Stock Market Result Update on Bosch for 2QCY2011

Stock Market Result Update on Bosch for 2QCY2011 with an Accumulate recommendation and a Target Price of `7304 (12 months).

Bosch reported better-than-expected performance during 2QCY2012 on account of sustained momentum in the diesel cars, light commercial vehicle (LCV) and tractor segments. Good demand for starter and generator products and exports also boosted the company’s performance. We revise our revenue and earnings estimates to account for better-than-expected 2QCY2011 performance and recommend Accumulate on the stock.

Strong operating performance during 2QCY2011: Bosch reported strong 21.1% yoy (down 1.3% qoq) growth in its top line to `2,059cr, driven by a 22.1% yoy (down 1.4% qoq) increase in the auto segment’s revenue and 29.7% yoy (down 10.1% qoq) jump in the non-auto segment’s revenue. During the quarter, the diesel systems segment grew by ~23% yoy and the automotive aftermarket segment reported a ~15% yoy increase in sales. EBITDA margin posted a marginal 40bp yoy (50bp qoq) decline on account of input cost pressures. Noticeably, a sharp 311bp yoy decline in other expenses helped Bosch to maintain its margin. Led by strong top-line performance and a substantial jump in interest and other income, net profit posted better-than-expected 32.9% yoy (1.6% qoq) growth to `279cr.

Outlook and valuation: We expect Bosch to register a ~17% CAGR in its net sales over CY2010–12E, leading to a ~16% CAGR in earnings. As a result,

we estimate Bosch to post EPS of `327.2 and `365.2 for CY2011E and CY2012E, respectively. At `6,945, the stock is trading at 21.2x CY2011E and 19x CY2012E earnings, respectively. We recommend Accumulate on the stock with a target price of `7,304, valuing it at 20x CY2012E earnings.