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In-line; revenue growth outperforms industry growth

Semiconductor uncertainty to persist in 1HCY21

* Bosch (BOS)’s 3QFY21 revenue grew faster than underlying industry growth. We expect this trend to continue on account of strong tractor demand, the addition of the 2W segment, and content increase. BOS’ stock price largely reflects all the negatives, but a re-rating catalyst may emerge within 2–3 quarters, in our view.

* We upgrade our FY22E EPS by 5%, reflecting a stronger recovery in CV sales. Maintain Neutral, with TP of ~INR15,650 (28x FY23 EPS).

Stronger revenue growth; adverse Fx, mix hurt margins

* 3QFY21 revenues / EBITDA / adj. PAT grew 19%/12%/7% YoY to INR30.3b/INR3.6b/INR2.95b. BOS’ 9MFY21 revenue / EBITDA / adj. PAT declined ~15%/52%/42%.

* Auto revenues grew 25% YoY, driven by 46% growth in Powertrain and growth in the 2W business. Non-Auto revenues fell 11%, impacted by weakness in Solar Energy and Building Technologies.

* The gross margin declined 580bp YoY (-140bp QoQ) to 42% on higher freight cost, traded goods, new-gen products, Fx impact, and lower service income. Staff cost was lower than estimated on account of restructuring. This, coupled with operating leverage benefit, restricted EBITDA margin decline to just 80bps YoY to 11.8% (v/s est. 12.1%).

* PBT before EO grew 5% to INR3.6b (v/s est. INR3.8b). However, lower tax boosted adj. PAT to INR2.95b (v/s est. INR2.8b).

Highlights from management commentary

* The shortage of semiconductors is expected to continue in 1HCY21. It is currently focusing on maintaining supply chains to the extent possible despite a tense market situation.

* Sales grew 46% in the Powertrain Solutions business division in 3QFY21. The 2W and Powersport businesses continued to witness growth.

* The Non-Auto business declined 7.7% due to lower revenues in Solar Energy and Building Technologies.

* PV Diesel is sub 20% and likely to de-grow further in the years to come.

* The aftermarket is 22–25% of total sales. Over the last two years or so, this business has consolidated and is now ready for growth.

* Over the last few years, it was focused largely on the domestic market. However, from FY22, it would focus on exports as well.

* The last tranche of the restructuring exercise – for becoming fit for the future by reskilling, restructuring, and redeploying manpower – was spent in 3QFY21. It provided INR1.47b for the same in 3Q and has provided a total of ~INR14.6b since 1QFY20.

Valuation and view

* Valuations at ~34.5x/29x FY22/FY23E EPS largely factor in potential market share loss during the BS6 transition. While negatives are priced in, catalysts may take 2–3 quarters to emerge. Maintain Neutral.

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