MOSL: BOSCH (Neutral)-Below est.; very weak CV volumes, high import content impact EBITDA

​Bosch: Below est.; very weak CV volumes, high import content impact EBITDA

(BOS IN, Mkt Cap USD10.3b, CMP INR22620, TP INR21994, 1% Downside, Neutral)

• Slower transition to BS4 and lower aftermarket impact revenue: Revenue grew ~4% YoY to ~INR26.5b (est. of ~INR30.2b), driven by 5% YoY growth in Autos. Diesel segment grew by 8% YoY (driven by ASP increase due to BS4) and Gasoline by 54%. Non-Auto declined by 11% due to lower export orders in Packaging Technology and a delay in sales due to GST. Domestic growth came in at 3.6%, while exports remained flat.
• Higher trading content impacts EBITDA margin: EBITDA margin shrunk 200bp YoY to 16.6% (est. of 20.3%), mainly led by lower gross margins (-310bp YoY). RM cost was higher due to unfavorable mix, higher trading content (due to import of BS4 systems) and also lower aftermarket due to GST. Other expenses declined 110bp YoY due to one-off item of INR520m in 1QFY17. Lower other income (due to use of cash for buyback of shares and special dividend) and higher tax rate further impacted PAT (-19% YoY to INR3b v/s est. of INR4.4b).
• Earnings call highlights: a) Outlook remains cautiously optimistic, as CV volumes are expected to recover. b) Management mentioned that gross margins were hit in 1Q by higher trading content and imported finished goods to expedite BS4 production, which will not recur, going forward. c) Export revenue came in at INR2.1b, contributing 8% of total revenue. d) Royalty on BS4 system is similar to BS3. e) Bosch wouldn't be supplying EGR components in EGR-based BS4 system (propagated by Ashok Leyland). f) Capex of INR5.5-7.5b p.a. for next two years.