MOSL: BOSCH (Neutral)- In-line; localization, favorable currency drive a decline in RM

Bosch: In-line; localization, favorable currency drive a decline in RM

(BOS IN, Mkt Cap USD9.8b, CMP INR19911, TP INR21951, 10% Upside, Neutral)

• Healthy growth in auto and non-auto segments (adjusted for excise) drives revenues: 3QFY18 revenue grew 14% YoY to INR30.7b (est. of INR31.3b), led by healthy growth in the auto and non-auto segments, as well as a recovery in after-market sales. Auto revenue, adjusted for excise, grew 15% YoY, driven by healthy growth in the diesel (33.6%) and gasoline (37.1%) businesses, supported by a recovery in after-market sales (+4% YoY). Non-auto segment, adjusted for excise, grew 10.5% YoY due to double-digit growth in the security systems, packaging and thermo technology segments, offsetting the decline in the energy solution segment. Domestic revenue grew by 13.1% YoY and exports by 22% YoY.
• Higher other expense offsets decline in RM, staff cost: EBITDA margin expanded 390bp YoY (-350bp QoQ) to 14.6% (est. of 14%), as lower RM and staff costs were offset by higher other expense. RM as % of sales declined 150bp YoY (-230bp QoQ) to 52.8% due to higher localization and favorable currency. Better productivity led to a decline in staff cost by 12% YoY (-1% QoQ). Other expenses rose 18.6% YoY, led by one-offs related to a) increase in royalty on new products and b) consulting fees and maintenance cost.