Bosch (Q1 CY14)

India Infoline News Service | Mumbai |

Bosch reported a very strong set of numbers in Q1 CY14. Compared to our forecast of Rs22.5bn revenues, the company reported Rs24.5bn a growth of 10.9% yoy.

CMP Rs10,716, Target Rs10,956, Upside 2.2% 
  • Net sales rise 10.9% yoy owing to strong growth in automotive exports and decent growth in domestic markets, this was partially offset by slow growth in non-automotive particularly impacted by power tools business

  • OPM at 16.3% was much higher than our expectations owing to better than expected topline growth and strong control on costs

  • PAT jumps 25.6% yoy to Rs3.3bn better than our estimates owing to higher than expected operating profit coupled with higher than estimated other income

  • Automotive industry fortunes are expected to revive from H2 FY15 and further strengthen in FY16, Bosch will be a major beneficiary of this trend and will also gain from the ensuing emission norm changes 

  • Bosch has rallied 18% over the past three months and the valuations are now in line with historic averages, we revise our rating to Market Performer with a increased price target of Rs10,956

Result table
(Rs m) Q1 CY14 Q1 CY13 % yoy Q4 CY13 % qoq
Net sales 24,504 22,094 10.9 21,620 13.3
Material costs (8,399) (7,218) 16.4 (7,119) 18.0
Purchases (5,062) (4,636) 9.2 (4,484) 12.9
Personnel costs (3,276) (2,862) 14.5 (3,131) 4.6
Other overheads (3,780) (3,559) 6.2 (4,752) (20.5)
Operating profit 3,987 3,819 4.4 2,134 86.8
OPM (%) 16.3 17.3 (101) bps 9.9 640 bps
Depreciation (881) (842) 4.6 (1,242) (29.0)
Interest (8) (3) 162.1 (25) (69.4)
Other income 1,424 894 59.3 931 52.9
PBT 4,522 3,867 16.9 1,799 151.3
Tax (1,259) (1,269) (0.8) (409) 207.6
Effective tax rate (%) 27.8 32.8 22.8
Adjusted PAT 3,263 2,598 25.6 1,390 134.8
Adj. PAT margin (%) 13.3 11.8 156 bps 6.4 689 bps
Reported PAT 3,263 2,598 25.6 1,390 134.8
Ann. EPS (Rs) 415.7 330.9 25.6 177.0 134.8
Source: Company, India Infoline Research

Net sales better than expectations

Bosch reported a very strong set of numbers in Q1 CY14. Compared to our forecast of Rs22.5bn revenues, the company reported Rs24.5bn a growth of 10.9% yoy. Exports grew at a stronger pace especially the automotive exports which saw a jump of 35% yoy driven by recovery in the European market. Domestic revenues saw a growth of 8.6% of which automotive segment grew by 9% and non-automotive registered a 8% growth. Automotive segment's strong performance in spite of weak trend in automotive sales in the domestic market can be attributed to 1) 19% growth in tractor sales where Bosch is a major supplier and 2) strong sales of diesel fuel injection systems in successful diesel models launched during CY13. Weakness in non-automotive segment was primarily on account of poor consumer sentiment which impacted its power tools business.


OPM better than expectations driven by operating leverage and cost controls

During Q4 FY14, OPM for Bosch came in 16.3% v/s our expectations of 14.2%. While operating profit was higher by 4.4% yoy it jumped 86.8% qoq. OPM increased 640bps sequentially while it fell by 101bps yoy. Better than expected performance was owing to benefits of operating leverage as the chunk of topline growth was driven by volumes. Rupee depreciation caused a jump in raw material costs on a yoy basis. Also personnel costs were higher by 42bps yoy as a percentage of sales driven by annual wage hikes and increase in welfare expenses. Overheads were down 68bps yoy and 656bps qoq reflecting substantial benefits of operating leverage and cost cutting initiatives taken by the company.


Other income spurs PAT growth

The company reported a PAT of Rs3.3bn which was substantially ahead of our expectations of Rs2bn. While strong operating profit was the prime reason, other income was also higher than our estimates. Other income was at Rs1,424mn compared to our estimate of Rs950mn and was boosted by increase in treasury income, which includes one-time capital gain on sale of financial investments. Depreciation was also lower by 29% qoq on an abnormally high base in Q4 CY13. Tax rate was lower on yoy basis at 27.8% leading to PAT growth of 25.6% yoy.


Cost analysis
Q1 CY14 Q1 CY13 bps yoy Q4 CY13 bps qoq
Material costs 34.3 32.7 161 32.9 135
Purchases 20.7 21.0 (33) 20.7 (8)
Personnel Costs 13.4 13.0 42 14.5 (112)
Other overheads 15.4 16.1 (68) 22.0 (656)
Total costs 83.7 82.7 101 90.1 (640)
Source: Company, India Infoline Research

Rate Market Performer after 18% rally in the past three months

Over the past three months Bosch stock has surged 18% on the back of expectations of revival in fortunes of the domestic automotive industry in H2 FY15. Furthermore, expectations are rife about even stronger growth in FY16. Bosch being a major supplier of many components to passenger cars, commercial vehicles and tractors will be a key beneficiary of this trend. Strong global economic recovery will also be beneficial to Bosch. Most of these upsides are adequately factored in CY16E P/E valuations of 25.1x. We revise our rating to Market Performer and increase our target price to Rs10,956.


Financial summary
Y/e 31 Mar (Rs m) CY12 CY13 CY14E CY15E
Revenues 84,172 86,411 99,493 113,023
yoy growth (%) 6.2 2.7 15.1 13.6
Operating profit 13,495 12,910 15,372 18,626
OPM (%) 16.0 14.9 15.5 16.5
Pre-exceptional PAT 9,583 9,296 11,207 13,381
Reported PAT 9,583 9,296 11,207 13,381
yoy growth (%) (14.6) (3.0) 20.6 19.4
         
EPS (Rs) 305 282 353 421
P/E (x) 35.1 38.0 30.4 25.4
Price/Book (x) 6.0 5.4 4.8 4.2
EV/EBITDA (x) 24.0 25.0 20.8 16.8
Debt/Equity (x) 0.0 0.0 0.0 0.0
RoE (%) 18.6 15.0 16.7 17.4
RoCE (%) 25.2 20.8 23.3 24.6
Source: Company, India Infoline Research
NSE 19,867.25 136.95 (0.69%)

***Note: This is a NSE Chart

 

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