Bosch results beat estimates, but no triggers for the stock
PremiumThe company’s revenues have more than doubled by 146% y-o-y to ₹2,443 crore, helped by a favourable base
Shares of Bosch Ltd have underperformed the broader markets by a good margin over the past one year. The stock has appreciated by 16% vis-à-vis the 50% rise in the Nifty 200 index in the past year. To that extent, valuations are not pricey.
The stock trades at around 25 times estimated earnings for financial year 2023, on the basis of estimates of Motilal Oswal Financial Services Ltd. Valuations have corrected in keeping with the muted earnings in recent years, analysts pointed out. Even so, triggers for outperformance appear limited.
“Valuations largely factor in the changes in its competitive positioning since BS-IV. While the negatives are priced in, there are no material catalysts for the stock over the next 2-3 quarters," said analysts from Motilal Oswal in a report on 4 August.
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Additionally, the margin outlook is not exciting enough. “We expect growth tailwind of the tractor segment to slow down in FY23, while lack of diesel growth in passenger vehicles and market share loss in medium and heavy commercial vehicles is likely to keep growth in check. Delayed localization leading to higher share of imports is likely to hinder Ebitda margins expansion vis-à-vis previous cycle levels (17-19%)," said ICICI Securities Ltd’s analysts. Ebitda is earnings before interest, tax, depreciation and amortization.
The good news is that the company’s June-quarter (Q1FY22) results are better than Street expectations. Revenues have more than doubled by 146% year-on-year to ₹2,443 crore, helped by a favourable base as revenues had declined in Q1FY21. The company also saw sales recover with easing of restrictions put in place across states to contain the pandemic.
Bosch swung to profits at the Ebitda level from a loss in Q1FY21. Compared to the March quarter, adjusted Ebitda margin contracted by around 180 basis points (bps) to 12.5%. One basis point is 0.01%. Gross margin expansion of 250bps on a sequential basis helped restrict the drop in Ebitda margin.
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A favourable product mix and the pass-through of commodity costs are some reasons that aided gross margin expansion. The company has maintained a cautious business outlook for the rest of FY22, given the uncertain economic environment, the impending third wave of covid-19 and unpredictability in the international supply chain.
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