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Please refer to important disclosures at the end of this report 1

EBITDA 329 379 (13.2) 478 (31.1)

EBITDA Margin (%) 15.1 18.4 (327)bp 20.8 (567)bp

Source: Company, Angel Research

Bosch (BOS) reported lower-than-expected results for 2QCY2012 primarily due to

raw-material cost pressures and a sharp increase in other expenditure which led

to a 327bp yoy (567bp qoq) contraction in the operating margin. While raw-

material cost pressures were on account of INR depreciation; other expenditure

increased led by inflationary pressures and one time tooling cost of `20cr. We

have revised downwards our earnings estimates to factor in the slowdown in the

automotive sector and weak exports demand coupled with margin pressure due

to unfavorable currency movement.

For 2QCY2012, BOS reported

a slightly lower-than-expected top-line growth of 5.6% yoy (down 5.3% mom) to

`2,174cr due to sluggish growth in the commercial vehicle (CV) and tractor

industry sales. The automotive segment revenues grew by a modest 5.1% yoy

(down 4.4% qoq) due to flat growth in the diesel systems segment and 12% yoy

decline in exports revenue. On the other hand, the non-auto segment posted a

strong growth of 19.9% yoy (down 11.2% qoq) during the quarter. The EBITDAmargin fell sharply by 327bp yoy (567bp qoq) to 15.1%, primarily on account of

increase in raw-material expenses led by INR depreciation (~100bp impact on

the margins). Further, other expenditure too increased by 200bp yoy (280bp qoq)

on account of inflationary pressures and one time tooling cost of `20cr (~100bp

impact on EBITDA margin). Hence, the net profit posted a lower-than-expected

bottom-line of `247cr, witnessing a decline of 11.3% yoy (26.3% qoq).

While we are positive on the long term prospects of BOS

due to its technological leadership and strong and diversified product portfolio;

we expect the near-term environment to remain challenging for the company

given the slowdown in the CV and tractor industry. At `8,681, BOS is fairly valued

at 19.9x CY2013E earnings. Thus, we maintain our Neutral rating on the stock.

% chg 37.8 18.3 11.0 13.8

% chg 63.0 24.2 10.0 16.6

EBITDA (%) 18.2 18.3 17.8 18.3

P/E (x) 31.8 25.6 23.2 19.9

P/BV (x) 6.7 5.8 4.8 4.0

RoE (%) 20.9 22.6 20.5 19.8

RoCE (%) 26.2 27.6 24.3 23.9

EV/Sales (x) 3.5 2.9 2.5 2.2

EV/EBITDA (x) 23.4 16.7 15.1 12.4


CMP `8,681

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code BOS@IN

Shareholding Pattern (%)

Promoters 71.2

MF / Banks / Indian Fls 15.0

FII / NRIs / OCBs 6.4

Indian Public / Others 7.4

Abs. (%) 3m 1yr 3yr

Sensex 10.2 5.5 14.6

Bosch (2.2) 19.3 122.0

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Auto Ancillary

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

27,260

0.3

9,300/6,425

1,288

Net Debt (`cr) (1,857)

10

17,657

5,363

BOSH.BO

022-3935 7800 Ext: 6844

[email protected]

Performance Highlights

2QCY2012 Result Update | Auto Ancillary

August 16, 2012

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Bosch | 2QCY2012 Result Update

August 16, 2012 2

Exhibit 1:Quarterly financial performance (Standalone)

Consumption of RM 743 564 31.7 728 2.0 1,471 1,310 12.3(% of sales) 34.2 27.4 31.7 32.9 31.6

Staff costs 248 236 5.1 249 (0.6) 497 451 10.0

(% of sales) 11.4 11.4 10.9 11.1 10.9

Purchases of TG 495 582 (14.9) 526 (5.8) 1,021 1,011 1.0

(% of sales) 22.8 28.3 22.9 22.8 24.4

Other Expenses 359 299 20.2 315 14.2 674 600 12.4

(% of sales) 16.5 14.5 13.7 15.1 14.5

OPM (%) 15.1 18.4 20.8 (27.3) 18.0 18.6

Interest - - - - - - (46) -

Depreciation 76 50 52.3 64 18.7 140 97 44.1

Other Income 89 72 23.1 67 33.3 156 84 86.3

Extr. Income/(Expense) - - - - -

(% of Sales) 15.7 19.5 20.9 18.4 19.4

Provision for Taxation 94 122 (22.9) 144 (34.6) 239 252 (5.3)

(% of PBT) 27.6 30.5 30.1 29.1 31.3

Adj. PATM 11.4 13.5 14.6 13.1 13.3

Equity capital (cr) 31.4 31.4 31.4 31.4 31.4


Exhibit 2:2QCY2012 Actual vs. Angel estimates

EBITDA 329 449 (26.8)

EBITDA margin (%) 15.1 20.1 (495)bp


For 2QCY2012 BOS posted a subdued growth of 5.6% yoy

(down 5.3% qoq) in its top-line to `2,174cr, marginally lower-than-estimates, on

account of sluggish CV and tractor sales. The automotive segment revenues grew

by a modest 5.1% yoy (down 4.4% qoq) due to the flat growth in the diesel systems

segment and 12% yoy decline in exports revenue. However, the automotive &

electrical and power tools segments witnessed a strong growth of 40% and20% yoy respectively. On the other hand, the non-auto segment posted a strong

growth of 19.9% yoy (down 11.2% qoq) during the quarter.

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August 16, 2012 3

Exhibit 3:Segmental performance

Automotive 1,922 1,828 5.1 2,010 (4.4) 3,932 3,673 7.1Others 244 204 19.9 275 (11.2) 520 431 20.7

Less: Inter-segment revenue 9 13 18 (47.7) 27 18

Automotive 276 335 (17.6) 423 (34.8) 699 684 2.1

Others 8 21 (61.7) 27 (70.7) 35 42 (16.0)

Add: Net interest income - - - - - - 46 -

Less: Unallocable exp. (58) (46) 26.8 (30) 94.4 (88) (33) 164.5

Automotive 14.3 18.3 21.1 17.8 18.6

Others 3.2 10.2 9.8 6.7 9.7


Exhibit 4:Sluggish growth in top-line


Exhibit 5:Segment-wise revenue trend


BOS registered a sharp drop in its

EBITDA margin to 15.1%, down 327bp yoy (567bp qoq) and significantly lower

than our estimates of 20.1%. The sharp fall in the EBITDA margin was on

account of increase in raw-material expenses led by INR depreciation and higher

other expenditure. Raw-material expenses as a percentage of sales grew 130bp

yoy (232bp qoq) mainly on account of INR depreciation which impacted the

margins by ~100bp. Other expenditure as a percentage of sales too expanded by

200bp yoy (280bp qoq) due to inflationary pressures and one time tooling cost of

`20cr (~100bp impact on EBITDA margin). Thus, the operating profit declined

sharply by 13.2% yoy (31.1% qoq) to `329cr.

1,700

1,7111,884

2,086 2,060 1,991 2,040

2,2952,174

36.3

31.929.5 30.7

21.1

16.4

8.310.0

5.6 0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0

500

1,000

1,500

2,000

2,500

2QCY10

3QCY10

4QCY10

1QCY11

2QCY11

3QCY11

4QCY11

1QCY12

2QCY12

(%)(`cr) Net sales Net sales growth (RHS)

1,502 1,5511,614

1,845 1,828 1,784 1,7742,010 1,922

157 160 164 227 204 211 206275 244

0

500

1,000

1,500

2,000

2,500

2QCY10

3QCY10

4QCY10

1QCY11

2QCY11

3QCY11

4QCY11

1QCY12

2QCY12

(`cr) Automotive revenue Other revenue

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August 16, 2012 4

Exhibit 6:EBITDA margin declines sharply to 15.1%


Exhibit 7:Net profit down 11.3% yoy


The companys net profitregistered a decline of 11.3% yoy (26.3% qoq) to `247cr which was 21.6% lower

than our estimates, primarily due to a weak performance at the operating level.

However, a lower tax-rate (at 27.6% vs 30.5% in 2QCY2011) benefitted the

bottom-line to a certain extent during the quarter.

Conference call Key highlights

The management expects the automotive industry to register a relatively betterperformance in 2HFY2013.

The CV and tractor industry witnessed sluggish sales during the quarter;however, light commercial and passenger vehicles recorded a healthy growth.

Exports (contribute by 10-12% of the top-line) during the quarter declined 12%yoy due to weak demand in Europe and the US. While exports to Europe

account for ~60% of the total export revenue, the remaining ~40% is derived

from the US and Asia.

The company now intends to incur capital expenditure of `400cr-`500cr inCY2012 which has been scaled down from the earlier levels of ~`600cr.

The contribution of the diesel systems segment to sales is ~60%, automotiveafter-market contributes ~20%, automotive electrical constitutes ~10% and

power tools/ starters and generators and gasoline contribute ~10%.

Localization levels in CRDI systems are currently at 50%. The managementexpects to gradually improve localization going ahead.

18.8 19.8 16.418.9 18.4 19.3 17.5

20.815.1

53.5 53.4 53.756.7 56.8 54.4 53.7 55.3

57.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2QCY10

3QCY10

4QCY10

1QCY11

2QCY11

3QCY11

4QCY11

1QCY12

2QCY12

(%) EBITDA margins Raw material cost/sales

210 236 211 274 279 288 281 336 247

12.3

13.8

11.2

13.2 13.514.5

13.8 14.6

11.4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0

50

100

150

200

250

300

350

400

2QCY10

3QCY10

4QCY10

1QCY11

2QCY11

3QCY11

4QCY11

1QCY12

2QCY12

(%)(`cr) Net profit Net profit margin (RHS)

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August 16, 2012 5

Investment arguments

Weestimate BOS to post a ~13% CAGR in its top-line and bottom-line over

CY2011-13E. The company enjoys high margins in the auto component

segment due to high entry barriers and its dominant position in the market.

Nonetheless, due to a decline in utilization levels (~70-75% across plants) and

INR depreciation, we expect margins to remain under pressure in 2HCY2012.

However, localization initiatives will benefit margins in the long run.

BOS' prospects are largelyderived from demand arising in the CV and tractor segments, which are

estimated to post a CAGR of 8-10% over the next couple of years. Further,

greater visibility on newer growth opportunities is emerging for the company,

following its investments in new and innovative technologies such as CRS andgasoline systems. We believe the company will continue to enjoy premium

valuations, owing to strong parental focus and increasing long-term growth

opportunities in the Indian market, facilitated by changes in emission norms.

Moreover, BOS has been a consistent performer with strong cash flows in the

Indian auto component industry.

Outlook and valuation

Going ahead, the company is expected to report modest results in 3QCY2012 as

well, as the slowdown in the domestic CV (mainly the medium and heavy

commercial vehicle segment) and tractor segments, along with sluggish exports will

negatively impact the companys performance. BOS has also been suspending

operations temporarily at its plants (Bangalore, Nashik and Jaipur) since June

2012 in a phased manner to align production in-line with the market demand. We

have revised downwards our sales and earnings estimates for BOS to factor in the

slowdown in the automotive sector and weak exports demand coupled with margin

pressure due to unfavorable currency movement.

Exhibit 8:Change in estimates

OPM (%) 19.3 19.3 17.8 18.3 (147.8) (97.0)


While we are positive on the long term prospects of BOS due to its technological

leadership and strong and diversified product portfolio; we expect the near-term

environment to remain challenging for the company given the slowdown in the CV

and tractor industry. We expect BOS to register a ~13% CAGR each in its net sales

and net profit over CY2011-13E. As a result, we estimate BOS to post an EPS of

`373.6 and `435.8 for CY2012E and CY2013E respectively. At `8,681, BOS isfairly valued at 19.9x CY2013E earnings.

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August 16, 2012 6

Exhibit 9:Key assumptionsFuel injection pumps 2.9 2.7 3.7 4.4 4.5 4.9

Nozzles 16.2 16.3 21.5 23.0 24.3 27.0Auto electrical 1.5 1.4 1.5 2.0 2.4 2.6


Exhibit 10:Angel vs consensus forecast

EPS (`) 373.6 435.8 375.7 447.6 (0.5) (2.6)


Exhibit 11:One-year forward P/E band


Exhibit 12:One-year forward P/E chart


Exhibit 13:Premium/Discount to Sensex


Exhibit 14:Bosch vs Sensex


0

2,000

4,000

6,000

8,000

10,000

12,000

Jan-0

3

Nov-0

3

Sep-0

4

Aug-0

5

Jun-0

6

May-0

7

Mar-08

Feb-0

9

Dec-0

9

Nov-1

0

Sep-1

1

Aug-1

2

(`) Share price (`) 12x 16x 20x 24x

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Aug-0

5

Jun-0

6

May-0

7

Mar-08

Feb-0

9

Dec-0

9

Nov-1

0

Sep-1

1

Aug-1

2

(x) One-yr forward P/E Five-yr average P/E

(80)

(60)

(40)

(20)

0

20

40

60

80

100

Apr-02

Mar-03

Feb-0

4

Jan-0

5

Jan-0

6

Dec-0

6

Nov-0

7

Nov-0

8

Oct-09

Sep-1

0

Sep-1

1

Aug-1

2

(%) Absolute premium Five-yr average premium

0

100

200

300

400

500

600

Jan-0

5

Sep-0

5

May-0

6

Jan-0

7

Oct-07

Jun-0

8

Feb-0

9

Nov-0

9

Jul-10

Mar-11

Nov-1

1

Aug-1

2

Bosch India Sensex

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August 16, 2012 7

Exhibit 15:Auto Ancillary Recommendation summary

Amara Raja Batteries Accumulate 382 402 5.2 12.1 10.5 7.0 5.9 28.8 26.2 20.5Automotive Axle^ Buy 343 430 25.1 9.3 8.0 4.9 3.8 21.2 21.2 6.2

Bharat Forge* Buy 299 351 17.2 14.7 11.9 7.3 6.1 19.9 20.9 19.3

Exide Industries Accumulate 133 149 12.2 18.0 14.5 9.9 7.7 19.0 20.2 29.7

FAG Bearings# Neutral 1,600 - - 14.4 12.3 8.5 6.8 22.8 21.7 10.8

Motherson Sumi* Buy 172 216 25.6 12.9 9.6 5.9 4.6 26.2 28.4 54.6

Subros Buy 29 34 19.3 6.3 5.0 4.4 3.9 9.8 11.8 6.4

Source: Company, Angel Research; Note: * Consolidated results; # December year end; ^ September year end

Company background

Bosch, promoted by Robert Bosch GmbH, is the largest auto ancillary company in

India and a dominant player in the fuel injection segment with ~75% market

share. The company has a diverse product portfolio of diesel and gasoline fuel

injection systems, automotive aftermarket products, auto electricals, special

purpose machines, packaging machines, electric power tools and security systems.

The automotive segment contributes 90% to BOS' total revenue. The company also

has one of the largest distribution networks of spare parts in the country, with

after-market component sales accounting for ~20% of revenue. BOS has five

manufacturing facilities located at Bangalore, Nasik, Naganathpura, Jaipur and

Goa.

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August 16, 2012 8

Profit and loss statement (Standalone)

% chg 6.1 5.3 37.8 18.3 11.0 13.8

Net raw material costs 2,416 2,551 3,598 4,444 4,967 5,618

Other mfg costs 377 360 432 467 523 594

Employee expenses 530 609 796 888 993 1,132

Other 566 663 803 848 940 1,056

% chg (7.1) (5.1) 54.1 19.2 7.8 17.1

(% of total op. income) 18.1 16.3 18.2 18.3 17.8 18.3

Depreciation & amortization 302 304 254 258 324 361

% chg (17.0) (8.0) 96.0 23.7 4.1 18.5


Interest and other charges 9 1 4 0 0 1

Other income 311 285 207 338 366 403

% chg 0.1 (7.4) 51.6 30.9 5.0 16.6

Extraordinary expense/ (income) 81 64 - 56 - -

Tax 223 203 344 451 479 559

(% of PBT) 28.7 27.8 28.6 29.7 29.0 29.0

% chg (1.9) (4.7) 63.0 24.2 10.0 16.6


% chg (1.8) (2.9) 63.0 24.2 10.0 16.6

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August 16, 2012 9

Balance sheet statement (Standalone)

Equity share capital 32 31 31 31 31 31Reserves & surplus 3,063 3,354 4,067 4,697 5,683 6,868

Total loans 264 284 276 307 307 307

Deferred tax liability (170) (201) (218) (228) (228) (228)

Gross block 2,722 2,865 3,017 3,424 4,040 4,503

Less: Acc. depreciation 2,120 2,358 2,588 2,810 3,134 3,495

Capital work-in-progress 167 100 224 441 324 361

Goodwill 6 6 6 6 6 6

Cash 1,071 1,068 1,326 951 1,392 1,782

Loans & advances 422 556 896 1,153 1,331 1,516

Other 1,248 1,135 1,530 2,132 2,101 2,391

Current liabilities 1,193 1,320 1,863 2,095 2,202 2,416

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August 16, 2012 10

Cash flow statement (Standalone)

Profit before tax 776 729 1,202 1,518 1,652 1,927

Depreciation 302 304 254 258 324 361Change in working capital (247) 130 (178) (627) (45) (261)

Others 186 209 159 241 - -

Other income (311) (285) (207) (338) (366) (403)

Direct taxes paid (223) (203) (344) (451) (479) (559)

(Inc.)/Dec. in fixed assets (391) (75) (277) (623) (500) (500)

(Inc.)/Dec. in investments 197 (551) (190) 1 (329) (396)

Other income 311 285 207 338 366 403

Issue of equity - (1) - - - -

Inc./(Dec.) in loans 50 20 (8) 31 - -

Dividend paid (Incl. Tax) 24 94 110 493 183 183

Others (289) (659) (471) (1,215) - -

Inc./(Dec.) in cash 385 (3) 258 (374) 440 390

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August 16, 2012 11

Key ratios

P/E (on FDEPS) 50.3 51.8 31.8 25.6 23.2 19.9P/CEPS 32.5 32.8 24.5 20.6 18.2 15.8

P/BV 9.0 8.1 6.7 5.8 4.8 4.0

Dividend yield (%) 0.3 0.3 0.5 1.6 0.6 0.6

EV/Sales 5.0 4.9 3.5 2.9 2.5 2.2

EV/EBITDA 35.9 40.0 23.4 16.7 15.1 12.4

EV / Total Assets 8.0 7.2 5.9 5.2 4.2 3.4

EPS (Basic) 172.7 167.7 273.4 339.6 373.6 435.8

EPS (fully diluted) 172.7 167.7 273.4 339.6 373.6 435.8

Cash EPS 267.1 264.4 354.3 421.7 476.7 550.7

DPS 25.0 30.0 40.0 135.0 50.0 50.0

Book Value 967 1,078 1,305 1,506 1,820 2,197

EBIT margin 12.0 10.6 15.0 15.5 14.5 15.1

Tax retention ratio 0.7 0.7 0.7 0.7 0.7 0.7

Asset turnover (x) 2.3 2.2 2.6 2.4 2.2 2.1

ROIC (Post-tax) 19.8 16.9 28.1 26.4 22.5 23.0

Cost of Debt (Post Tax) 2.4 0.3 1.0 0.1 0.1 0.1

Leverage (x) (0.6) (0.6) (0.6) (0.6) (0.5) (0.5)

Operating ROE 10.1 7.0 10.5 11.8 11.2 10.6

ROCE (Pre-tax) 18.9 15.3 26.2 27.6 24.3 23.9

Angel ROIC (Pre-tax) 19.4 13.5 28.2 28.3 25.5 25.9

ROE 17.9 15.6 20.9 22.6 20.5 19.8

Asset Turnover (Gross Block) 1.9 1.8 2.3 2.5 2.4 2.4

Inventory / Sales (days) 41 42 37 45 48 48

Receivables (days) 51 49 36 38 38 38

Payables (days) 59 61 60 65 67 67

WC cycle (ex-cash) (days) 29 31 25 39 49 48

Net debt to equity (0.5) (0.7) (0.6) (0.5) (0.5) (0.6)

Net debt to EBITDA (2.0) (2.7) (2.1) (1.5) (1.9) (2.0)

Interest Coverage (EBIT / Int.) 63.5 428.4 254.3 2,874.6 2,697.1 2,806.1

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August 16 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

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Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in

the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

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Disclosure of Interest Statement Bosch

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors