Commercial vehicle and tractor demand key triggers for Bosch stock

75% of revenue comes from these segments that are less affected by EVs

The Bosch stock has gained about 15 per cent over the fortnight on strong outlook for commercial vehicle and tractor sales, higher demand on transition to BS VI norms and lower effect of the emerging electric vehicle (EV) threat. Prior to this, the stock has been underperforming the broader indices. The auto index fell over 31 per cent from a 52-week high to its lowest level a couple of weeks ago.

The downtrend was due to lacklustre revenue and earnings growth over the past few quarters led by stalling of certain trading activities as well as loss of business from Tata Motors during the transition from BS III to BS IV.

Viability of business models given the transition to electric vehicles and its impact on revenue was a concern.

The stock has been excluded from the Nifty, effective April 2, 2018. Rebalancing of portfolios would have led to selling pressure on the counter.

What are the triggers? Strong volume growth reported by manufacturers of commercial vehicles and tractors is expected to rub off positively on component suppliers such as Bosch. Commercial vehicles continue to witness healthy double-digit growth (about 25 per cent year-on-year in March) due to a pick-up in replacement demand. Segments such as auto carriers, container and construction transport are witnessing higher demand aided by a shift towards higher tonnage vehicles following a ban on overloading. Commercial vehicle volumes for FY18 were up 20 per cent and this trend is expected to continue.

The government’s nod to vehicle fleet modernisation programme — all commercial vehicles over 20 years old will have to be mandatorily scrapped from April 1, 2020 — will also help. 

Analysts said the estimated population of such vehicles was 700,000, with over three quarters of this expected to be buses and trucks.

On EV adoption, some analysts said it would not impact Bosch much as the technology is still not available for heavy vehicles. Analysts at B&K Securities said commercial vehicles, tractors, aftermarket and non-auto, accounting for 75 per cent of the company’s revenues, would not face any threat from electric vehicles in the near term. However, Bosch, along with domestic automakers, is developing EV models for two- and three-wheelers and passenger vehicles. This comes as a relief for the Street.