A technology leader
Bosch Ltd, a subsidiary of Robert Bosch GmBH, has dominated Indian markets for diesel fuel injection systems. The success has been on the back of global dominance of the parent, which has made sustained investments in R&D and evolved the fuel injection system technology. Using this parentage, Bosch Ltd has garnered 81% market share in diesel systems.
Best play on change in emission norms
Four-wheeler emission norms for the top 13 cities are set to change from CY15 from BS IV to BS V. This will largely require a shift to electronic fuel injection technology. In 2003, when norms were changed from BS II to BS III, Bosch Ltd saw a material jump in realizations and margins. A similar impact on revenues and profitability can be expected in 2015 as the company is infusing Rs12bn over the next couple of years as capex and also increasing its localization content.
Expect resilient financial performance
In spite of weakness in the domestic automotive industry, we expect Bosch Ltd to register a strong profit CAGR of 16.5% during CY12-15E. The strong performance will be on the back of robust margin trajectory and support from replacement and non-automotive revenues. From H2 CY14, we expect gradual recovery in OEM business and CY15 will see benefits from change in emission norms. Return ratios are likely to remain flat as impact of higher profitability is offset by investments in capital expenditure.
Premium valuations justified
Over the years, Bosch Ltd on back of a sustained strong performance even in automotive downturns has commanded premium valuations. Its monopoly-like position in the fuel injection system business, robust cash-flows and strong balance sheet has enabled it to trade at an average 1-year forward P/E of 25x over the past two years. These valuations are at a substantial premium to other large auto component players, which trade in the range of 10-18x 1-year forward P/E. We believe, the premium valuations are justified and value the stock at Rs10,324 (25x CY14E EPS of Rs413). Initiate with a BUY rating.
| Y/e 31 Mar (Rs m)
| yoy growth (%)
|| 11.7 |
| OPM (%)
|| 18.0 |
| Reported PAT
| yoy growth (%)
|| 17.0 |
| EPS (Rs)
| P/E (x)
| Price/Book (x)
| EV/EBITDA (x)
|| 11.8 |
| RoE (%)
|| 18.7 |
| RoCE (%)
|| 26.1 |
- Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
- Now Save Rs.3150 on your Demat Account ...Click here
- Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
- Get the most detailed result analysis on the web - Real Fast!
- Actionable & Award-Winning Research on 500 Listed Indian Companies.