Friday, June 1, 2012


Bosch (BOS) reported better-than-expected operating performance for 1QCY2012 aided by EBITDA margin expansion on account of cost rationalization and localization benefits. We revise upwards our earnings estimates for CY2012E/13E, primarily on account of upward revision in our EBITDA margin estimates. We maintain our Accumulate rating on the stock.

Strong performance boosted by operating margin expansion: BOS registered healthy top-line growth of 10% yoy (12.5% qoq) to `2,295cr, in-line with our expectation, primarily driven by ~15% and ~16% yoy growth in the after-market and power tools segments, respectively. While the diesel systems segment reported ~8% yoy growth, the gasoline systems segment registered flat growth on account of slowdown in the passenger car industry (petrol variants). Exports also grew at a sluggish pace of ~3% and stood at `250cr mainly on account of slowdown in Europe. The company posted better-than-expected EBITDA margin of 20.8%, registering an increase of 192bp yoy (331bp qoq), mainly on account of a decline in raw-material expenses. Raw-material expenses as a percentage of sales declined by 170bp yoy (54.6% of sales), led by cost savings due to localization benefits, strategic buying decisions carried out by the company and cost-cutting measures. As a result, net profit registered strong 22.4% yoy (19.5% qoq) growth to `336cr.

Outlook and valuation: We expect BOS to register a ~15% CAGR each in its net sales and earnings over CY2011-13E, leading to EPS of `420.2 and `471.4 for CY2012E and CY2013E, respectively. At `8,781, the stock is trading at 20.9x CY2012E and 18.6x CY2013E earnings, respectively. We retain our Accumulate rating on the stock with a target price of `9,429, valuing the stock at 20x its CY2013E earnings.