Bosch Ltd - Weak quarter; outlook remains muted - ICICI Securities

Bosch's (BOS) Q1FY21 operating performance was below expectations as sales fell 64% and EBITDA margin shrunk 2,793bps YoY to -10.3%. Automotive revenues dropped 65.6% to ~Rs8.1bn (mainly due to 68.2% YoY decline in mobility division) while non-automotive revenues were down ~54% at ~Rs1.8bn. Company continued to incur restructuring costs (Rs2bn in Q1FY21). We remain cautious on M&HCV industry volume outlook with >40% decline expected in FY21, which remains the largest segment for BOS. We believe BOS's is taking the right steps of rightsizing the business in these challenging times and bodes well for future. However, heightened competitive intensity and increased need of localisation is likely to keep costs elevated. We expect EPS CAGR of -9% for FY19-FY22E, stock remains expensive at 34x FY22E EPS. Downgrade to SELL (from Reduce).

- Key highlights of the quarter: BOS' domestic mobility solutions business declined ~68.2% YoY due to lack of production in auto segment as the powertrain division declined 78.3%. Elevated 'other expenditure' (up 1,301bps to 28.2% of sales) and sticky employee costs led to EBITDA margin contraction of 2,793bps to -10.3%. An additional provision of ~Rs2bn has been made as part of restructuring, redeployment and reskilling initiatives and the management expects the same to continue in FY21.

- Key takeaways from concall: a) Capex for FY21 has been trimmed by 50% (Rs2bn-2.5bn) as the company focuses on strong cash conservation and maintains liquidity; b) as part of its 3R restructuring program, BOS has already spent Rs8bn till now and is likely to continue with the spend in Q2 as well; payback period is expected to be 5-6 years; ~1k workers have been impacted by the restructuring and reskilling program; c) BOS has acquired Rs245bn worth of new business in lifetime contracts across segments as it remains a key supplier for BS-VI compliance; however the same has been curtailed to Rs185bn due to Covid-related delays; d) recovery in tractor and 2Ws has been encouraging mainly on the back of better rabi output, good monsoon, higher MSPs and preference for personal mobility; and e) diesel PVs are likely to remain relevant in SUV segment.

- Downgrade to SELL: Our conservative view on BOS is centred on industry challenges, which we believe are likely to stunt earnings recovery. We moderate earnings in FY21E by 18.3% while upgrading FY22E earnings by 12.6%. We upgrade our target multiple to 26x (earlier: 24x) FY22E considering the depressed earnings rebound. We downgrade the stock to SELL (from Reduce) with a revised target price of Rs10,698/share (earlier: R8,767/share).

Shares of BOSCH LTD. was last trading in BSE at Rs.13260.95 as compared to the previous close of Rs. 13591.35. The total number of shares traded during the day was 3400 in over 1412 trades.

The stock hit an intraday high of Rs. 13860.55 and intraday low of 13122. The net turnover during the day was Rs. 45526655.

Source : Equity Bulls

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