2 December 2020
C
orner
O
ffice
the
Interaction with the CEO
Preparing for a changing technological landscape
Loans to Group cos for working capital to improve treasury yield for BOS
We hosted an interaction with the senior management of Bosch Ltd (BOS) – Mr Soumitra
Bhattacharya (MD, Bosch Ltd & Regional President, Bosch Group India) and Mr Srini
Srinivasan (CFO & Executive Director, Bosch Ltd) – for an update on the business, to get an
insight into BOS’ level of preparedness for the technological disruption, and to discuss the
recent proposal of giving loans to group companies.
[Click here for the presentation]
Here are
the key highlights:
Bosch
Demand recovery better than originally estimated:
The
outlook has improved from
initial expectations as recovery has been better. After lowering its BS6 order book
size to ~INR185b in 1QFY21, from INR245b in 4QFY20 (pre-COVID), BOS expects this
number to have improved from 1Q levels.
Content increase to fully reflect in FY22:
FY22 would mark the first full year since
Mr Bhattacharya has been
the BS6 implementation, particularly for segments such as CV. Content per vehicle
associated with the Bosch
Group for more than 24 years.
in FY22 would increase in terms of value, with increasing volumes as well as
A Chartered Accountant by
normalization of the mix (CV volumes recovering).
Transformation underway:
BOS embarked on a restructuring exercise in 1QFY20 in
profession, over the years, he
has handled varied roles across
the wake of a change in the technological landscape. The management indicated
the group in India and
that the ongoing restructuring would be completed in 3QFY21, making Bosch a
overseas. He was CFO of Bosch
future-ready and fit company. The payback period for this restructuring cost is 5–6
India from 2011 till 2018 and in
years. Additionally, the company has undertaken cost-cutting initiatives on the
2016, took over the CEO role as
premise of zero-based thinking. This is part of its Lakshya 2.0 initiative.
well. Prior to Bosch, he has
EVs – BOS to supply all EV components:
Electrification would begin with 2W/3W;
served at the TATA Group – he
BOS also has the relevant solutions for e-2W (already supplying to Bajaj Chetak and
is a founding member of the
Tanishq brand for the Titan
TVS iQube) and e-3W. The entire gamut of electrification solutions are part of the
listed entity, although this may involve sourcing some components from the group
Company Ltd. He has also
worked at INDAL – the core
companies. It expects electrification (incl. hybrid) levels in India of up to 20% by
Aluminum business of the
2030. Furthermore, it is focused on electrifying the ecosystem through a)
ALCAN Group – and is also a
developing competency in battery manufacturing (not cells), b) its partnership with
founding member of its
Sun Mobility, which would be managed by the listed entity (although stake is taken
Electronics business.
by the parent), and c) exploring business models such as EaaS.
Loans to group companies:
It seeks shareholder approval for the resolution to give loans to its group
companies for their working capital requirements for tenure of one year; the aggregate amount would be
~INR15b (of ~INR65b cash by Mar’21). This resolution would be valid for five years. The loans would be backed
by an unconditional and irrevocable guarantee from the parent. Pricing would be at arms’ length – at or higher
than the quote from two banks – and result in higher yield for BOS than treasury investments. These group
companies are suppliers for Bosch Ltd in several areas.
Valuation and view:
The BS6 transition has led to further market share loss in CV as well as consistent decline in
stronghold PV diesel. Although, the 2W segment opportunity has opened up for BOS (one of the 3–4 players in
2W EFI). Valuations have corrected in line with muted earnings in the last four years and dilution in competitive
positioning. We expect BOS to outperform underlying industry volumes, barring the substantial divergence in
segmental trends, driven by an increase in content under BS6 as well as additional revenues from 2W EFI. The
stock trades at ~30.9x/26.7x FY22/FY23E EPS. We believe the stock price largely reflects all of the negatives, but
a re-rating catalyst may emerge within 2–3 quarters. We maintain Neutral, with TP of ~INR13,500 (~28x Dec’22E
EPS at 20% discount to 10-year LPA of 35x).
Mr Soumitra
Bhattacharya,
MD, Bosch Limited &
Regional President,
Bosch Group in India
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com)
Vipul Agrawal – Research Analyst
(Vipul.Agrawal@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.