibit 9:

Recommendation History

8,000

9,000

10,000

11,000

12,000

Feb-14Jan-14Dec-13Oct-13Sep-13Jul-13Jun-13Apr-13

Price Target Price


Exhibit 10:

Recent Releases

Date Event CMP Target Price Rating

15-Oct-13 Initiating Coverage 8586 9360 HOLD

13-Nov-13 Q3CY13 Result Update 8816 9360 HOLD

8-Jan-14 Q4CY13 Preview 9865 9360 HOLD Source: Company, ICICIdirect.com Research


7/8


ICICIdirect.com Research coverage universe (Auto & auto ancillaries)CMP M Cap

(|) TP(|) Rating (| Cr) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

Amara Raja (AMARAJ) 395 380 Hold 6,747 16.8 22.3 24.6 23.5 17.7 16.1 12.0 9.6 8.4 33.6 36.2 32.4 27.1 27.8 24.7

Apollo Tyre (APOTYR) 133 139 Hold 6,704 12.2 18.6 18.5 10.9 7.1 7.2 4.0 3.8 3.5 22.5 20.1 18.8 21.8 18.0 17.2

Ashok Leyland (ASHLEY) 16 15 Hold 4,164 -1.5 0.2 0.7 -10.2 77.3 21.6 202.5 12.6 7.8 -4.0 3.2 7.5 -10.3 1.4 4.9

Bajaj Auto (BAAUTO)1,943 2,450 Buy 56,225

105.2 115.9 139.5 18.5 16.8 13.9 14.3 14.3 11.6 43.5 43.5 41.6 38.5 35.1 34.9Balkrishna Ind. (BALIND) 385 350 Hold 3,722 37.6 50.2 50.7 8.8 6.6 6.6 7.4 6.1 5.5 16.2 16.4 14.4 25.5 16.2 16.4

Bharat Forge (BHAFOR) 382 362 Hold 8,908 10.6 15.4 24.7 36.0 24.9 15.5 12.3 9.5 6.9 9.1 12.4 17.9 11.0 14.0 19.0

Eicher Motors (EICMOT)` 5,140 5,400 Hold 13,883 145.5 240.9 312.2 35.3 21.3 16.5 21.4 10.7 7.0 18.0 23.0 26.5 19.1 25.1 25.6

Escorts (ESCORT)* 115 85 Sell 1,373 14.1 15.5 17.1 6.8 6.2 5.6 3.5 3.1 2.5 9.9 11.2 10.8 9.4 9.6 9.7

Exide Industries (EXIIND) 111 90 Sell 9,427 6.1 5.2 5.5 18.0 21.2 20.3 11.0 11.4 10.9 19.6 16.7 15.7 15.3 12.0 11.6

Hero Mototcorp (HERHON) 1,964 2,100 Hold 39,221 106.1 104.7 136.1 18.5 18.8 14.4 11.0 12.1 11.0 42.8 39.7 42.9 42.3 33.9 35.2

JK Tyre & Ind (JKIND) 137 174 Buy 563 63.1 90.4 91.3 2.2 1.5 1.5 3.1 2.9 2.8 20.2 19.9 17.5 23.4 25.4 20.4

M&M (MAHMAH) 973 1,033 Hold 57,438 59.8 67.4 94.3 16.3 14.4 10.3 10.1 8.6 7.5 20.9 20.8 18.7 22.0 20.8 23.5

Maruti Suzuki (MARUTI) 1,592 1,663 Hold 48,110 79.2 91.5 117.0 20.1 17.4 13.6 10.1 8.0 6.4 11.9 14.3 15.6 12.9 13.1 14.6

Motherson (MOTSUM) 232 239 Hold 20,425 8.0 12.2 15.0 28.8 19.0 15.5 8.5 6.7 5.1 22.0 26.1 30.0 26.3 32.4 32.2

Tata Motors (TELCO) 416 475 Buy 123,727 31.0 44.7 52.7 11.7 8.2 6.9 4.7 3.5 3.4 23.2 23.8 23.5 26.3 26.5 25.8

Bosch (MICO) 9,450 10,700 Buy 29,673 281.8 340.9 443.4 32.9 27.2 20.9 20.6 17.6 13.6 14.1 15.1 16.9 14.1 14.5 16.7

Sector / Company

RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)

Source: Company, ICICIdirect.com Research SY~ September Year end

ICICIdirect.com Universe price movement vis--vis BSE Auto index

Exhibit 11:OEM comparison with BSE Auto

BSE AutoEscorts

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14BSE Auto Bajaj Maruti

Tata Motors M & M Escorts

Hero MotoCorp Ashok Leyland Eicher Motors


Exhibit 12:

Ancillaries comparison with BSE Auto

BSE Auto

Motherson Sumi

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14

BSE Auto Bharat Forge Balkrishna JK Tyres

Apollo Tyres Motherson Exide Inds Amara raja


The chart compares the movement of OEM stocks in the

ICICIdirect.com Universe with the BSE Auto index, thereby

reflecting the degree of mimicking of the index

Since January 2013, Bajaj Auto and Maruti have

outperformed while Ashok Leyland has underperformed in

comparison to the index by being divergent on the upside

and downside, respectively

The chart compares the movement of auto ancillary

stocks in the ICICIdirect.com universe with the BSE Auto

index

The volatile nature of smaller ancillary companies is

reflected. These have met with numerous fluctuations with

the exception of larger market capitalisation companies like

Motherson Sumi, JK Tyre and Apollo Tyres that have

benefitted from low rubber prices. Other ancillary players

have struggled as OE demand has dried up


8/8

ICICI Securities Ltd Retail Equity Research Page 8

CICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

arget price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey

Head Research

[email protected]

ICICIdirect.com Research Desk

ICICI Securities Limited

1stFloor, Akruti Trade Centre,Road No. 7, MIDC,Andheri (East)

Mumbai 400 093

[email protected]

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ecommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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nderwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of

ompanies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities

enerally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts

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he information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and

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