2024-12-02 04:04:19 pm | Source: Motilal Oswal Financial Services
Neutral Bosch Ltd For Target Rs.34,280 By Motilal Oswal Financial Services Ltd

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Operational beat mainly led by improved mix Auto volumes likely to largely remain stable YoY in FY25E

* Bosch’s (BOS) 2QFY25 performance beat our estimates owing to lower RM costs (led by lower traded goods) as BOS continued its efforts for the localization of components. Auto demand remains weak across its key segments, especially for CVs and PVs. While BOS continues to work toward the localization of new technologies, given the long gestation projects, its margin remains under pressure with no visibility of improvement, at least in the near term.

* We maintain our FY25/FY26 EPS estimates. At ~45x FY25E/38x FY26E EPS, the stock appears fairly valued. We reiterate our Neutral stance on the stock with a TP of INR34,280 (based on ~35x Sep’26E EPS).

 

Improved mix drives margin beat

* 2Q revenue/EBITDA/adj. PAT rose 6%/14%/29% YoY to INR43.9b/INR5.6b/ INR4.96b (est. INR44.6b/INR5.35b/INR5.1b). 1HFY25 revenue/EBITDA/ adj. PAT grew 5%/13%/21% YoY. 2HFY25 revenue/EBITDA/adj. PAT are likely to grow 8%/10%/16% YoY.

* Mobility business grew 7% YoY, driven by growth in mobility aftermarket (9% YoY), power solutions (6% YoY) and 2W segment (13% YoY).

* Consumer goods segment grew ~10% YoY, while the building technologies business grew 20% YoY.

* Gross margins expanded 170bp YoY (-60bp QoQ) to 34.9% (est. 35.5%) mainly due to lower RM costs and better mix.

* As a result, EBITDA margins expanded to 12.8% (+90bp YoY; est.12%).

* Adj. PAT came in at INR4.96b (est. INR5.1b), up 29% YoY after adjusting a one-time gain of INR485m due to the sale of OE diagnosis business.

* Operating cash flow/FCF grew 5.7x/9.7x YoY.

 

Highlights from the management commentary

* Domestic demand outlook: Management expects overall auto volumes to remain stable YoY in FY25.

* BOS is well prepared for early transitions in terms of localization of components for TREM-5 norms (expected in Apr’26) for tractors. It is also prepared to cater to a sudden surge in demand (mainly expected in 2HFY25) and pre-buying effect due to TREM-5 for tractors.

* Exports business: This is a longer-term opportunity for the next five years. Growth in 1HFY25 was 10% YoY.

* FY25 capex guidance stands at INR4b (vs. ~INR1b in 1HFY25) mainly for the plants and machinery.

 

Valuation and view

* Auto demand remains weak across its key segments, especially for CVs and PVs. While BOS continues to work toward the localization of new technologies, given the long gestation projects, its margin remains under pressure with no visibility of improvement, at least in the near term.

* We maintain our FY25/FY26 EPS estimates. While BOS is outperforming the underlying auto industry growth with new order wins, visibility for margin recovering to 15-16% is low. At ~45x FY25E/38x FY26E EPS, the stock appears fairly valued. Hence, we reiterate our Neutral rating with a TP of INR34,280 (premised on 35x Sep’26E EPS).

 

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