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About the stock: Bosch Ltd (Bosch) is a technology leader providing solutions in automotive, industrial technology, consumer goods, energy & building technology.

* Mobility solutions (automotive products) comprised ~85% of FY22 sales with share of Business Beyond Mobility at ~15%

* Within mobility, it has large presence in diesel-dependent vehicles & tractors

Q3FY23 Results: Bosch posted steady Q3FY23 results.

* Total operating income was flat QoQ at | 3,660 crore

* Automotive products segment grew 3% QoQ to | 3,240 crore while consumer goods & others segment de-grew 14% QoQ to | 448 crore

* EBITDA margins were down 80 bps QoQ at 11% led by exceptional charge, adjusting for which EBITDA margins came in at 12.8%, up 100 bps QoQ

* Consequent PAT was at | 319 crore, down 14% QoQ

What should investors do? Bosch’s stock price has remained flattish over five years (i.e. at ~| 18,000 in March 2018) thereby underperforming the Nifty Auto index.

* We retain our BUY rating on the stock amid expectations of healthy volume growth in the M&HCV as well as UV space, Bosch’s potential content increase in BS-VI stage 2 rollover and capabilities developed by it in alternate fuel ecosystems including EV’s and hydrogen powered vehicles.

Target Price and Valuation: Introducing FY25E and rolling over our valuations we now value Bosch at | 20,970 i.e. 31x P/E on FY25E EPS of | 676 (earlier TP: | 20,000).

Key triggers for future price performance:

* Leadership positioning in powertrain technology with parent supported ready solutions for flex fuel, BS VI phase II transition, EVs and hybrids

* With volume growth on the anvil in M&HCV & UV space, potential content increase in BS-VI stage 2 transition, incremental order wins on account of emission rollover in construction equipment space, we expect the topline at the company to grow at a CAGR of 16.5% over FY22-25E

* With operating leverage at play, continuous focus on calibrated localisation initiatives, we bake in margin improvement to 14% levels by FY25E

Alternate Stock Idea: In the auto coverage, we also like M&M.

* Focused on prudent capital allocation, UV differentiation & EV proactiveness

* BUY with a target price of | 1,665

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