Stock Update

Bosch Ltd
Weak Q1; Auto recovery to power growth
Powered by the Sharekhan 3R Research Philosophy Automobiles Sharekhan code: BOSCHLTD Result Update

3R MATRIX + = - Summary
Š Q1FY22 results were below expectation because of sharper decline in EBIDTA margin, due to
Right Sector (RS) ü negative operating leverage and one-time employee restructuring expense.
Š We expect Bosch’s earnings to clock an 18.7% CAGR during FY21-23E, driven by a 16.8% revenue
CAGR and a 470 bps rise in EBITDA margin expansion to 16.6% in FY23E from 11.9% in FY21.
Right Quality (RQ) ü
Š Stock trades at P/E of 26.5x and EV/EBITDA of 18.1x its FY23E estimates.
Š We retain a Buy on Bosch with an unchanged PT of Rs. 18,156, factoring a recovery in automotive
Right Valuation (RV) ü demand across segment and improving content per vehicle.

+ Positive = Neutral - Negative Q1FY22 results were below expectation because of sharper decline in EBIDTA margin, due
to negative operating leverage and one-time employee restructuring expense. Net revenues
declined 24% q-o-q to Rs. 2,443.5 crore in Q1FY22, slightly lower than our expectations. Net
What has changed in 3R MATRIX revenues were up 146.4% y-o-y, on the back of a low base, improving demand and enhanced
Old New content per vehicle, thanks to BS-VI norms. EBITDA margin stood at 12.5%, falling 670 bps
q-o-q, due to negative operating leverage and high employee expenses. The decline in
EBITDA margin was partially mitigated due to 150 bps q-o-q improvement in raw material
RS  cost to sales ratio, driven by an improved product mix and partial price hikes passed on to
OEMs. As a result, EBITDA and PAT declined by 50.5% q-o-q and 46.1% q-o-q to Rs. 306.6
RQ  crore and Rs. 260 crore, respectively. The management is cautiously positive on demand,
expecting it to recover as lockdown restrictions have been lifted. We expect Bosch to witness
RV  a significant increase in content per vehicle with advent of BS-VI emission norms as vehicles
require significant changes in combustion, powertrain systems and exhaust gas treatment.
The content per vehicle is further driven by improving safety features and conveniences.
Reco/View Change Supply of fuel injection systems to two-wheeler players would be an incremental growth
opportunity. Expansion of power tool business’ distribution network in Tier-3 and Tier-4
Reco: Buy  cities, export of BS-VI automotive components to neighbouring countries, increased adoption
of connected and electric vehicles would be key growth drivers for the company. Bosch
CMP: Rs. 15,519 has a strong technological parentage and operates in a high-entry barrier industry with a
strong balance sheet, zero debt and healthy returns ratios. Bosch is well-prepared to tap on
Price Target: Rs. 18,156  emerging opportunities in electrification and connected vehicles with strong technological
support from its parent, Robert Bosch GmbH. We expect Bosch’s earnings to clock an 18.7%
á Upgrade  Maintain â Downgrade CAGR during FY21-23E, driven by a 16.8% revenue CAGR and a 470 bps EBITDA margin
expansion to 16.6% in FY23E from 11.9% in FY21. Hence, we retain our Buy rating on the stock.
Company details Key positives
Market cap: Rs. 45,771 cr Š Better product mix and partial price hikes to OEM helped gross margin to improve by 250
bps q-o-q to 41.1%.
52-week high/low: Rs. 16900/11332 Key negatives
NSE volume: Š EBITDA margin stood at 12.5%, falling 670 bps q-o-q, due to negative operating leverage and
47,438
(No of shares) high employee expenses.
Our Call
BSE code: 500530
Valuation – Maintain Buy with an unchanged PT of Rs. 18,156: The management is cautiously
NSE code: BOSCHLTD positive on the demand scenario, expecting it on the path of recovery after wave-2 of
COVID recedes. We expect the company to be a key beneficiary of the revival in automotive
Free float: demand, driven by pent-up offtake and normalisation of economic activities. Bosch is a strong
0.9 cr technological company with a robust balance sheet, zero debt and healthy return ratios. Its
(No of shares) strong brand positioning, focus on technology and electrification of vehicles enable high growth
visibility. The company’s order book of Rs. 18,500 crore for BS-VI grade products is likely to be
Shareholding (%) executed in the next 5-6 years, which provides healthy growth visibility. We expect Bosch’s
earnings to grow at 18.7% CAGR during FY21-23E, driven by a 16.8% revenue CAGR and a 470
Promoters 70.5 bps EBITDA margin expansion to 16.6% in FY23E from 11.9% in FY21. The stock is trading at P/E
of 26.5x and EV/EBITDA of 18.1x its FY23E estimates, which is trading close to higher end of its
FII 4.3 long-term average multiples. The stock’s premium valuation is justified given its strong pedigree
of its parent company and superior technological capability. We retain a Buy on Bosch Limited
(Bosch) with an unchanged PT of Rs. 18,156, factoring a recovery in automotive demand after the
DII 16.1 lockdown restrictions are lifted.
Others 9.0 Key Risks
The company’s performance may be affected if commodity prices continue to rise at the current
Price chart pace. The occurrence of the third wave of COVID-19 or new variants might affect our estimates.
18000
17000 Valuation (Consolidated) Rs cr
16000 Particulars FY20 FY21 FY22E FY23E
15000
14000 Revenues 9,842 9,716 11,520 13,248
13000
12000 Growth (%) (18.6) (1.3) 18.6 15.0
11000
10000
EBIDTA 1,483 1,161 1,786 2,205
OPM (%) 15.1 11.9 15.5 16.6
Aug-20

Aug-21
Apr-21
Dec-20

Net Profit 1,301 1,226 1,422 1,727

Growth (%) (18.3) (5.8) 16.0 21.5
Price performance EPS 441.3 415.7 482.1 585.7
(%) 1m 3m 6m 12m P/E 35.2 37.3 32.2 26.5
P/BV 4.9 4.7 4.2 3.8
Absolute 1.1 16.4 -1.0 18.7
EV/EBIDTA 26.8 35.1 22.6 18.1
Relative to
-2.5 3.7 -12.2 -25.9 ROE (%) 14.1 12.7 13.2 14.2
Sensex
ROCE (%) 17.1 13.2 17.1 18.3
Sharekhan Research, Bloomberg
Source: Company; Sharekhan estimates

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Key conference call highlights

EBITDA margin drops sharply: Q1FY22 results were below expectation because of sharper decline in EBIDTA
margin, due to negative operating leverage and one-time employee restructuring expense. Net revenues
declined 24% q-o-q to Rs. 2,443.5 crore in Q1FY22, slightly lower than our expectations. Net revenues were
up 146.4% y-o-y, on the back of a low base, improving demand and enhanced content per vehicle, thanks
to BS-VI norms. EBITDA margin stood at 12.5%, falling 670 bps q-o-q, due to negative operating leverage
and high employee expenses. The decline in EBITDA margin was partially mitigated due to 150 bps q-o-q
improvement in raw material cost to sales ratio, driven by an improved product mix and partial price hikes
passed on to OEMs. As a result, EBITDA and PAT declined by 50.5% q-o-q and 46.1% q-o-q to Rs. 306.6 crore
and Rs. 260 crore, respectively.
Management cautiously optimistic: The management is cautiously positive on the demand scenario,
expecting it to recover as lockdown restrictions have been lifted. The company’s order book of Rs. 18,500
crore for BS-VI products is likely to be executed in next 5-6 years, which provides healthy growth visibility.
Increasing localisation of BS-VI components, benefits from investments in transformation and restructuring
projects (Bosch has invested ~Rs. 1,300 crore in these projects) coupled with operating leverage (due to
strong recovery in volumes) would drive up margins. The management expects margin to improve going
forward on back of higher level of localisation and cost reduction measures.
Bosch to witness increased content/vehicle: The automotive industry witnessed a sharp improvement in
demand with production rising. Our channel checks suggest underline strong demand in two-wheeler and
four-wheeler segments, once the economy normalises with higher vaccination levels in the country. Moreover,
with the implementation of BS-VI emission norms, Bosch is witnessing increased content per vehicle in the
engine and exhaust gas treatment systems. In addition, supply of fuel-injection systems to the two-wheeler
segment provides additional opportunity for Bosch, as the company was not present in engine systems for
the two-wheeler segment in the BS-IV era.
Margins expected to improve driven by increased localisation, savings led by transformational projects
and operating leverage: Bosch is focussing on improving localisation levels for BS-VI components. As the
BS-VI vehicle proliferation improves, Bosch would look at parts that could be manufactured in-house. Bosch
stated that it would achieve a significant increase in localisation levels over the next two to three years,
which would enable margin improvement. Moreover, the company has so far invested Rs. 1,300 crore on
transformational and restructuring projects. These projects are directed towards optimising manpower and
enhancing digitisation initiatives. Bosch expects a payback period of about five years for these measures, the
benefits of which would be visible from FY2022. Improvement in volumes would lead to benefits of operating
leverage, which would enable margin improvement.
Electrification remain key focus area: Bosch’s focus on electrification provides it a competitive edge, due to
its parent, Robert Bosch GmbH, substantial investments in EV technology. The parent has been investing in
electric vehicles (EVs) for the last ten years. Bosch India would take leverage of technology and customize
products for Indian markets. The company is working on a low-voltage technology for two-wheelers and
three wheelers; high-voltage technology for passenger vehicles and fuel cell technology for commercial
vehicles and long-haul trailers. The management expects the electrification in India will take time. The two-
wheeler and three- wheeler industry would witness faster adoption in India. Bosch is well-prepared to tap on
emerging opportunities in electrification and connected vehicles with strong technological support from its
parent company.
Strong broad-based growth: Given its strong brand positioning, focus on technology and electrification of
auto vehicles enable high growth visibility. We expect Bosch’s earnings to clock an 18.7% CAGR during FY21-
23E, driven by 16.8% revenue CAGR and a 470 bps EBITDA margin expansion to 16.6% in FY23E from 11.9%
in FY21.

August 04, 2021 29

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Results (Consolidated) Rs cr
Particulars Q1FY22 Q1FY21 y-o-y (%) Q4FY21 q-o-q (%)
Revenues 2,444 992 146.4 3,216 -24.0
Total Expenses 2,137 1,094 95.3 2,597 -17.7
EBIDTA 306.6 (102.5) NA 619.0 -50.5
Depreciation 67 73 -7.9 92 -27.1
Interest 3 2 76.8 4 -21.6
Other Income 99 173 -42.9 117 -15.5
PBT 335 (4) NA 640 -47.6
Tax 76 (80) NA 158 -52.2
Adjusted PAT 260 76 243.1 482 -46.1
Exceptional charges (1) 197 - - -
Adjusted PAT 260 (121) NA 482 -46.0
Adjusted EPS 88.1 25.7 243.1 163.4 -46.1
Source: Company; Sharekhan Research

Key Ratios
Particulars Q1FY22 Q1FY21 BPS Q4FY21 BPS
Gross margin (%) 41.1 42.3 (120) 38.6 250
EBIDTA margin (%) 12.5 (10.3) NA 19.2 (670)
EBIT margin (%) 9.8 (17.7) NA 16.4 (660)
Net profit margin (%) 10.7 (12.2) NA 15.0 (430)
Effective tax rate (%) 22.5 NA NA 24.7 (220)
Source: Company; Sharekhan Research

August 04, 2021 30

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Outlook and Valuation

n Sector view - Structural demand in place
We remain positive on the automobile sector despite Q1FY2022 being impacted by lockdown restrictions by states
due to wave-2 of COVID-19. The passenger vehicle segment, both for two-wheelers and four-wheelers, is expected to
remain strong amid COVID-19, as a preference for personal transport. Rural demand is expected to recover strongly in
southern and western India, given the timely arrival of the monsoon season, higher reservoir levels, and higher kharif
sowing last year. We expect a sequential improvement in M&HCV sales to continue, driven by rise in e-commerce,
agriculture, infrastructure, and mining activities. We expect the strongest recovery in the commercial vehicle segment
in FY2022 and FY2023, driven by an improvement in economic activities, low interest rate regime and an improvement
in financing availability. We expect M&HCVs to outpace other automobile segments in FY2022 and FY2023, followed
by growth in the passenger vehicle, two-wheeler and tractor segments. Moreover, exports provide a huge growth
potential, given India’s cost-effective manufacturing, being geographically closer to key markets of Middle East and
Europe, and being the second-largest producer of key raw-material steel. Auto component exports are expected to
grow from $15 billion to $80 billion by FY2027.
n Company outlook - Beneficiary of automotive demand
Bosch’s content per vehicle would increase with change from BS-IV to BS-VI emission norms, commencing supplies in
the fast-growing electric vehicle segment and emerging technologies such as connected vehicles. Bosch is witnessing
increased offtake for engine and exhaust gas treatment systems as automotive OEM customers have started rolling
BS-VI-compliant vehicles. Moreover, supplies of fuel-injection systems to two-wheeler players provide an incremental
opportunity. Bosch has tied up with leading OEM players for supply of BS-VI products and the current order book
stands at Rs. 18,500 crore, to be executed over 5-6 years. Moreover, Bosch has commenced supplies to the electric
vehicle segment with supply of the entire drive systems for Bajaj Chetak scooter, in-house hub systems for the TVS
iQube scooter and components for the Tata Nexon electric SUV. Bosch is making itself ready to provide solutions for
emerging trends of connected vehicles (various cars with voice commands) and increasing digitisation in the Indian
automotive industry. We maintain our positive stance on the company.
n Valuation - Maintain Buy with an unchanged PT of Rs. 18,156
The management is cautiously positive on the demand scenario, expecting it on the path of recovery after wave-2 of
COVID recedes. We expect the company to be a key beneficiary of the revival in automotive demand, driven by pent-up
offtake and normalisation of economic activities. Bosch is a strong technological company with a robust balance sheet,
zero debt and healthy return ratios. Its strong brand positioning, focus on technology and electrification of vehicles
enable high growth visibility. The company’s order book of Rs. 18,500 crore for BS-VI grade products is likely to be
executed in the next 5-6 years, which provides healthy growth visibility. We expect Bosch’s earnings to grow at 18.7%
CAGR during FY21-23E, driven by a 16.8% revenue CAGR and a 470 bps EBITDA margin expansion to 16.6% in FY23E
from 11.9% in FY21. The stock is trading at P/E of 26.5x and EV/EBITDA of 18.1x its FY23E estimates, which is trading close
to higher end of its long-term average multiples. The stock’s premium valuation is justified given its strong pedigree of its
parent company and superior technological capability. We retain a Buy on Bosch Limited (Bosch) with an unchanged PT
of Rs. 18,156, factoring a recovery in automotive demand after the lockdown restrictions are lifted.

One-year forward P/E (x) band

60.0

50.0

40.0

30.0

20.0

10.0

0.0
Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Fwd P/E Average P/E Peak P/E Trough P/E

Source: Sharekhan Research

Peer Comparison
P/E (x) EV/EBITDA (x) ROCE (%)
Particulars CMP
FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E
Bosch Ltd 15,519 37.3 32.2 26.5 35.1 22.6 18.1 13.2 17.1 18.3
Schaeffler India 6,840 73.5 48.7 36.9 37.6 27.1 20.8 12.4 16.7 18.9
Sundram Fasteners 780 44.6 36.5 25.5 24.9 20.6 15.4 16.0 18.1 22.6
Source: Company, Sharekhan estimates

August 04, 2021 31

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About company
The Bosch Group is a leading automotive global supplier of technology and services. In India, Bosch is a
leading supplier of technology and services in the areas of mobility solutions, industrial technology, consumer
goods, and energy and building technology. Additionally, in India, Bosch has the largest development centre
outside Germany for end-to-end engineering and technology solutions. In India, Bosch setup its manufacturing
operations in 1951, which has grown over the years to include 18 manufacturing sites and seven development
and application centres.

Investment theme
Bosch Limited is one of the leading automobile supplier in India, with a strong technology in mobility businesses.
We expect Bosch to witness significant increase in content per vehicle with advent of BS-VI emission norms as
vehicles require significant changes in combustion, powertrain systems and exhaust gas treatment. Supply of
fuel injection to two-wheeler players would be an incremental growth opportunity for the company. Expansion
of power tool business’ distribution network in Tier 3 and 4 cities, export of BS-VI automotive components to
neighbouring countries, increased adoption of connected and electric vehicles would be key growth drivers
for the company. Bosch has a strong technological parentage and operates in a high entry barrier industry
with strong balance sheet, zero debt and healthy returns ratios. The company’s order book of Rs. 18,500 crore
for BS6 products is likely to be executed over the next five to six years, which provides strong growth visibility
going ahead. Increasing localisation of BS-VI components, benefits from investments in transformation and
restructuring projects coupled with operating leverage (due to strong recovery in volumes) is expected to
result in margin improvement.

Key Risks
Š The company’s performance can be impacted adversely if the commodity prices continue to rise in the
current pace.
Š In addition, the prolonged shortage of semi-conductors can materially affect our revenue and margin
projections.

Additional Data
Key management personnel
VK Vishwanathan Chairman
Soumitra Bhattacharya Managing Director
SC Srinivasan Chief Financial Officer and Joint Managing Director
Guruprasad Mudlapur Chief Technical Officer
Source: Company

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 Robert Bosch Internationale Betiligungen Ag 67.8
2 General Insurance Corporation of India 3.3
3 Life Insurance Corporation 3.3
4 Robert Bosch Engineering and Business Solution 2.8
5 New India Assurance company Ltd 2.5
6 United India Insurance company 1.1
7 Blackrock Inc 0.7
8 Aditya Birla Sun life AMC 0.7
9 Vanguard Group Inc 0.6
10 Standard Life Aberdeen PLC 0.4
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 04, 2021 32

Understanding the Sharekhan 3R Matrix
Right Sector
Positive Strong industry fundamentals (favorable demand-supply scenario, consistent
industry growth), increasing investments, higher entry barrier, and favorable
government policies
Neutral Stagnancy in the industry growth due to macro factors and lower incremental
investments by Government/private companies
Negative Unable to recover from low in the stable economic environment, adverse
government policies affecting the business fundamentals and global challenges
(currency headwinds and unfavorable policies implemented by global industrial
institutions) and any significant increase in commodity prices affecting profitability.
Right Quality
Positive Sector leader, Strong management bandwidth, Strong financial track-record,
Healthy Balance sheet/cash flows, differentiated product/service portfolio and
Good corporate governance.
Neutral Macro slowdown affecting near term growth profile, Untoward events such as
natural calamities resulting in near term uncertainty, Company specific events
such as factory shutdown, lack of positive triggers/events in near term, raw
material price movement turning unfavourable
Negative Weakening growth trend led by led by external/internal factors, reshuffling of
key management personal, questionable corporate governance, high commodity
prices/weak realisation environment resulting in margin pressure and detoriating
balance sheet
Right Valuation
Positive Strong earnings growth expectation and improving return ratios but valuations
are trading at discount to industry leaders/historical average multiples, Expansion
in valuation multiple due to expected outperformance amongst its peers and
Industry up-cycle with conducive business environment.
Neutral Trading at par to historical valuations and having limited scope of expansion in
valuation multiples.
Negative Trading at premium valuations but earnings outlook are weak; Emergence of
roadblocks such as corporate governance issue, adverse government policies
and bleak global macro environment etc warranting for lower than historical
valuation multiple.
Source: Sharekhan Research

August 04, 2021 49

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