Stock Pick From The Auto Ancillaries Sector
9/20/2012 9:00 PM Thursday
Choice Scrip is a Blue Chip stock pick that is expected to give returns within a 6 months-1 year horizon. The recommendation is based on a fundamental analysis of the company.
The company recommended as the Choice Scrip for this issue is a prized pick in the auto ancillaries sector, with a well-diversified product portfolio.
Bosch: Steadfast Foundations
HERE IS WHY:
- Stronghold in the high potential diesel segment, which grew at a strong 19.2 per cent in 2011.
- Robust financials (profitability, leverage and returns), with a consistent improvement in margins.
- Independent of cyclicality and systematic factors.
The automobile industry in India has been despondent lately, the sales volumes being subdued due to weak macroeconomic conditions, fat EMIs (thanks to higher interest rates) and towering fuel prices. Moreover, certain segments in the industry are seeing a polarised trend, with some hitting record lows and some witnessing growth. Bosch, we believe, is less sensitive to cyclicality and dynamic trends due to its well-diversified product portfolio and its presence in industries apart from automotives. This, coupled with robust financials and planned capex, make this company a prized pick.
While the automotive segment accounted for 90 per cent of the company’s revenues in CY2011, more than half of it came from diesel systems, which is a fast-growing segment considering the disparity between petrol and diesel prices. The diesel segment grew at a strong 19.2 per cent in 2011, and the company continues to have a whopping 85 per cent market share in supplying to manufacturers.
Bosch is also on a very strong path in the replacements market, with the segment contributing to about 20 per cent of its revenues and growing at 15.2 per cent in 2011. The replacements market is highly independent of sales trends, and is strong in India due to the colossal growth seen in auto sales over the last few years. The company is also introducing new concepts and modules like Express Bike Service and Tractor Points, and is working on the extension of its existing service networks.
Though the automotive division has a lion’s share in Bosch’s revenues, other industries that the company is present in have also been showing tremendous potential in terms of growth. The company’s industrial technology and consumer goods divisions fared well, growing by 45.50 per cent and 21.30 per cent respectively in 2011. This sturdy growth in other businesses helps diversify its operations, thus reducing overall risk.
In terms of financials, the topline of Bosch has grown in a range of 4.13 per cent and 38.83 per cent in the last three years. Its margins have seen a consistent improvement at both the operating as well as the net levels. This strength in performance is supported by a mere 0.06 per cent debt-to-equity ratio and consistently growing dividends. The return on net worth and return on long-term funds stood at a gallant 20.02 per cent and 28.08 per cent respectively in 2011.
The steady performance of Bosch during tough times is evident from its quarterly performance, which has been encouraging over the last four quarters. The YoY topline and bottomline growth has been intact for every quarter except for the one ending June 2012. The company also steered through the 2007-08 crisis, maintaining both revenue growth and margins, which provides further validation of its ability to be unaffected by systematic risk.
| Last Five qurters (Rs crore)|
|Sales|| 2,173.86|| 2,295.04|| 2,040.45|| 1,991.31|| 2,059.28|
|Other Income ||89.01 ||16.77 ||54.38 ||39.43 ||27.78 |
|Other Expenses ||854.67 ||840.31 ||924.84 ||697.07 ||881.29 |
|Operating Profit ||328.99 ||477.53 ||357.04 ||384.91 ||378.72 |
|Interest ||0.05 ||-50.08 ||-47.95 ||-45.48 ||-44.79 |
|Depreciation ||76.05 ||64.06 ||96.6 ||64.03 ||49.92 |
|Net Profit ||247.46 ||335.82 ||281.14 ||288.1 ||278.93 |
|Equity Capital ||31.4 ||31.4 ||31.4 ||31.4 ||31.4 |
Though Bosch recently announced a partial lockdown in the company’s Jaipur and Bangalore plants for four to five days in September 2012 to avoid an inventory pileup, this situation would reverse with the industry’s eyes on the festive season for an upswing in automobile sales. Preparing for the road ahead, the company has planned a capex of Rs 2200 crore this year to gain from capacity and network expansion. All these factors indicate a strong past and a promising future and boost our confidence in the likelihood of the company’s success.
|Shareholding Pattern as on 31/06/2012|
|Foreign Promoters || 71.03 |
|Banks Fin. Inst. and Insurance ||7.14 |
|FIIs || 7.89 |
|Private Corporate Bodies || 0.94 |
|Others || 0.00 |
|General Public || 13.00 |
|GRAND TOTAL ||100 |
|BEST OF LAST ONE YEAR|
|Company Name||Reco. ||CMP(Rs)||Gain (%)|
|Ajanta Pharma ||171.00 ||420.15 ||145.70 |
|Asian Paints ||2985.00 ||3881.70 ||30.04 |
|CESC||263.00 ||330.65 ||25.72 |
|HDFC ||621.00 ||778.85 ||25.42 |
|FAG Bearings India ||1261.00 ||1580.00 ||25.30 |
|Torrent Pharmaceuitical ||559.00 ||682.00 ||22.00 |
|Colgate Palmolive (India), ||1014.00 ||1214.00 ||19.72 |
|Dabur India ||104.00 ||124.45 ||19.66 |
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