Better than expected December quarter results in a difficult environment, posted by Bosch India, hasn’t impressed the markets. While net profit for the quarter was up 33 per cent due to improving Ebitda margins, lower taxes and higher other income, revenue growth was muted at eight per cent. Though analysts are bullish on the long-term prospects of the stock, due to its leadership in the critical fuel injection systems (FIS), they expect the company to face headwinds over the next few quarters.
In a recent report, Standard Chartered analysts Amit Kasat and Aniket Mhatre say, given an expected slowdown in the tractor segment and single-digit growth in commercial vehicles (CVs), revenue growth is likely to slow in CY12 (to 16 per cent, against 18 per cent in CY 2011). This is consequent to the expected slowdown in tractors and CVs, which forms nearly half of its revenues. Also, any harsh measures on the anticipated special tax on diesel vehicles in the Union Budget could hurt the company’s sales.
The stock at Rs 7,594, trades at 19.2 times its CY12 estimates, which is at the upper end of the five-year PE band of 14-22 times (based on one-year forward earnings). The stock, which has significantly outperformed in the last year, is thus expected to underperform in the near term.
| CY12: MUTED PROFIT EXPECTATIONS | |||
| in Rs crore |
Q4CY11 |
CY2011 |
CY2012E |
| Sales | 2,040 | 8,162 | 9,463 |
| Y-o-Y change (%) | 8.3 | 18.3 | 15.9 |
| Ebitda | 357 | 1,514 | 1,757 |
| Ebidta (%) | 17.5 | 18.5 | 18.6 |
| Net profit | 281 | 1,122 | 1,241 |
| Y-o-Y change (%) | 33.8 | 30.6 | 10.6 |
| P/E (x) | – | 21.2 | 19.2 |
| Year ends in December E: Estimates Source: Company, Standard Chartered Research | |||
Slower second-half growth
While the company reported robust numbers for the first half of CY11, the performance over the last two quarters has been muted. While net sales in the first half grew 26 per cent year-on-year, growth in the June-December period halved to 13 per cent. Sales in the December quarter grew at a muted eight per cent to Rs 2,040 crore. The management said growth rates declined in the last two quarters (of CY11) on account of slow economic growth due to tight liquidity, high interest rates, increase in fuel prices and overall adverse market sentiments.
Higher raw material costs
While Ebitda margins were up 110 basis points to 17.5 per cent y-o-y, on a sequential basis, margins were down 180 basis points. The reason for this decline is the higher raw material to sales ratio in the December quarter (due to a falling rupee) at 56.5 per cent, compared to 53.9 per cent in the September quarter. Analysts expect this to reverse in the current quarter as the rupee has appreciated quite a bit. The management has indicated the raw material to sales ratio will be in a band of 54-56 per cent.
Outlook
While there are near-term negatives, such as economic slowdown and high interest rates for the heavy and medium commercial vehicles sector, the management indicates it is bullish on the longer-term growth of the sector, both as a play on the infrastructure development story as well as being the preferred mode of transport. The company is positive on the light commercial vehicles segment and expects 15-20 per cent growth in CY12. Tractor sales, too, would be in the region of 8-10 per cent in CY12, feels the management, which is bullish given the need for farm mechanisation. Krishnan Samb-amoorthy of Fortune Res-earch, however, believes the net profit growth for this year would be muted on the back of slowing sales growth and the high operating profit base of last year. Besides, ongoing large scale expansion in a slow growth environment will affect utilisation levels in the near term, whereas depreciation charges are also likely to rise sharply in CY12, he adds.
