March 19, 2023
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BOSCH, Result above est.; first quarter of gross margin expansion
Call & Research Report by Motilal Oswal
Sector: Auto Ancillaries – Auto, Truck & Motorcycle Parts
CMP Rs. 17358, Target Rs. 18125 (4% upside potential)
Target Period: 12 Months
Focus on improving localization on the EV components
● Bosch (BOS) delivered a healthy performance with stronger-than- estimated revenue and in turn, margins. It would be outperforming the underlying auto industry growth with new order wins, though visibility for margin recovery (to 15-17%) is bleak. Further, BOS needs to transit its strong ICE presence to EVs, journey of which has started but competitive intensity is very high in EV components.
● We raise our FY23/FY24 EPS estimates by 5%/4% to factor in better operating performance and higher other income. Maintain Neutral with a TP of INR18,125 (premised on ~25x Mar’25E EPS).
Healthy operating performance supported by high other income
● BOS’ revenue/EBITDA/Adj. PAT grew 18%/13%/36% YoY to INR36.6b/INR4b/INR3.2b, respectively. Its revenue/EBITDA/Adj. PAT rose 28%/ 26%/18% YoY, respectively, for 9MFY23.
● Auto segment revenue grew 18% YoY, whereas non-Auto segment grew 9% YoY.
● Gross margin improved 80bp YoY to 40% (v/s est. 36.5%). However, higher other expenses (+330bp YoY) more than offset the benefit of gross margin expansion and led to EBITDA margin contraction of 50bp YoY (-80bp QoQ) to 11% (v/s est. 10.7%). There were one-time costs due to warranty claims (INR350m), FX loss (INR300m) and expenditure in new business areas (INR250m).
● Higher other income led to improved adj. PAT of INR3.2b (v/s est INR2.8b), a growth of 36% YoY.
● The Board has announced an interim dividend of INR200/share for FY23.
Highlights from the management commentary
● BOS is the largest player in the EV component globally. It is supplying EV components to domestic OEMs and is now focusing on localization. It has acquired business for battery system and ECU and is improving market share in other components too.
● It offers complete solution for hydrogen-based powertrains, with complete H2 engine system, fuel cells electric system and tank system. It also offers end-to-end engineering services, with state-of-the-art testing infrastructure.
● In FY23YTD, the company has done good business on Trem-4/Trem-5 tractors and off-highway.
● The auto aftermarket business achieved the highest ever sales/EBIT in CY22. It has set the industry benchmark of net working capital at 23 days. It aims to achieve strong double-digit market share in FY24.
Valuation and view
● Valuations at ~27.3x/24x FY24E/FY25E EPS largely factor in changes in its competitive positioning since its shift to BS-IV emission norms. The valuations were de-rated due to dilution in its competitive positioning as well as increasing risk of EVs. While these negatives are priced in, there are no material catalysts visible for a re-rating of the stock. Hence, we maintain our Neutral rating with a TP of INR18,125 (premised on ~25x Mar’25E EPS).
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