Stock Market Result Update on Bosch for 3QCY2011

Stock Market Result Update on Bosch for 3QCY2011 with an Accumulate recommendation and a Target Price of `7763 (12 months).

Bosch (BOS) reported better-than-expected net profit growth for 3QCY2011, led by healthy performance at the operating level and a significant increase in non-operating income. Revenue growth was primarily driven by the diesel systems and after market segments, which grew by 13% yoy each. Post 3QCY2011 results, we have revised our earnings estimates slightly upwards to factor in better-than-expected operating margin and higher non-operating income during the quarter. We maintain our Accumulate rating on the stock.

Strong performance boosted by higher non-operating income: BOS registered healthy top-line growth of 16.4% yoy (down 3.3% qoq) to `1,991cr, driven by 15% yoy (down 2.7% qoq) growth in the auto segment and strong 31.5% yoy (3.3% qoq) growth in the non-auto segment. The diesel systems and automotive aftermarket segments grew by 13% yoy each, while the gasoline segment recorded a 30% yoy decline in sales (due to slowdown in OEM offtake). The company’s EBITDA margin witnessed a marginal 43bp yoy contraction to 19.3% due to higher commodity costs (mainly due to higher alloy and steel prices and adverse currency impact) and employee expenses. Sequentially, the company’s margin expanded by 90bp as the proportion of traded goods was lower during the quarter. Net profit registered strong 22% yoy (3.3% qoq) growth to `288cr as other income jumped by 111% yoy, driven by DEPB benefits. Interest income during the quarter grew by 46% yoy due to higher yield on investments.

Outlook and valuation: We expect BOS to register a ~17% CAGR in its net sales over CY2010-12E, leading to a ~19% CAGR in its earnings. As a result, we estimate BOS to post EPS of `350.8 and `388.1 for CY2011E and CY2012E, respectively. At `7,205, the stock is trading at 20.5x CY2011E and 18.6x CY2012E earnings, respectively. We retain our Accumulate rating on the stock with a revised target price of `7,763.