Bosch Ltd: Blue-chip investment
(BSE Code: 500530) (CMP: Rs.21127.70) (FV: Rs.10)
Incorporated in 1951, Bengaluru based Bosch Ltd operates under four business segments: Mobility Solutions; Industrial Technology; Consumer Goods; and Energy and Building Technology. Its mobility solutions business constituted 85.8% of the total sales in FY18. It offers innovative solutions for smart homes, smart cities, connected mobility and connected manufacturing. It manufactures and trades products such as diesel and gasoline fuel injection systems, automotive aftermarket products, auto electrical, special purpose machines, packaging machines, electric power tools and security systems. Its product portfolio comprises engine parts and systems, clutches and pressure plates, all types of cylinder and distributor pumps, injectors, common rail systems, air mass meters, electric fuel pumps, fuel injectors, ignition cables/coils, sensors, air braking system, glow plugs, automotive belts, horns, filters, spark plugs, lubricants, wiper, blades stators, starter motors and generators, batteries and fork oils.
With 18 manufacturing facilities and 7 development and application centres, Bosch is a leading supplier of technology and services in the areas of Mobility Solutions, Industrial Technology, Consumer Goods and Energy and Building Technology. Its plants in Bangalore, Nashik, Naganathapura, Jaipur and Goa are all TS 16949 and ISO 14001 certified. Its development centre, which is the largest in India, provides end-to-end engineering and technology solutions. Exports constitute 11-12% of total sales.
The Bosch group comprises Robert Bosch GmbH and its ~440 subsidiaries and regional companies in 60 countries. As at 31 December 2017, the group employed around 4,02,000 associates and around 64,500 R&D associates at 125 locations across the globe. It generated sales of €78.1 billion in 2017. Sales in the Asia-Pacific region grew 13.5% in 2017 to €23.6 billion, which constituted 30% of the total sales. Robert Bosch GmbH and Robert Bosch Engineering and Business Solutions together hold 70.49% stake in the company.
For FY18, Bosch reported PAT of Rs.1370.72 crore on sales of Rs.11690.15 crore and an EPS of Rs.449.2. A dividend of 1000% (Rs.100/share) was paid. During Q1FY19, it reported 42% higher PAT of Rs.430.98 crore on 13% higher sales of Rs.3212.15 crore and an EPS of Rs.141.20.
With an equity capital of Rs.30.50 crore and reserves of Rs.9942.10 crore, Bosch’s share book value works out to Rs.3270.33. It is a debt-free company. Cash and loans given were Rs.5232 crore. The value of its gross block including work-in-progress of Rs.313 crore was Rs.2984 crore. The promoters hold 70.5% of the equity capital, foreign entities hold 7%, DIs hold 13.5% and PCBs hold 1.3%, which leaves 7.7% stake with the investing public.
In August 2015, Bosch had inaugurated its new manufacturing facility at Bidadi in Bengaluru with an investment of ~Rs.340 crore. It incurred further capex of Rs.440 crore in FY18 including Rs.120 crore towards the development of new products in Nashik. During FY17, it commissioned a 3.5 MW solar power plant to reduce carbon dioxide emission by 10
tonnes/day. It had successfully ramped up CR 2-20 body production at its Nashik plant to cater to the export demand for CKD (completely knocked-down).
Further, it made investments for portfolio expansion and installation of new coating equipment. As an eco-friendly measure, a 10 MW solar power plant was installed to reduce carbon dioxide emission by 32 tonnes/day. Its Goa
(Verna) plant made its first sale of Baling
Machine (GSV 4800).
In May 2017, it undertook development of Phase
II at its Bidadi manufacturing unit, which is likely to be completed by mid2019. Phase II will have the capacity to accommodate ~2,500 associates and will primarily manufacture new generation and conventional fuel injection products and components.
The management plans to incur capex of
Rs.1700 crore over the next 3 years to meet the rising demand of tailored solutions in the Indian market and strengthen India’s role in the group’s global network. A major share will be used to expand its smart campus in Adugodi and modernize its manufacturing facilities in the country.
The Indian automotive industry (including component manufacturing) is expected to reach Rs.16.16-18.18 trillion ($234.2-263.5 billion) by 2026. Domestic automobile sales grew at 7.01% CAGR between FY13-18 with 24.97 million vehicles getting sold in FY18. The ‘Automotive Mission Plan 2016-26’ envisions a fourfold jump in output in ten years to around Rs.19 trillion ($275 billion).
At $42.5 billion (+9% over FY17), India’s auto components industry is just 5.3% of the $800 billion global market. Seeing India’s potential as an emerging manufacturing hub, global automobile companies Volvo, Volkswagen, General Motors, Bosch and Magna are investing here. The CAGR of the industry stood at 7% over a period of six years. The Indian auto component industry’s turnover is projected to touch $115 billion by 2020-21, according to Automotive Component Manufactures Association (ACMA). Moreover, the industry’s exports, which currently stand at $10.8 billion, are projected to touch $80 billion by 2025-26.
The basis for Bosch’s bright future outlook is its innovative strength. The special ownership structure of Robert Bosch GmbH guarantees the entrepreneurial freedom of the Bosch group, making it possible for the management to plan for the long term and to undertake significant upfront investments for safeguarding its future. Including sales and service partners, Bosch’s global manufacturing, engineering and sales network covers nearly every country in the world. The domestic automotive industry currently accounts for 7.1% of India's GDP. Its contribution to the GDP is likely to rise in the future, as India gears up to achieve BS-VI implementation from April 2020 and adopt electro-mobility solutions. With such an optimistic market outlook, Bosch is confident of continuing its strong performance going ahead. During FY17, the management had executed a buy-back of 8,78,160 equity shares priced at Rs.23000/share aggregating Rs.2019.76 crore through the Tender Offer route. Based on its bright outlook, Bosch is set to notch an EPS of Rs.550+ in FY19 and Rs.600 in FY20. At the CMP of Rs.21127.70, the stock trades at a forward P/E of 38.41x on FY19E and 35.21x on FY20E earnings. A forward P/E of 45x, which applies to blue-chip MNCs, will take its share price to Rs.24750 in the medium-term and Rs.27000 thereafter. The stock’s 52-week high/low is Rs.22400/16990.40.