Bosch Ltd: Blue-chip in­vest­ment

Money Times - - Expert Eye - By Vi­hari

(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.

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