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Bosch 4QCY2012 performance highlights and results update

Contributed by Angel Broking

Bosch (BOS) reported an extremely poor performance for 4QCY2012 largely due to operating margins pressures, which led the EBITDA margin to decline by 429bp yoy (82bp sequentially) to 12.5%. The top-line growth too was muted due to slowdown in key segments such as medium and heavy commercial vehicle (MHCV), tractors and exports. We revise our earnings estimates downwards (by 10.5%/7.1% in CY2013E/14E) to factor in the slowdown in the automotive sector and weak exports demand coupled with margin pressures due to unfavorable currency movement. We maintain our Neutral rating on the stock.

Poor performance for 4QCY2012: BOS posted a modest net sales growth of 5.1% yoy (down 3.8% qoq) to Rs.2,132cr, which was slightly below our estimate of Rs.2,202cr, on account of continued weakness in the MHCV and tractor industries, and export sales. While the automotive segment posted a sluggish growth of 3.9% yoy (4.7% qoq) due to slowdown in OEM sales, the non-auto segment registered a growth of 6.2% yoy (down 2.7% qoq). EBITDA margin declined 429bp yoy to 12.5%, primarily on account of increase in raw-material costs and employee expenditure. The raw-material cost as a percentage of sales surged 140bp yoy on account of INR depreciation; while, employee expenditure as a percentage of sales jumped 290bp yoy due to negative impact of change in actuarial assumptions and wage hikes given to the employees. On a sequential basis, the margins were impacted largely due to increase in employee and other expenditure which grew by 18.7% and 27.1% qoq, respectively. Therefore, net profit at Rs.172cr (down 38.8% yoy and 15.2% qoq) was lower than our expectations of Rs.199cr. The net profit was further impacted due to high depreciation expense (up 33.7% yoy) and higher tax rate (29.7% vs 22.5% in 4QCY2012) during the quarter.

Outlook and valuation: While we are positive on the long term prospects of BOS due to its technological leadership and strong and diversified product portfolio, we expect the near-term environment to remain challenging given the continued slowdown in the MHCV and tractor industries. At Rs.8,457, BOS is trading at a fair valuation of 20x CY2014E earnings. We therefore maintain our Neutral rating on the stock.