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Healthy performance; favourable growth environment

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

Q1FY23 Results: Bosch posted healthy Q1FY23 results.

* Total operating income grew 7% QoQ to | 3,544 crore

* Automotive products segment grew 15% QoQ to | 3,109 crore while consumer goods & others segment de-grew 30% QoQ to | 439 crore

* EBITDA margins were down ~50 bps QoQ at 12.7%

* Consequent PAT was at | 334 crore in Q1FY23 vs. | 351 crore in Q4FY22

What should investors do: Bosch’s stock price has de-grown ~6% CAGR over five years from | 24,560 levels in August 2017, thereby underperforming Nifty Auto index

* We retain our BUY rating on the stock amid industry tailwinds in the form of healthy volume growth, diesel powertrain gaining traction domestically and incremental role to play amidst more stringent emission control norms

Target Price and Valuation: We value Bosch at 32x P/E on FY24E EPS of | 625 for a revised target price of | 20,000 per share (earlier | 16,100).

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

* Amid strong focus on increasing domestic sales with underlying focus on exports (~9-12% of sales), we build in 18.2% sales CAGR over FY22-24E

* Resolution of semiconductor shortage to aid topline growth. Operating leverage gains seen aiding margin improvement to 14.5% by FY24E. The company aims at double digit EBIT margins amid localisation push

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 | 1,500

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