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Bosch 4QCY2009 performance highlights and results update

Contributed by Angel Broking

By Angel Broking

For 4QCY2009, Bosch India reported 39% yoy growth in Net Sales to Rs1,454.2cr on the back of the 39.8% yoy growth registered by the Auto Segment. However, the company’s other businesses recorded de-growth of 7.6% for the quarter. The company’s Bottom-line, which increased 67.9% yoy to Rs158.2cr (Rs94.2cr), came marginally below our expectation. OPM at 17.2%, registered an increase of around 39bp yoy, primarily due to rise in other expenditure. Overall for CY2009, Bosch reported 5.1% yoy growth in Top-line, while Operating Margins dipped by 186bp. The company recorded 6.8% yoy decline in Net Profit for CY2009, primarily due to subdued Top-line performance and sub-optimal Operating leverage. We maintain an Accumulate on the stock.

Capex plans for CY2010: To capitalise on the rising demand for diesel vehicles the company significantly ramped up its capacities during CY2005-09 incurring capex of around Rs2,350cr during the period. The company has announced further capex of Rs250cr to be spent during CY2010 for strategic investments, building capacities for injectors, a common rail system, a gasoline system and starters and the generator business.

Outlook and Valuation: Bosch's medium-term prospects are derived largely from the demand arising in the commercial vehicle (CV) and Tractor Segments, which is estimated to grow at annual rate of around 12-13% and 5-6% respectively, over the next couple of years. Further, greater visibility in newer growth opportunities are emerging for the company following its investments in new and innovative technologies like CRS and Gasoline Systems. We estimate the company to clock EPS of Rs227.3 and Rs259.4 for CY2010E and CY2011E respectively, owing to the overall pick up in Auto demand. At the CMP, the stock is quoting at 18.4x CY2010E Earnings. At our Target multiple of 20x (based on its three-year historical average multiple) CY2011E EPS, our Fair Value for the stock works out to Rs5,188 and we maintain an Accumulate on the stock.

Performance below expectation, Top-line up 39%: For 4QCY2009, Bosch India reported 39% yoy growth in Net Sales to Rs1,454.2cr (Rs1,046.2cr) on the back of the 39.8% yoy growth registered by the Auto Segment. However, the company’s other businesses recorded 7.6% de-growth. Bottom-line, which increased 67.9% yoy to Rs158.2cr (Rs94.2cr), came in marginally below our expectation of Rs179cr. OPM at 17.2%, registered an increase of around 39bp yoy, primarily due to rise in Other Expenditure. Overall, in CY2009, the company recorded a 5.1% yoy growth in top-line and a 6.8% yoy decline in Net Profit for CY2009, primarily due to the subdued performance in Top-line and sub-optimal Operating leverage.

EBITDA Margin increases by 39bp, but below expectations: For 4QCY2009, Bosch registered a marginal 39bp yoy growth in EBITDA Margins due to increase in Other expenditure by 296bp. Raw material costs were flat yoy for the quarter and stood at 51.0% of Sales (50.9% of Sales). Staff costs declined by 105bp, and restricted fall in EBITDA margins to certain extent. Overall, Bosch reported 42.2% yoy growth in Operating Profit (excluding Other Income) to Rs 249.5cr (Rs175.4cr). EBIT Margins of the Automotive business grew by 371bp to 14.7% (11%) as against the 410bp decline registered by the Other businesses to record Operating loss margins of 8.2% (Operating Loss Margins of 4.1%) during the quarter.

Bottom-line up 67.9%: Bosch reported 67.9% yoy growth in Net Profit to Rs158.2cr (Rs94.2cr) for 4QCY2009 was primarily due to the 83.8% jump in Other Income to Rs25.1 (Rs13.6cr) and 9.2% drop in Depreciation to Rs95.6cr (Rs105.3cr).

Capex plans for CY2010E: To capitalise on the rising demand for diesel vehicles, the company incurred capex of around Rs2,350cr during CY2005-09 to significantly ramp up its capacities. It has announced further capex of Rs250cr to be spent during CY2010 for strategic investments, building capacities for injectors, a common rail system, a gasoline system and starters and the generator business.

Outlook and Valuation

In the last two years, Bosch has been posting subdued growth largely owing to the downturn of the CV cycle. However, post the recent recovery in the CV cycle and pick up in Auto industry volumes, we estimate the company to clock around 15% CAGR in Top-line over CY2009-11E and around 17% CAGR in Net Profit, assuming better outlook and growth of the CV and CRS Segments. Bosch enjoys high Margins in the Auto Component Segment due to the high entry barriers and its dominant position in the market. However, Margins have declined in the last three years due to the rise in import content in some of the new products like CRS. We estimate Bosch to register 25% CAGR in EBITDA over CY2009-11E owing to improvement in OPM due to rise in Operating leverage. Better utilisation of new capacities and gradual localisation of component supplies would further improve Margins post CY2010E.

Bosch's medium-term prospects are derived largely from the demand arising in the CV and Tractor Segments, which is estimated to grow at an annual rate of around 12-13% and 5-6% respectively, over the next couple of years. Further, greater visibility on newer growth opportunities are emerging for the company following its investments in new and innovative technologies like CRS and Gasoline Systems. We believe that the company will continue to enjoy premium valuations owing to strong parental focus and increasing long-term growth opportunities in the Indian market facilitated by future changes in Emission norms. Moreover, Bosch has been a consistent performer with strong cash flows in the Indian Auto Component Industry.

We estimate the company to clock EPS of Rs227.3 and Rs259.4 for CY2010E and CY2011E respectively, owing to overall pick up in Auto demand. At the CMP, the stock is quoting at 18.4x CY2010E Earnings. At our Target multiple of 20x (based on its three year historical average multiple) CY2011E EPS, our Fair Value for the stock works out to Rs5,188. We maintain an Accumulate on the stock.