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Below est.; Negative op. leverage dents margins; FY20 outlook cautious
* Revenues declined 13% YoY (-11% QoQ) to INR27.5b (our est. INR30.5b). Auto revenue declined 16% YoY (domestic auto revenues fell 16.4% while auto exports declined 6.3%). Powertrain revenues declined 19% impacted by diesel, even as gasoline grew in line with the industry. EBITDA declined 25% YoY (-22% QoQ) to INR5.2b (below our est. INR6b). EBITDA margin shrank 310bp YoY to 18.8% (our est. 19.8%) impacted by negative operating leverage. Lower tax restricted the decline in PAT to 17% YoY at INR4.1b (our est. INR4.4b). In FY19, Revenue/EBITDA/PAT grew 5%/3.4%/11.5%.
* Concall highlights:
(a) FY20 outlook cautious due to BS6 transition, but growth expected from 2HFY20. It expects OEMs to stop manufacturing BS4 vehicles latest by end-3QFY20.
(b) Aftermarket business grew 8-10% in CY18, but, 1QCY19 growth was muted.
(c) BOS has ~33% market share in the gasoline business; it is growing in line with industry.
(d) Capex: ~INR6b in FY19 and INR5-6b in FY20.
(e) For BS6, customer acquisitions (incl. 2Ws) are at an all-time high for BOS (currently working on 150 projects).
* Valuation view:
We have reduced our FY20/FY21 EPS estimates by 6%/7% to factor in the weak demand environment. BS6 transition poses the risk of (a) further market share loss in CVs, and (b) continuous decline in its stronghold — diesel PVs, though 2W opportunity should open up for BOS (it’s one of the 3-4 players in 2W EFIs). BOS’ earnings have been flat over the last three years. While we estimate EPS to grow at ~11.5% CAGR over FY19-21, the changing competitive positioning poses a threat to our estimates. Valuations have corrected, in line with muted earnings growth and dilution in competitive positioning. The stock now trades at 30.1x/25.8x FY20/FY21 EPS (v/s 10-year LPA at ~32x). Maintain Neutral with TP of ~INR18,200 (27x FY21EPS – ~15% discount to LPA).
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