Bosch - Buy :Business Line **
Investors with a perspective of one-to-two years can buy the shares of Bosch. The company is a major supplier of diesel and gasoline fuel injection systems for the auto industry. Although slow domestic auto sales or a diesel price hike/deregulation may affect it in the immediate future, Bosch is on a strong wicket for three reasons. For one, over the medium-to-long term, exposure to the diesel segment is a positive. Considering the technological progress of diesel engines and the benefits of higher mileage, the demand for diesel vehicles is on the rise. Two, it derives about 20 per cent of revenues from the automotive after-markets, which include supply of replacement parts and servicing of vehicles. The demand for such services is largely independent of the auto industry cycle. Three, the company is also present in the non-auto segment, helping diversification of the revenue stream. While the stock has appreciated 27 per cent from our previous ‘Buy' call, it still trades at attractive valuations. At Rs 8,936, it trades at 19 times its estimated 2013 earnings. This is in the lower end of the historical PE band. Investors can use the volatility in the markets to accumulate the stock on dips. DIESEL POISED TO GROW Bosch has over 70 per cent market share in India for diesel fuel injection products such as single/multi-cylinder pumps, distributor pumps and electronic injection control units (common rail systems). It derives more than half its revenues from supplies to diesel engines and caters to segments such as passenger cars, commercial vehicles, tractors and locomotives. Going forward, few trends in the diesel vehicle market are expected to favour the company. First, the expanding market for diesel cars. Advances in diesel engine technology such as the use of common rails, higher thrust and lower noise levels have encouraged customers to opt for this alternative. Moreover, diesel cars are more fuel-efficient, despite higher purchase price. Post the clarity in the budget, several auto manufacturers have decided to go ahead with planned capacity expansions for diesel cars or set up of greenfield capacities for diesel engines. To cater to the demand, Bosch is expanding its manufacturing capacities for diesel engine components. On the commercial vehicles front, Bosch's source of support lies in the healthy demand for light vehicles (LCVs). LCV volumes grew by 27 per cent, as against the 8 per cent growth in medium and heavy vehicles (MHCVs) in 2011-12. This shows that they are less sensitive to both cyclicality and high interest rates. Hence, the company's exposure to this segment will help keep revenues trickling even as growth in other segments remain moderate. Expected measures from the government to boost economic growth will help MHCV volumes pick-up in the second half of the year. SUPERIOR TECHNOLOGY Bosch has already led the way in introducing common-rail technology for low-priced vehicles (three-wheelers and small four-wheelers) which have a sizeable demand in India. The company also launched common rail systems for MHCVs a couple of years back. These systems improve fuel efficiency and reduce polluting emissions. The company will also benefit from the increasing usage of ABS (antilock braking system) in vehicles. It makes about three lakh ABS units per year in its Chakan facility for cars and utility vehicles. DIVERSIFICATION BENEFITS A diversified revenue base also adds in its favour. While starters and generators, gasoline systems and car multimedia devices (which bring in a small portion of the revenues) are linked to auto sales, Bosch's wide distribution and service networks in the automotive after markets is a positive. In addition, the company derives about 10 per cent of its revenues from the manufacture of packaging machines, power tools and electronic security systems. These have witnessed strong growth in recent times. FINANCIALS For the quarter ended March 2012, net sales grew by 10 per cent to Rs 2,268 crore, while net profits rose 22 per cent to Rs 336 crore. Operating margins came in at 20.8 per cent *vis-à-vis *18.8 per cent in the same quarter last year. On Wed, May 9, 2012 at 1:13 PM, Mihir Desai <[email protected]> wrote: > > JP Morgan Raises Bosch Target > > JP Morgan analysts have retained their 'Overweight' rating on Bosch and > raised their target price to Rs 9,600 from Rs 7,900 before. The company's > margins rose in the January-March quarter despite rising material costs and > depreciating currency. Moreover, rising popularity of diesel cars should > drive growth for the company, analysts led by Aditya Makharia said. The > company is increasing the localization of its manufacturing of pumps and > injectors for diesel engines into India and is also spending Rs 300 crore > in 2012 to expand its capacity in Nasik. The revised target price is based > on a valuation of 19x one-year forward earnings, the analysts said. > > > -- > CA Mihir Desai > > -- CA. Rajesh Desai -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
