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Bosch Ltd: Healthy growth - Views on News from Equitymaster
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Bosch Ltd: Healthy growth
Nov 18, 2014

Bosch Ltd announced the second quarter results of financial year 2014-2015 (2QFY15). The company reported a 19% YoY and 31% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 19% YoY in 2QFY15 as the automotive segment grows by 19% YoY.
  • Operating margins improve by 2% to 17.2% in 2QFY15 largely on account of the fall in raw material costs (as percentage of sales).
  • Net profit growth at 31% YoY is slightly lower than the 34% YoY growth in operating profits due to the surge in tax expenses.

(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net sales 21,471 25,558 19.0% 66,611 74,006 11.1%
Expenditure 18,205 21,174 16.3% 55,835 61,162 9.5%
Operating profit (EBDITA) 3,266 4,383 34.2% 10,776 12,844 19.2%
EBDITA margin (%) 15.2% 17.2%   16.2% 17.4%  
Other income 865 1,207 39.5% 2,595 3,458 33.3%
Interest (net) 0 1   4 21 420.0%
Depreciation 894 1,015 13.6% 2,600 2,798 7.6%
Profit before tax 3,237 4,574 41.3% 10,766 13,483 25.2%
Tax 894 1,510 68.9% 3,309 4,090 23.6%
Profit after tax/(loss) 2,343 3,064 30.8% 7,457 9,393 26.0%
Net profit margin (%) 10.9% 12.0%   11.2% 12.7%  
No. of shares (m) 31.4 31.4   31.4 31.4  
Diluted earnings per share (Rs)*         343.4  
P/E ratio (x)*         51.9  
(* on trailing twelve months earnings)

What has driven performance in 2QFY15?
  • Bosch Ltd's revenues grew by 19% YoY during the quarter. This was largely led by the automotive business, which also grew by 19% YoY. While low base effect was one of the reasons for growth, the other was the gradual pick up in volumes of passenger cars and commercial vehicles.

  • Bosch's operating margins improved by 2% to 17.2% during the quarter largely on account of the fall in raw material costs. These fell from 53.9% of sales in 2QFY14 to 51.6% of sales in the current quarter. Other expenditure, however, increased marginally on account of higher tooling costs and one time provisions.

  • Despite the healthy growth in PBT on account of the higher other income, net profit growth came in lower at 31% YoY on account of the surge in tax expenses.
What to expect?
At the current price of Rs 17,813, the stock is trading at a multiple of 38.2 times our estimated FY17 earnings per share. Bosch's performance is expected to ramp up going forward as auto volumes begin to pick up. This trend has been most visible in the CV space, which has suffered the most in the past couple of years. Bosch Ltd also tends to benefit from the technological expertise of its foreign parent. The latter has been known to spend heavily on R&D and the benefits of this will flow down to Bosch Ltd as well.

The strike at Bangalore did not impact the results of the current quarter much but would have an impact on the fourth quarter.

Overall, while the growth prospects and business model of the company remains strong, valuations are on the higher side and our view is that investors not buy the stock at current levels.

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