. . 0 50 100 150 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 BOSCHLTD NIFTY One year Price Chart Readying itself for next leg of growth Bosch Ltd, promoted by Robert Bosch GmbH, is India’s leading auto ancillary company. It is a dominant player in the diesel engine segment with ~70% market share. In FY15, Bosch derived 88% & 12% of its turnover from auto & non-auto segment respectively. Investment Rationale Pricing power to remain intact on the back of leadership position & technological excellence: Bosch has a dominant ~70% market share in India for diesel fuel injection products. It is the leading provider of groundbreaking automotive technologies and services. Being a dominant player in fuel injection (FI) segment, FI products contribute ~70% to the company’s revenue. Bosch Group (parent) spends ~10% of its turnover every year on R&D. Further, Bosch Group provides most of its technologies at a low royalty rate (1.6% of its turnover) to the Indian arm (Bosch Ltd). Thus, Bosch Ltd, stands to benefit from the technology leadership profile of its parent as implementation of new and advanced technologies pick up ground in India. Hence, pricing power would be maintained given its leadership in technology. Early implementation of stricter emission norms to drive growth ahead: In order to tackle air pollution, the government has announced to upgrade to stricter fuel standards (BS VI) from 2020 (skipping BS V altogether). BS VI was originally proposed to come in by 2024. Further, BS IV emission norms would be applicable across India from April 2017. Therefore, Bosch emerges as one of the main beneficiaries as it is a key supplier for fuel injection system for vehicles. As per industry estimates, implementation of BS IV on pan-India basis offers ~Rs 5,000 crores opportunity annually. Hence, we expect FI segment to grow at a CAGR of 18.3% over FY15-FY18E. The commitment of government to combat pollution would lead to content increase with common-rail in BS IV (2017) and selective catalytic reduction (SCR) in BS VI (2020). Moreover, major competitors such as Delphi and Denso do not have presence in India with SCR, a key technology for BS VI. Going forward, this would boost realisations for Bosch. Non-Auto business aids in providing revenue diversification: During CY11-FY15, the non-auto business grew at a CAGR of 13.3%. While non-auto business of Bosch Ltd contributes ~12% to the overall revenues, global non-auto business’ contribution is ~32%. This business has a robust growth potential and is expected to benefit from the pick up in the economic activity. We expect this business to grow at a CAGR of 15.2% over FY15-FY18E. Valuation: Bosch is in a sweet spot given its leadership position, technology focus and unique positioning in the Indian auto industry. We expect revenue and PAT to grow at a CAGR of 4.5% and 11.6% over FY15-FY18E. Further, we rate the stock as ‘BUY’ assigning a forward P/E of 36.5x (given acceleration in growth trajectory due to advanced emission norms) arriving at a target price of Rs. 22,083 which implies potential upside of ~10% for next 12 months. Rating BUY CMP (Rs.) 20,082 Target (Rs.) 22,083 Potential Upside (%) 10 Duration Long Term Face Value (Rs.) 10.0 52 week H/L (Rs.) 26,797/15,736 Adj. all time High (Rs.) 27,990 Decline from 52WH (%) 25.1 Rise from 52WL (%) 27.6 Beta 0.6 Mkt. Cap (Rs.Cr) 63,057 Market Data Y/E FY15 (15 months) FY16E FY17E FY18E Revenue (Rs.Cr) 12,086 10,705 11,720 13,800 Adj. Profit (Rs.Cr) 1,366 1,188 1,505 1,900 EPS (Rs.) 434.9 378.4 479.2 605.0 P/E (x) 58.4 53.1 41.9 33.2 P/BV (x) 10.9 7.6 6.7 5.8 ROE (%) 20.0 15.2 17.0 18.7 Fiscal Year Ended Apr 4 th , 2016 BSE Code: 500530 NSE Code: BOSCHLTD Reuters Code: BOSH.NS Bloomberg Code: BOS:IN Volume No. I Issue No. 65 Bosch Ltd For private circulation only Shareholding Pattern Dec-15 Sep-15 Chg. Promoters (%) 71.2 71.2 0.0 FII (%) 7.7 8.4 (0.7) DII (%) 11.5 11.0 0.5 Others (%) 9.6 9.5 0.1
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BOSCHLTD NIFTY
One year Price Chart
Readying itself for next leg of growth
Bosch Ltd, promoted by Robert Bosch GmbH, is India’s leading auto
ancillary company. It is a dominant player in the diesel engine segment
with ~70% market share. In FY15, Bosch derived 88% & 12% of its
turnover from auto & non-auto segment respectively.
Investment Rationale
Pricing power to remain intact on the back of leadership position &
technological excellence: Bosch has a dominant ~70% market share in India for
diesel fuel injection products. It is the leading provider of groundbreaking
automotive technologies and services. Being a dominant player in fuel injection
(FI) segment, FI products contribute ~70% to the company’s revenue. Bosch
Group (parent) spends ~10% of its turnover every year on R&D. Further, Bosch
Group provides most of its technologies at a low royalty rate (1.6% of its
turnover) to the Indian arm (Bosch Ltd). Thus, Bosch Ltd, stands to benefit from
the technology leadership profile of its parent as implementation of new and
advanced technologies pick up ground in India. Hence, pricing power would be
maintained given its leadership in technology.
Early implementation of stricter emission norms to drive growth
ahead: In order to tackle air pollution, the government has announced to
upgrade to stricter fuel standards (BS VI) from 2020 (skipping BS V altogether).
BS VI was originally proposed to come in by 2024. Further, BS IV emission norms
would be applicable across India from April 2017. Therefore, Bosch emerges as
one of the main beneficiaries as it is a key supplier for fuel injection system for
vehicles. As per industry estimates, implementation of BS IV on pan-India basis
offers ~Rs 5,000 crores opportunity annually. Hence, we expect FI segment to
grow at a CAGR of 18.3% over FY15-FY18E. The commitment of government to
combat pollution would lead to content increase with common-rail in BS IV
(2017) and selective catalytic reduction (SCR) in BS VI (2020). Moreover, major
competitors such as Delphi and Denso do not have presence in India with SCR, a
key technology for BS VI. Going forward, this would boost realisations for Bosch.
Non-Auto business aids in providing revenue diversification: During
CY11-FY15, the non-auto business grew at a CAGR of 13.3%. While non-auto
business of Bosch Ltd contributes ~12% to the overall revenues, global non-auto
business’ contribution is ~32%. This business has a robust growth potential and
is expected to benefit from the pick up in the economic activity. We expect this
business to grow at a CAGR of 15.2% over FY15-FY18E.
Valuation: Bosch is in a sweet spot given its leadership position, technology
focus and unique positioning in the Indian auto industry. We expect revenue and
PAT to grow at a CAGR of 4.5% and 11.6% over FY15-FY18E. Further, we rate the
stock as ‘BUY’ assigning a forward P/E of 36.5x (given acceleration in growth
trajectory due to advanced emission norms) arriving at a target price of Rs.
22,083 which implies potential upside of ~10% for next 12 months.
batteries, automotive belts, automotive software,2& 3 wheeler clutch plates etc.
Besides, it is responsible for Bosch service workshop concepts for vehicle service and
maintenance. It manages the largest independent service network in India with over 3,000
workshops/ service network comprising over 500 Bosch Car Service, 1,000 Bosch Diesel
Service Centers, 600 Electric Modules, 250 Express Car Service and 150 Express Bike Service
in India, covering ~1,200 cities. Hence, we expect this division to grow at a CAGR of 18% over
FY15-FY18E led by new products introduction, increased use of electronics coupled with
increased preference for authorised services.
11%12% 12% 12%
13% 13%
5%
8%
11%
14%
CY12 CY13 FY15 FY16E FY17E FY18E
For private circulation only
Non-Auto
Consumer
Goods
(Power Tools
Industrial
Technology
Energy &
Building
Technology
Industrial
Equipment
Packaging
Technology Security
Technology
Bosch
Energy &
Building
Solutions
Thermotech
nology
We expect top-line of the company to grow at a CAGR of 4.5% over FY15-FY18E.
Automotive Aftermarket revenues to grow at a CAGR of 18% during FY15-FY18E
Source: Company, In-house research; Note: FY15 is a 15 month period due to change in accounting year
Overall EBITDA margins to expand significantly, going forward
Engine parts are impacted the most by emission norm changes. We believe there is significant
scope of margin expansion in the coming years led by the implementation of advanced
emission norms (BS IV in 2017 & BS VI in 2020) across the country. The stricter norms would
lead to content increase with common-rail in BS IV (2017) and SCR in BS VI (2020). Given
limited competition in this space, we expect realisations to increase for Bosch. Further, the
sale of starter motor & generator division would provide fillip to the overall margins (this
division constitutes ~10% of Bosch Ltd turnover and merely 1% of Bosch Ltd EBIT). Thus, we
believe Bosch’s EBITDA margin to grow to 19.5% in FY18E from 16.4% in FY15.
Revenue and PAT to grow at a CAGR of 4.5% and 11.6% respectively over FY15-18E
During FY15-FY18E, we expect the top-line of the company to grow at a CAGR of 4.5% on the
back of regulation requirements (BS IV in 2017 & BS VI in 2020) which will lead to greater-
than-normal content increase. Further, we estimate 11.6% CAGR in Adjusted PAT over FY15-
18E mainly on account of EBITDA margin expansion. Moreover, we believe that the company
would report improvement in its ROE and ROCE on the back of healthy profitability coupled
with strong revenue growth. While ROE is likely to improve from 15.2% in FY16E to 18.7% in
FY18E, ROCE is projected to increase from 22.6% in FY16E to 27.1% in FY18E.
Revenue to grow at a CAGR of 4.5% over FY15-FY18E Return Ratios expected to improve
Source: Company, In-house research; *: FY15 is a 15 month period due to change in accounting year
16.4% 16.5%18.5% 19.5%
11.3% 11.1%12.8% 13.8%
0%
5%
10%
15%
20%
25%
- 2,000 4,000 6,000 8,000
10,000 12,000 14,000 16,000
FY15* FY16E FY17E FY18E
Rs.
Cro
res
Revenue EBITDA Margin (%) Adj. PAT Margin (%)
20.0%
15.2%17.0%
18.7%
28.9%
22.6%24.6%
27.1%
0%
5%
10%
15%
20%
25%
30%
35%
FY15* FY16E FY17E FY18E
ROE (%) ROCE (%)
For private circulation only
Key Risks:
1 Slowdown in CV space may affect the revenue growth.
2 Any delay in implementation of advanced emission norms.
3 Upward revision in royalty rates may impact margins.
1,917 1,965 2,024 2,327 2,746 3,323
500
1,500
2,500
3,500
CY12 CY13 FY15 FY16E FY17E FY18E
(Rs.
Cro
res)
Balance Sheet
Profit & Loss Account (Consolidated)
Y/E (Rs.Cr) FY15* FY16E FY17E FY18E
Total operating
Income 12,086 10,705 11,720 13,800
Raw Material cost 6,457 5,654 6,179 7,169
Employee Cost 1,663 1,375 1,505 1,772
Other operating
expenses 1,984 1,906 1,870 2,175
EBITDA 1,981 1,770 2,166 2,685
Depreciation 548 399 448 493
EBIT 1,433 1,372 1,719 2,192
Interest cost 14 5 2 2
Other income 565 399 464 563
Profit before tax 1,984 1,765 2,181 2,753
Tax 618 577 676 854
Profit after tax 1,366 1,188 1,505 1,900
Minority Interests - - - -
P/L from Associates - - - -
Adjusted PAT 1,366 1,188 1,505 1,900
E/oincome/ (Expense) (28) - - -
Reported Profit 1,338 1,188 1,505 1,900
Y/E (Rs.Cr) FY15* FY16 FY17E FY18E
Paid up capital 31 31 31 31
Reserves and
Surplus 7,316 8,224 9,390 10,883
Net worth 7,347 8,256 9,421 10,915
Minority Interest - - - -
Total Debt 56 35 15 15
Other non-current
liabilities 479 526 579 637
Total Liabilities 7,881 8,817 10,015 11,567
Total fixed assets
(inc CWIP) 1,244 1,345 1,497 1,605
Goodwill - - - -
Investments 2,890 2,890 2,890 2,890
Net Current
assets 3,112 3,925 4,946 6,364
Other non-current
assets 636 658 682 709
Total Assets 7,881 8,817 10,015 11,567
Cash Flow Statement
Profit & Loss Account
Profit & Loss Account (Consolidated)
Y/E (Rs.Cr) FY15* FY16E FY17E FY18E
Pretax profit 1,956 1,765 2,181 2,753
Depreciation 548 399 448 493
Chg in Working
Capital 132 (224) (130) (257)
Others (551) (394) (462) (561)
Tax paid (691) (577) (676) (854)
Cash flow from
operating activities 1,394 969 1,360 1,574
Capital expenditure (409) (500) (600) (600)
Chg in investments (446) - - -
Other investing
cashflow (325) 399 464 563
Cash flow from
investing activities (1,180) (101) (136) (37)
Equity
raised/(repaid) - - - -
Debt raised/(repaid) (28) (20) (20) -
Dividend paid (202) (280) (339) (406)
Other financing
activities (9) (5) (2) (2)
Cash flow from
financing activities (238) (305) (361) (409)
Net chg in cash (23) 563 863 1,129
* Change in accounting year, FY15 is a 15 month period
Note: Assuming company to receive shareholders approval for the sale of starter motors
& generators division. But, we haven’t included any Profit/Loss from the sale of this
division. Further, assuming the company to carve out this division by the end of June
2016.
Y/E FY15* FY16E FY7E FY18E
Valuation (x)
P/E 58.4 53.1 41.9 33.2
EV/EBITDA 39.4 34.3 27.6 21.8
EV/Net Sales 6.6 5.8 5.2 4.4
P/B 10.9 7.6 6.7 5.8
Per share data (Rs.)
EPS 434.9 378.4 479.2 605.0
DPS 85.0 74.0 89.7 107.5
BVPS
2,339.8
2,629.1
3,000.4
3,476.0
Growth (%)
Net Sales 37.9 (11.3) 9.5 17.8
EBITDA 53.7 (10.7) 22.4 24.0
Net Profit 54.4 (13.0) 26.6 26.3
Operating Ratios (%)
EBITDA Margin 16.4 16.5 18.5 19.5
EBIT Margin 11.9 12.8 14.7 15.9
PAT Margin 11.3 11.1 12.8 13.8
Return Ratios (%)
RoE 20.0 15.2 17.0 18.7
RoCE 28.9 22.6 24.6 27.1
Turnover Ratios (x)
Net Sales/GFA 2.6 2.1 2.0 2.1
Sales/Total Assets 1.2 1.0 0.9 1.0
Sales/Working Capital 10.0 7.8 7.4 7.6
Liquidity&Solvency Ratios (x)
Current Ratio 2.2 2.6 2.8 3.1
Net Debt/Equity (0.3) (0.3) (0.4) (0.4)
For private circulation only
Key Ratios
Rating Criteria
Large Cap. Return Mid/Small Cap. Return
Buy More than equal to 10% Buy More than equal to 15%
Hold Upside or downside is less than 10% Accumulate* Upside between 10% & 15%
Reduce Less than equal to -10% Hold Between 0% & 10%
Reduce/sell Less than 0%.
* To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.
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