Bosch: Changing fortunes

Sustained growth in the commercial vehicle space and a low base helped the company post robust growth in the December quarter.

Bosch, a key supplier of auto components, has benefited from a strong growth momentum in auto sales. Sustained growth in the commercial vehicle space, which accounts for half of its sales, and a low base helped Bosch record a 39 per cent year-on-year growth in revenues to Rs 1,454 crore for the December 2009 quarter. Sales of its automotive division (accounts for 90 per cent of revenues) improved 40 per cent, while other businesses saw a dip of 8.26 per cent. The improved performance in the last two quarters helped Bosch record a 5 per cent increase in revenues to Rs 5,004 crore for the year ended December 2009.

Higher sales growth helped operating profit improve 42 per cent to Rs 249 crore, but margins rose marginally to 17.15 per cent, as higher raw material costs and other expenditure limited the gains.

For CY2009, margins fell nearly 200 basis points to 16.4 per cent due to lower sales and higher expenditure. The increase in raw material costs has also been a result of the high import content due to the introduction of common rail systems three years ago. Nevertheless, higher sales (and thus operating leverage) and increase in the local content should help in gradual improvement of margins in future.

Net profits for the quarter jumped 68 per cent to Rs 158 crore due to various factors — doubling of other income to Rs 25 crore, a 24 per cent drop in interest costs to Rs 27 crore and a 9.5 per cent dip in depreciation to Rs 95 crore. The weak performance in the first half ensured that net profits were lower by 7 per cent at Rs 590 crore in CY2009.

Revival in sales volumes and Bosch’s leadership in fuel injection systems should help the company post double-digit sales and profit growth over the next couple of years. Going ahead, Bosch is likely to focus on diesel cars (proportion of diesel cars has increased to a quarter now from 15 per cent three years ago) and tractors, which it believes has potential. At Rs 4,760, the stock is trading at 20.8 times its CY2010 estimated earnings per share of Rs 227 and leaves little room for upside.

With contributions from Puneet Wadhwa and Ram Prasad Sahu