Bosch Ltd (MICO) - ICICI Direct

Result UpdateRating matrixRating : HoldTarget : | 9360Target Period : 12 monthsPotential Upside : 6%Key Financials (Consolidated)| Crore CY12 CY13E CY14E CY15ENet Sales 8,417 8,757.8 9,513.6 10,891.7EBITDA 1,349.5 1,430.3 1,544.8 1,872.0Net Profit 958.3 1,003.4 1,101.3 1,372.4EPS (|) 305.2 319.6 350.7 437.1Valuation summary(Consolidated)CY12 CY13E CY14E CY15EP/E (x) 28.9 27.6 25.1 20.2EV / EBITDA (x) 18.8 17.3 15.7 12.6Target EV / EBITDA (x) 20.0 18.5 16.8 13.5P/BV (x) 5.0 4.4 3.8 3.3RoNW (%) 17.2 15.8 15.3 16.6RoCE (%) 17.1 16.2 15.2 16.9Stock dataMarket Capitalization| 27681.4 CroreTotal Debt (CY12)| 185 CroreCash and Investments (CY12)| 2557 CroreEV| 25309.4 Crore52 week H/L 9517 / 8026Equity capital| 31.4 CroreFace value | 10MF Holding (%) 11.6FII Holding (%) 6.9Price movement(unit)6,2005,9005,6005,3005,000Nov-12Analyst’s nameFeb-13Price (R.H.S)May-13Nishant Vassnishant.vass@icicisecurities.comVenil Shahvenil.shah@icicisecurities.comAug-13Nifty (L.H.S)Nov-1310,0009,5009,0008,5008,0007,5007,000(|)WHAT’S CHANGED…November 13, 2013PRICE TARGET....................................................................................................UnchangedEPS (CY14E)..................................................................... Changed from | 367.8 to | 350.7EPS (CY15E)..................................................................... Changed from | 442.3 to | 437.1RATING...............................................................................................................UnchangedEngine leader continues to deliver…Bosch Ltd (Bosch) reported its Q3CY13 results that were largely in-line onthe topline and bottomline front. EBITDA margins at 15.2% were slightlylower-than-expected and dipped ~50 bps QoQ as other expenses shot updue to the impact of rupee depreciation and also increased conversioncosts owing to higher power and fuel costs. PAT came at ~| 234 crore,~15% higher YoY as depreciation came lower than expectation. Bosch’sbusiness strength lies in diversification across the UV, CV, tractor, 3-Wsegments. With the tractor segment outperforming in the automotivesegment over the past two quarters, earnings have largely remainedcushioned. With a strong monopolistic product portfolio, backed bystrong R&D pedigree, we continue to like the strong business profile ofBosch and recommend HOLD with an unchanged TP of | 9360.Decent quarter but margins lower on account of imports…Bosch’s performance can be termed decent keeping in view the overallweakness in the auto sector. Even the automotive aftermarket segmentgrew ~7% YoY, highlighting the low demand in the CV segment owing topoor levels of industrial activity. On the margins front, the impact of rupeedepreciation has led to ~50 bps QoQ decline despite the efforts oflocalisation and other cost rationalisation measures.Exports, tractors to aid as domestic automotive growth remains weak!The bright spot in an otherwise uneventful quarter was the strong growthin the tractor segment and sustained growth in exports (~19% YoY).Going forward, we expect exports to grow further as weakness in therupee makes India an attractive manufacturing destination for BoschGmbH. Tractor segment and auto after-market sales are likely to helpsustain revenues, even as share of non-auto segment steadily rises.Pedigree stock to continue to command premium…Bosch will be a key beneficiary of any recovery in the automotive spaceand could reap high rewards owing to any emission norm changes inCY15E. Bosch’s valuations have historically been at a premium to the restof the auto ancillary pack considering its business profile strength andfinancial profile. We expect the same to continue, going forward. Wevalue Bosch at 13.5x EV/EBIDTA CY15E and continue to recommendHOLD with an unchanged target price of | 9360.Exhibit 1: Financial Performance(| Crore) Q3CY13 Q3CY13E Q3CY12 Q2CY13 QoQ (Chg %) YoY (Chg %)Total Operating Income 2149.9 2181.0 2051.7 2307.0 -6.8 4.8EBITDA 326.6 346.9 273.2 363.0 -10.0 19.5EBITDA Margin (%) 15.2 15.9 13.3 15.7 -55 bps 187 bpsDepreciation 89.4 124.5 97.7 86.4 3.4 -8.5Interest 0.0 0.0 0.1 0.1 -62.5 -57.1Other Income 86.5 110.0 103.6 89.8 -3.6 -16.5Reported PAT 234.3 227.7 202.8 251.7 -6.9 15.5EPS (|) 74.6 72.5 64.6 80.2 -6.9 15.5Source: Company, ICICIdirect.com ResearchBosch Ltd (MICO)| 8816ICICI Securities Ltd | Retail Equity Research

Exhibit 2: AssumptionCY11 CY12 CY13E CY14E CY15ERevenue (| crore)Automotive 7,241.4 7,728.5 7,841.4 8,469.6 9,677.5Non-automotive 847.4 977.1 1,098.5 1,241.7 1,443.1EBIT margins (%)Automotive 17.3 13.3 14.8 14.9 16.6Non-automotive 6.8 9.1 5.3 4.9 6.0Source: Company, ICICIdirect.com ResearchExhibit 3: Net sales and PAT margin trend(| crore)1200011000100009000800022.28,1668,6598,9319,7068.711,11614.525201510(%)700060006.03.155000CY11 CY12 CY13E CY14E CY15ETotal operating income % increase-Source: Company, ICICIdirect.com ResearchWith Bosch entering a high capex cycle, return ratios arelikely to remain healthy but below its routine range of~20% in the next two yearsExhibit 4: Return ratios profile262323.725.2(%)20171417.216.615.815.317.116.916.215.2CY11 CY12 CY13E CY14E CY15ERoERoCESource: Company, ICICIdirect.com Research * (net of Interest & Inter segment eliminations)ICICI Securities Ltd | Retail Equity Research Page 2

Bosch is the largest importer in the auto ancillary. Hence,it is impacted more by the volatility in the currencymarkets than other ancillary players. Over the years, netimports have crept up due to an increase in the tradedgoods component. For Bosch, a majority of the exposureis in the form of raw materials and traded goods while asmall portion is also from royalty and other technicalexpensesExhibit 5: Import content trending down(| crore)2,2001,8001,4001,00060020015.871817.583325.922.321.7 20.01,440CY08 CY09 CY10 CY11 CY12 CY13*2,0551,8771,75230262218(%)1410Net Forex Exposure% of SalesSource: Company, ICICIdirect.com Research * CY13 is estimatedKey management takeawaysThe management indicated that growth in Q3 was mainly driven by thetractor segment, which grew ~26% YoY at an industry level. The PV & UVsegments witnessed ~6% YoY growth on a low base with new productlaunches of Ecosport & Amaze. The HCV space continued to decline~33% YoY.Exports witnessed growth of ~19% YoY in Q3 and for nine monthsexports stood at | 777 crore in revenues. The domestic businesswitnessed growth of ~1.6% in Q3.On the exports front, the company said it was receiving a strong responseto its jointly developed baseline generators and expects to ramp upproduction for other markets considering the increase in competitivenessof the India business with INR depreciation.The company continued to highlight its target of ~| 600 crore capitalexpenditure in CY14E and ~| 500 crore in CY13E.On the forex exposure side, the management highlighted that net importexposure has come down to ~20% of net sales from ~22% in CY12.On content per vehicle, the management expects double digit kind ofgrowth in the coming three to five years but did not believe they coulddouble in the same period.The management believes the strong costs control, localisation, vendor &freight rationalisation along with management of manpower costs willhelp them remain at an optimal level of performance.ICICI Securities Ltd | Retail Equity Research Page 3

Outlook & ValuationWe believe the CV and tractor segments will be strong growth drivers forBosch’s earnings in CY14E and CY15E. We also expect the dieselisationtrend in the PV space to continue. As PV volumes pick up, the segment islikely to add to Bosch’s revenues. An increase in the non-automotivebusiness also lends earnings stability across cycles. With a strong balancesheet supported by robust FCFs, strong return ratios and stable highmargin profile, the financials are impressive.Bosch will be a key beneficiary of any recovery in the automotive spaceand could reap high rewards owing to any emission norm changes inCY15E. Bosch’s valuations have historically been at a premium to the restof the auto ancillary pack considering its business profile strength andfinancial profile. We expect the same to continue, going forward. Wevalue Bosch at 13.5x EV/EBIDTA CY15E and continue to recommendHOLD with an unchanged target price of | 9360.Bosch is trading near the higher end of its one-yearEV/EBIDTA valuation band. However, we believe in theseuncertain times, the earnings pedigree and business profilestrength of Bosch will ensure the valuations remain atthese elevated levelsExhibit 6: One-year rolling EV/EBIDTA band300002500020000(|)150001000050000Jan-06May-06Sep-06Jan-07May-07Sep-07Jan-08May-08Sep-08Jan-09May-09Sep-09Jan-10May-10Sep-10Jan-11May-11Sep-11Jan-12May-12Sep-12Jan-13May-13Sep-13EV 18.5x 17.1x 15.6x 13.5x 12.8x 11.3xSource: Company, ICICIdirect.com ResearchExhibit 7: Revised financials (Consolidated)ParticularsCY14ECY15EOld New % Change Old New % ChangeRevenue 9,897.8 9706.3 (1.9) 11,203.5 11115.5 (0.8)EBITDA 1,697.8 1544.8 (9.0) 2,005.5 1872.0 (6.7)EBITDA Margin 17.2 15.9 -124 bps 17.9 16.8 -106 bpsPAT 1154.9 1101.3 (4.6) 1388.8 1372.4 (1.2)EPS 367.8 350.7 (4.6) 442.3 437.1 (1.2)Source: Company, ICICIdirect.com ResearchExhibit 8: ValuationSales Growth EPS Growth PE EV/EBITDA RoNW RoCE(| cr) (%) (|) (%) (x) (x) (%) (%)CY12 8417.2 305.2 28.9 18.8 17.2 17.1CY13E 8757.8 4.0 319.6 4.7 27.6 17.3 15.8 16.2CY14E 9513.6 8.6 350.7 9.8 25.1 15.7 15.3 15.2CY15E 10891.7 14.5 437.1 24.6 20.2 12.6 16.6 16.9Source: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 4

Financial summaryProfit and loss statement(| Crore)(Year-end March) CY12 CY13E CY14E CY15ETotal operating Income 8,659.1 8,931.0 9,706.3 11,115.5Growth (%) 6.0 3.1 8.7 14.5Raw Material Expenses 4,753.4 4,867.1 5,271.9 5,954.0Employee Expenses 1,037.1 1,161.4 1,285.2 1,463.6Other Expenses 1,388.8 1,490.1 1,624.5 1,847.8Total Operating Expenditure 7,309.6 7,500.7 8,161.5 9,243.5EBITDA 1,349.5 1,430.3 1,544.8 1,872.0Growth (%) -10.7 6.0 8.0 21.2Depreciation 367.0 370.7 423.9 458.4Interest 5.5 0.5 0.4 0.2Other Income 369.2 385.6 478.0 580.0PBT 1,346.2 1,444.6 1,598.6 1,993.4Exceptional items 0.0 0.0 110.0 0.0Total Tax 387.9 441.2 497.2 621.0PAT 958.3 1,003.4 1,101.3 1,372.4Growth (%) -14.6 4.7 9.8 24.6EPS (|) 305.2 319.6 350.7 437.1Source: Company, ICICIdirect.com ResearchCash flow statement(| Crore)(Year-end March) CY12 CY13E CY14E CY15EProfit after Tax 958.3 1,003.4 1,101.3 1,372.4Add: Depreciation 367.0 370.7 423.9 458.4(Inc)/dec in Current Assets -63.7 -267.5 -241.6 -605.4Inc/(dec) in CL and Provisions -54.6 100.9 212.4 358.4CF from operating activities 1,207.0 1,207.5 1,496.0 1,583.8(Inc)/dec in Investments 114.9 -310.0 -260.0 -500.0(Inc)/dec in Fixed Assets -735.0 -500.0 -700.0 -600.0Others 122.6 15.9 14.7 13.1CF from investing activities -497.5 -794.1 -945.3 -1,086.9Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0Inc/(dec) in loan funds -60.4 0.0 -10.0 -70.0Dividend paid & dividend tax -219.0 -219.0 -255.5 -292.0Others 100.1 -0.5 -0.4 -0.2CF from financing activities -179.3 -219.5 -265.8 -362.2Net Cash flow 535.7 194.4 285.3 134.9Opening Cash 951.5 1,487.2 1,681.6 1,966.8Closing Cash 1,487.2 1,681.6 1,966.8 2,101.7Source: Company, ICICIdirect.com ResearchBalance Sheet(| Crore)(Year-end March) CY12 CY13E CY14E CY15ELiabilitiesEquity Capital 31.4 31.4 31.4 31.4Reserve and Surplus 5,541.9 6,326.3 7,172.1 8,252.6Total Shareholders funds 5,573.3 6,357.7 7,203.5 8,284.0Total Debt 185.0 185.0 175.0 105.0Other non-current Liabilities 251.8 291.8 341.8 391.8Total Liabilities 6,010.1 6,834.5 7,720.3 8,780.8AssetsGross Block 3,947.9 4,447.9 5,147.9 5,747.9Less: Acc Depreciation 3,084.6 3,455.3 3,879.2 4,337.6Net Block 863.3 992.6 1,268.7 1,410.3Capital WIP 417.1 417.1 417.1 417.1Total Fixed Assets 1,280.4 1,409.7 1,685.8 1,827.4Investments 1,519.8 1,829.8 2,089.8 2,589.8Inventory 1,095.7 1,151.7 1,225.0 1,417.4Debtors 1,021.0 1,103.7 1,172.9 1,372.7Loans and Advances 878.7 914.3 993.2 1,169.7Other current assets 140.3 233.6 253.7 290.5Cash 1,487.2 1,681.6 1,966.8 2,101.7Total Current Assets 4,622.9 5,084.8 5,611.6 6,351.9Creditors 930.4 983.7 1,094.7 1,278.4Provisions 506.5 535.5 596.0 695.9Other Current Liabilities 456.9 475.4 516.4 591.2Total Current Liabilities 1,893.8 1,994.7 2,207.1 2,565.5Net Current Assets 2,729.1 3,090.1 3,404.6 3,786.4Deferred Tax Asset 255.2 270.2 285.2 285.2Other non-current Assets 225.6 234.7 255.0 291.9Application of Funds 6,010.1 6,834.5 7,720.3 8,780.8Source: Company, ICICIdirect.com ResearchKey ratios(Year-end March) CY12 CY13E CY14E CY15EPer share data (|)EPS 305.2 319.6 350.7 437.1Cash EPS 422.1 437.6 485.7 583.1BV 1,775.0 2,024.8 2,294.2 2,638.3DPS 60.0 60.0 70.0 80.0Cash Per Share 473.6 535.5 626.4 669.4Operating Ratios (%)EBITDA Margin 15.6 16.0 15.9 16.8PBT / Net sales 16.0 16.5 16.8 18.3PAT Margin 11.1 11.2 11.3 12.3Inventory days 47.5 48.0 47.0 47.5Debtor days 40.3 41.0 42.0 42.8Creditor days 44.3 46.0 45.0 46.0Return Ratios (%)RoE 17.2 15.8 15.3 16.6RoCE 17.1 16.2 15.2 16.9RoIC 24.3 22.8 21.5 23.2Valuation Ratios (x)P/E 28.9 27.6 25.1 20.2EV / EBITDA 18.8 17.3 15.7 12.6EV / Net Sales 3.0 2.8 2.6 2.2Market Cap / Sales 3.3 3.2 2.9 2.5Price to Book Value 5.0 4.4 3.8 3.3Solvency RatiosDebt/Equity 0.0 0.0 0.0 0.0Current Ratio 2.4 2.5 2.5 2.5Quick Ratio 1.9 2.0 2.0 1.9Source: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 5

Company DescriptionBosch is a leading supplier of technology and services in the areas ofautomotive and industrial technology, consumer goods and buildingtechnology. In India, Bosch Ltd is the flagship company of the BoschGroup and is a leading global supplier of technology & services andcomprises Robert Bosch GmbH and ~360 subsidiaries and regionalcompanies in ~50 countries with ~77,000 patents and utility models to itsname. Bosch Ltd also has among the largest distribution networks ofspare parts in the country with after-market sales contributing ~25% of itsturnover. It has plants spread across Nashik, Pune, Ahmedabad, Jaipur,Goa, Bangalore, Coimbatore and Chennai, which are close to its majorclients. Bosch also has a strong dealer network, which spans ~1000towns across the country, which facilitates product availability and aftersalesservices.Exhibit 9: Recommendation History10,0009,6009,2008,8008,4008,000Jan-13Feb-13Apr-13May-13Jul-13Aug-13Sep-13Nov-13PriceTarget PriceSource: Company, ICICIdirect.com ResearchExhibit 10: Recent ReleasesDate Event CMP Target Price Rating15-Oct-13 Initiating Coverage 8586 9360 HOLDSource: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 6

ICICIdirect.com Research coverage universe (Auto & auto ancillaries)CMPM Cap EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)RoE (%)Sector / Company (|) TP(|) Rating (| Cr) FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15EAmara Raja (AMARAJ) 313 300 Hold 5,353 16.8 20.6 23.1 18.7 15.2 13.6 9.7 8.3 6.9 33.6 34.0 32.3 27.1 26.3 24.0Apollo Tyre (APOTYR) 70 76 Hold 3,539 12.2 16.5 15.8 5.8 4.2 4.4 3.8 3.2 2.9 18.7 19.1 17.8 18.0 19.9 16.1Ashok Leyland (ASHLEY) 16 16 Hold 4,138 1.6 0.1 1.4 9.5 161.0 11.3 9.4 19.6 6.9 6.2 0.4 9.5 9.7 0.6 8.1Automotive Axle (AUTAXL)* 245 196 Hold 370 29.8 13.0 28.0 6.7 15.4 7.2 3.5 5.4 3.3 22.6 10.2 18.4 16.6 7.1 14.0Bajaj Auto (BAAUTO) 2,021 2,450 Buy 58,490 103.8 124.2 153.1 19.5 16.3 13.2 15.8 16.0 12.0 58.2 43.5 43.0 49.7 36.7 36.3Balkrishna Ind. (BALIND) 285 244 Sell 2,754 37.6 43.0 34.9 7.4 6.4 7.9 6.6 5.7 6.1 16.2 16.0 11.7 25.5 16.2 16.0Bharat Forge (BHAFOR) 291 281 Hold 6,785 10.6 15.6 23.2 27.4 18.7 12.5 10.5 8.5 6.5 9.1 11.9 14.6 11.0 14.2 18.0Eicher Motors (EICMOT)` 4,200 5,400 Buy 11,344 148.7 227.7 305.5 28.2 18.4 13.7 19.0 9.4 6.4 19.4 23.8 26.3 19.2 23.4 24.5Escorts (ESCORT)* 115 85 Sell 1,368 14.1 15.5 17.1 6.8 6.2 5.6 3.5 3.1 2.5 9.9 11.2 10.8 9.4 9.6 9.7Exide Industries (EXIIND) 117 123 Hold 9,971 6.1 6.8 8.2 19.1 17.2 14.3 13.0 10.5 8.8 19.6 21.0 21.9 15.3 15.1 16.2Hero Mototcorp (HERHON) 2,002 2,100 Hold 39,972 106.1 111.4 144.8 18.9 18.0 13.8 11.5 12.6 11.0 42.8 45.8 53.3 42.3 38.9 42.9JK Tyre & Ind (JKIND) 127 131 Hold 519 44.9 66.2 87.2 2.8 1.9 1.5 4.5 2.9 3.0 14.5 20.3 19.3 22.4 24.3 24.5M&M (MAHMAH) 895 1,150 Buy 52,854 51.6 59.8 71.0 17.4 15.0 12.6 11.0 9.0 7.4 22.5 23.2 24.1 23.0 22.1 21.7Maruti Suzuki (MARUTI) 1,580 1,663 Hold 47,732 79.2 97.8 118.8 19.9 16.1 13.3 9.7 7.2 5.9 11.9 14.1 15.3 12.9 13.9 14.7Motherson (MOTSUM) 259 266 Hold 15,230 11.3 12.2 20.1 22.8 21.3 12.9 12.9 7.4 5.3 11.3 23.6 29.7 19.4 26.0 33.1Tata Motors (TELCO) 366 475 Buy 108,458 31.0 47.0 60.6 12.4 8.2 6.3 5.2 3.7 3.2 23.2 24.8 25.6 26.3 27.5 28.3Bosch (MICO) 8,816 9,360 Hold 27,682 319.6 350.7 437.1 27.6 25.1 20.2 17.3 15.7 12.6 15.8 15.3 16.6 16.2 15.2 16.9Source: Company, ICICIdirect.com Research SY~ September Year endThe chart compares the movement of OEM stocks in theICICIdirect.com Universe with the BSE Auto index, therebyreflecting the degree of mimicking of the indexICICIdirect.com Universe price movement vis-à-vis BSE Auto indexExhibit 11: OEM comparison with BSE AutoSince March 2012, Bajaj Auto and Maruti Suzuki haveoutperformed while Hero MotoCorp and Escorts haveunderperformed in comparison to the index by beingdivergent on the upside and downside, respectivelyBSE AutoAshok LeylandOct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13BSE Auto Bajaj MarutiTata Motors M & M EscortsHero MotoCorp Ashok Leyland Eicher MotorsSource: Company, ICICIdirect.com ResearchExhibit 12: Ancillaries comparison with BSE AutoThe chart compares the movement of auto ancillarystocks in the ICICIdirect.com universe with the BSE AutoindexBSE AutoThe volatile nature of smaller ancillary companies isreflected. These have met with numerous fluctuationswith the exception of Motherson Sumi and Amara Rajabatteries, which mimic the index greatly. Tyre companieslike JK Tyre and Apollo Tyres have performed well due tothe weakening of rubber pricesBharat ForgeOct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13BSE Auto Auto Axl Bharat Forge Balkrishna JK TyresApollo Tyres Subros Motherson Exide Inds Amara rajaSource: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 7

RATING RATIONALEICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assignsratings to its stocks according to their notional target price vs. current market price and then categorises themas Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notionaltarget price is defined as the analysts' valuation for a stock.Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;Buy: >10%/15% for large caps/midcaps, respectively;Hold: Up to +/-10%;Sell: -10% or more;Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.comICICIdirect.com Research Desk,ICICI Securities Limited,1 st Floor, Akruti Trade Centre,Road No. 7, MIDC,Andheri (East)Mumbai – 400 093research@icicidirect.comANALYST CERTIFICATIONWe /I, Nishant Vass MBA(FINANCE) Venil Shah MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accuratelyreflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specificrecommendation(s) or view(s) in this report. 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