Bosch Ltd – Margin challenges persist – ICICI Securities


Bosch’s (BOS) Q4FY21 operational performance missed consensus estimates, as Adjust. The EBITDA margin fell 95 basis points year-on-year to 14.3%. Gross margins slipped 745 basis points year-on-year to 38.6% due to a weaker product mix (the share of goods traded rose to ~ 71% of the cost of raw materials) and the rise raw material costs. Automotive revenues grew about 47% year-on-year thanks to the mobility division (up 57% year-on-year) while non-automotive revenues grew about 25%. We expect growth in the tractor segment to slow down in FY 22/23, while the lack of diesel growth in PV and the loss of market share in MHCV should keep growth under control. A higher share of repurchased components and imports will likely hamper EBITDA margins compared to previous cycle levels (17-19%). Given the modest FCF generation (yield: 2.5% for FY23E), high exposure to ICE engine components remains a major risk for premium valuations. Hold SELL.

 Quarter Highlights: BOS Home Mobility Solutions business improved approximately 57% year-on-year due to better powertrain solutions sales (up 66% year-on-year) driven by the growth of the 2W and LCV segment, while the ex-mobility of companies increased by around 25%. Rising raw material costs (up 745 basis points) due to inflation in raw material prices and product line led to adj. 95bp EBITDA margin contraction to 14.3%. On a reported basis, personnel costs fell by 332 basis points due to a one-time reversal of the provision of Rs 1,586 million; we adjusted the same below EBITDA. The adjusted PAT increased 33% to 36.1 billion rupees. The company declared a dividend of 115 rupees per share.

– Key takeaways from concall: a) Domestic sales grew 50% year-on-year, with revenues from mobility activities increasing by around 57% (industry growth: 28%); b) Raw material costs increased 4.5% year-on-year, mainly due to higher freight costs, change in product mix, rise in traded goods and higher input costs BS-VI materials; c) the result of the “3R” restructuring program has started to be visible in the reduction of personnel costs (personnel costs should remain between 10 and 12% of net turnover); A reduction of approximately 2.4k in the workforce was achieved in fiscal year 21; d) Supply chain disruptions due to local lockdowns, labor absenteeism and semiconductor shortages are impacting BOS production, and this situation is expected to continue until ‘to H1FY22; e) secondary market sales, experienced strong growth in H2 compared to H1, with the company focusing on expanding distribution reach; f) BS-VI product sales were> Rs190bn, but below the original target of Rs240bn; g) Tractor growth has been supported by higher rabi production where BOS is dominant.

– Maintain SALE: We remain cautious on the BOS due to multiple challenges: 1) lower gross margins (down 550 basis points year on year), 2) a structural decline in the diesel PV segment, 3) a loss of M & HCV market share; and 4) a likely moderation of the main growth driver (tractors) due to a high base effect. We are reducing profit by 13.3% / 8.2% for FY22E / FY23E due to lower gross margins. We keep our multiple objective at 25x BPA FY23E of Rs471. Maintain the sale with a revised target price of 11,773 rupees / share (previously: 12,831 rupees).

Shares of BOSCH LTD. was the last trade in the BSE at Rs.15838.15 from the previous close of Rs. 14795.7. The total number of shares traded during the day was 28,283 in more than 10,223 transactions.

The stock hit an intraday high of Rs. 16,250 and an intraday low of 14,560.05. The net turnover during the day was Rs. 444,809,928.


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