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Technology leader, steady growth prospects…

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 FY21 sales with share of Business Beyond Mobility at ~15%

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

Q2FY22 Results: Bosch posted muted Q2FY22 results.

* Total operating income grew 17.7% YoY to | 2,918 crore. Automotive products segment grew 14.5% YoY to | 2,436 crore while consumer goods & others grew a healthy 41% YoY to | 498 crore (led by power tools)

* EBITDA margins were lower by ~20 bps QoQ to 12.3%

* Consequent PAT was at | 372 crore in Q2FY22 vs. | 260 crore in Q1FY22

What should investors do? The stock price has underperformed Nifty Auto index over past five years and has largely been flat in that timeframe at ~| 19,000 levels.

* We retain our HOLD rating on the stock amid a gradual improvement in domestic automobile sector and the company’s value addition focus

Target Price and Valuation: We value Bosch at 35x P/E on FY23E EPS of | 574 for a revised target price of | 20,100 per share (earlier | 15,730).

Key triggers for future price performance:

* Bosch’s role in developing technology leading auto components, EV solutions to some of the domestic OEMs & CV cyclical recovery under way to act as growth drives; we build in 20.5% sales CAGR over FY21-23E

* Bosch also intends to increase the share of aftermarket sales from present levels of ~20% to ~25% in due course of time; to be margin accretive

* Resolution of semiconductor shortage to aid topline and margins. Operating leverage gains seen aiding margin improvement to 15% by FY23E

Alternate Stock Idea: In the auto ancillary coverage, we also like JK Tyre.

* Walking the talk on b/s deleveraging, sweating of assets & capital efficiency

* BUY with a target price of | 185

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