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Bosch Equity Research

HomeCompanyBosch Equity Research

Date of Research – 13 January 2016

Price – Rs. 18001.00

About the Company

Founded in 1951, Bosch Limited (“Bosch” or the “Company”) is India’s leading supplier of technology and services in the areas of automotive and industrial technology, consumer goods and building technology. Additionally, the Company also has the largest development centre, outside Germany, for end to end engineering and technology solutions. It is the flagship Company of the Bosch Group. The Bosch Group holds 71.18% stake in Bosch Limited.

The Company is headquartered in Bangalore with manufacturing facilities at Bangalore, Naganathapura (near Bangalore), Nashik, Jaipur and Goa. Its Automotive Technology division includes Diesel and Gasoline Fuel Injection Systems, Car Multimedia Systems, Auto Electricals and Accessories, Starters and Generators, Energy and Body Systems. Its Industrial Technology division includes Packaging Machines, Special Purpose Machines, Solar Energy and its consumer goods and building Technology division includes power tools, security system.

*The Company has changed its financial year to commence from 1st April of every year and to end on 31st March of the following year. Consequently, the Company has reported its FY 2015 financial numbers for 15 months i.e., from January 01, 2014 to March 31, 2015. Hence current period’s figures are not comparable to those of the previous period.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2015 FY 2016 FY 2017
Total Income from Operations 8,659.07 8,820.06 12,085.48 10,612.77  11,242.56 
Expenses 7,309.79 7,529.04 10,104.15 8,737.13   9,282.21  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 1,349.28 1,291.02 1,981.33 1,875.64   1,960.35  
Depreciation 366.92 384.20 548.42 395.01   456.23  
Finance Costs 5.52 2.89 14.32 4.18   27.15  
Other income 369.23 352.62 565.30 382.62   617.40  
PBT 1,346.07 1,256.55 1,955.85 1,859.07   2,094.37  
Tax 387.90 371.87 618.20 613.15   650.30
PAT (before Minority Interest and share of Associates) 958.17 884.68 1,337.65 1,245.92   1,741.12
 Profit/ (loss) attributable to Minority Interest – 
 Share of profit / (loss) of Associates (2.20) 0.89  
 Consolidated Profit / (Loss) for the year 1,248.12 1,740.23  

Profitability Analysis

Consolidated (%)
Particulars FY 2012 FY 2013 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 15.58 14.64 16.39 17.67   17.44 
Net Profit Margin Ratio 11.07 10.03 11.07 11.74   15.49 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2013 FY 2015 FY 2016
Share Capital 31.40 31.40 31.40 31.40 31.40
Reserves & Surplus 4,697.04 5,541.86 6,262.90 7,315.60 8,249.30
Net worth (shareholders funds) 4,728.44 5,573.26 6,294.30 7,347.00 8,280.70
Long term borrowings 227.31 181.35 128.90 54.20 19.10
Current liabilities 1,966.46 1,897.43 2,207.20 2,551.10 2,763.00
Other long term liabilities and provisions 208.77 251.78 290.80 478.50 432.80
Total Liabilities 7,130.98 7,903.82 8,921.20 10,430.80 11,495.60

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2013 FY 2015 FY 2016
Fixed Assets 912.41 1,280.29 1,394.90 1,243.60 1,286.90
Noncurrent Investments 447.74 449.98 985.00 2,624.60 3,731.50
Current assets 5,210.47 5,692.72 5,979.80 5,926.50 5,843.60
Long term advances and other noncurrent assets 332.76 225.63 262.60 218.90 180.80
Deferred Tax Assets 227.60 255.20 298.90 417.20 452.80
Total assets 7,130.98 7,903.82 8,921.20 10,430.80 11,495.60

Efficiency Analysis

  (%)
Particulars FY 2011 FY 2012 FY 2013 FY 2015 FY 2016
ROCE 26.32 27.23 20.10 26.77 22.60
ROE / RONW 20.14 20.26 14.06 18.21 15.05

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2012 FY 2013 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 8,659.07 8,820.06 12,085.48 10,612.77  11,242.56 
Growth (%) 6.09 % 1.86 % 37.02 % (12.19 %)  5.93 % 
PAT (Rs. Cr.) 958.17 884.68 1,337.65 1,245.92   1,741.12
Growth (%) (14.64 %) (7.67 %) 51.20 % (6.86 %)  39.75 % 
Earnings Per Share – Basic (Rs. ) 305.20 281.80 426.00 397.50  560.60
Earning Per Share – Diluted (Rs. ) 305.20 281.80 426.00 397.50  560.60
Price to Earnings 31.05 38.15 55.53 52.29  43.11

Dividend History

The Company has maintained an average dividend yield of 0.78 % over the last 5 financial years

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Bosch’s average current ratio over the last 5 financial years has been 2.54 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations

Long term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Bosch’s average long term debt to equity ratio over the last 5 financial years has been 0.04 which indicates that the Company is operating with a low level of debt

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Bosch’s average interest coverage ratio over the last 5 financial years has been 162.08 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Bosch reported a promoter holding of  70.49%. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 19.36 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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