EUR 120.00 For Business Accounts Only

MOSL: BOSCH (Neutral)-Below est.-Operating deleverage hurting margins; Outlook cautious

Bosch: Below est.; Operating deleverage hurting margins; Outlook cautious

(BOS IN, Mkt Cap USD6.3b, CMP INR15240, TP INR13700, 10% Downside, Neutral)

 

• Negative operating leverage dents margins: Revenues declined 27% YoY to ~INR23.1b (v/s est. ~INR24.3b). Auto revenues skidded ~31% YoY, while non-auto revenue dropped ~9.5% YoY due to the solar energy and security tech business witnessing a decline. EBITDA margins were down ~430bp YoY (-300bp QoQ) to ~14.6% (v/s est. ~15.5%). Higher other income restricted decline in PBT before EO to 34.5% YoY at INR4.2b (v/s est. ~INR4.15b). Adj. PAT declined ~26% YoY to ~INR3.1b (v/s est. ~INR2.8b). 2QFY20 had several one-offs viz. (a) INR1.3b for auto business restructuring (structural changes), and (b) INR1.45b as an impact of the revised tax rates on opening def. tax assets. 1HFY20 revenue/EBITDA/PAT declined 20.5%/33%/23%.
• Call highlights: (a) Powertrain solutions' division revenues declined ~38.5% YoY due to sharp drop in the CVs/PVs business. (b) 2W business grew 31% YoY on a low base. (c) Company has provided ~INR2.1b in 1HFY20 for restructuring, reskilling and redeployment of resources due to structural changes in the mobility business and expects further provisions in the future. (d) It has contributed substantially to Bajaj Chetak e-scooter. Its USP is to offer affordable holistic localized solutions rather than just a component. (e) It is seeing good growth in the gasoline business for both 4Ws and 2Ws (for BS6).
• Valuation and view: We have reduced our FY20/FY21 EPS estimates by 4%/6% to factor in the weak demand environment. The stock trades at 36.4x/29.9x FY20/FY21 EPS. BS6 transition poses risk of further market share loss in CVs as well as continuous decline in its stronghold - PV diesel, but opportunities are expected to open up for BOS in 2Ws (one of 3-4 players in 2W EFIs). We estimate EPS to grow just ~3% CAGR over FY19-22E as the changing competitive positioning poses a threat to our estimates. Maintain Neutral with TP of ~INR13,700 (~25x Sep-21 EPS).