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Strong revenue growth across businesses

Plans to deliver double-digit EBIT margin

* BOS’ 1QFY23 performance was a beat on all fronts, led by strong revenue growth. With the easing of supply-chain constraints, it expects PV/LCV volumes to surpass FY18 levels. We expect this outperformance to continue on account of a revival in the CV cycle and an increase in exports, diluted by a weakness in the Tractor cycle. With a margin recovery still awaited, we see no major re-rating catalysts on the anvil.

* We maintain our FY23 EPS estimate, but increase our FY24 EPS estimate to factor in a better outlook for the Auto and Aftermarket segment. We maintain our Neutral rating with a TP of ~INR16,150 (25x Sep’24E EPS).

Auto business displays impressive growth

 *Revenue/EBITDA/adjusted PAT grew 45%/47%/29% YoY to INR35.4b/ INR4.5b/INR3.3b.

* Revenue from the Auto segment grew 45% YoY and 15% QoQ to INR31.1b, whereas the same from the non-Auto segment grew by ~48% YoY (down 30% QoQ) to INR4.4b. Growth in revenue can be attributed to the easing of supply-chain bottlenecks at the end of 1QFY23.

* Gross margin eroded by 5.7pp YoY (flat QoQ) to 35.4%. Stable gross margin QoQ was due to a better mix (higher Tractor volumes), offset by cost pressure and an adverse forex rate on imports. However, EBITDA margin improved by 20bp YoY (down 50bp QoQ) to 12.7% (est. 12.1%) due to operating leverage.

* The lower depreciation was offset by a lesser other income, leading to a PBT before EO at INR4.4b (est. INR3.8b).

* Adjusted PAT stood at INR3.3b (est. INR 2.9b), up 29% YoY, but down 5% QoQ

Highlights from the management commentary

* Outlook: With a steady order book (with OEMs) and easing supply chain issues from Jun’22, the management expects to maintain robust growth across revenue and free cash flows in 9M FY23. It aims to maintain margin steady through a strategic cost recovery across supply chains. It plans to deliver double-digit EBIT (v/s 9.6%/14.5% in FY22/FY19).

* In e-2Ws, it has a full portfolio of motors, power electronics, battery system, etc. It has been a supplier of several first generation products to OEMs and is also working with new OEMs.

* For a hybrid PV, it has full product array, and is catering to several domestic and global OEMs.

* In Tractors, it has a strong order book, given the migration to TREM Stage IV/V emission norms

Valuation and view

 * Valuations of ~38.2x/28.7x FY23E/FY24E EPS largely factors in changes in its competitive positioning since its shift to BS-IV emission norms. While the negatives are priced in, there are no material catalysts visible for a re-rating of the stock.

* We maintain our Neutral rating with a TP of INR16,150 (~25x Sep’24E EPS).

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