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Bosch 1QCY2014 performance highlights and results update

April 29, 2014, Tuesday, 16:43 GMT | 11:43 EST | 20:13 IST | 22:43 SGT
Contributed by Angel Broking

Bosch (BOS) recorded strong results for 1QCY2014 driven by better-than-expected operating performance, and a significant increase in other income led by treasury gains. We broadly maintain our revenue and earnings estimates for CY2014/15 as we expect the demand environment in the automotive sector to remain sluggish in 2QCY2014 as well. Nonetheless, expected easing of interest rates in 2HCY2014 following expected tapering of inflation is likely to revive demand and drive growth going ahead. We believe that the company will continue to enjoy premium valuations and therefore maintain our Accumulate rating on the stock.

Strong 1QFCY2014 results: BOS posted a strong top-line growth of 10.9% yoy (13.3% qoq) to Rs.2,450cr, sharply ahead of our estimates of Rs.2,230cr, led by 12% yoy growth in the automotive segment. The non-automotive segment though posted a modest growth of 4.9% yoy. The overall growth was driven by continued momentum in exports, which witnessed a robust growth of ~35% yoy (~13% of sales); whereas, domestic sales too posted a healthy growth of ~9% yoy driven by strong off-take in domestic tractor sales. EBITDA margins stood at 16.3% (up 640bp qoq) as against our expectation of 15.8%. The performance improvement was mainly on account of substantial decline in other expenditure (down 21.7% qoq) and aided by cost reduction initiatives. On a yoy basis though EBITDA margins contracted 102bp due to the negative impact of the INR depreciation on the raw-material cost front. Net profit grew strongly by 25.6% yoy to Rs.326cr,  outperforming our expectations of Rs.240cr. The bottom-line benefitted from higher other income (up 59.3% yoy and 52.9% qoq) on account of treasury gains related to sale of certain investments.

Outlook and valuation: We remain positive on the long term prospects of BOS due to its technological leadership and strong and diversified product portfolio. We expect the company’s earnings growth to revive going ahead led by revival in the domestic automotive industry coupled with localization initiatives and expected emission norm change due to roll out in 2015. We maintain our Accumulate rating on the stock with a target price of Rs.11,424.