Sharekhan Bets On This Large Cap Stock For 20% Gains, Expects 26.4% CAGR Earnings In FY22-FY24E

Brokerage firm Sharekhan in its report on Bosch Ltd has given a buy call for a target price of Rs 19,135/share and sees 20% gains. Bosch Limited (Bosch) continues to lay emphasis on future technologies, including electric vehicles, foraying into new markets and expanding its retail reach. Support from the parent company and investment in R&D would be key drivers to tap emerging opportunities in EVs and connected vehicles in India. Bosch India is a major large-cap auto components company with a market cap of Rs Rs 47,216.96 crore.

Bosch Stock Outlook

Bosch Limited stock closed today at Rs 16,009.20/share after a dip of 0.35% from the previous close of Rs 16,367.35/share. Today it was opened at Rs 16,240/share. The shares of the company hit the 52-week low at Rs 12,932.45/share, and 52 weeks high at Rs 19,250/share.

As of now, the share is trading at Rs 3076.75 above the 52-week low levels and Rs 3240.80 below the 52-week high levels, respectively.

It has fallen nearly 1% in the last 1 week, and 16.03 in the last 1 month, respectively. In 1 year, the stock gained 4.15% and fell 34.29% in past 5 years.

Taking the estimated target price and the CMP of the stock into consideration, the stock of the company has a huge potential of 20% upside in 12 months.

Bosch Dividend

The company has a strong dividend track record, having declared dividends continuously for the past five years. Since 2001, the company has declared 27 dividends. Out of 27 dividends, 3 are Interim dividends, 22 are final and 2 special dividends. For the year ending March 2022, the company declared an equity dividend of 2100% i.e Rs 210 per share, which include 110% final & 1000% special dividend. The Declared dividend turned ex-dividend today.

Bosch Limited

Bosch Limited (Bosch) continues to lay emphasis on future technologies, including electrification in the automotive segment, foraying into new markets and expanding its retail network, as per its FY22 annual report Management is cautiously positive and expects growth across segments, with the e-mobility business driving overall growth.

Further, the management expects 30% EV penetration in India by 2030. The capex for FY23E is estimated to be Rs. 550-600 crore, largely focused on R&D for new businesses. Further, the company plans to invest more than Rs. 200 crore in India in the next five years in advanced automotive technologies and the digital mobility space. We expect Bosch to continue to see an increase in content per vehicle with the advent of BS-VI emission norms as vehicles require significant changes in combustion, powertrain systems, and exhaust gas treatment.

Content per vehicle would be driven by improvement in safety features and conveniences with the advent of electric vehicles and increasing awareness among the customers. Supply of fuel injection systems to two-wheeler players would be an incremental growth opportunity. Expansion of the power tool business' distribution network in Tier-3 and Tier-4 cities, export of BS-VI automotive components to neighbouring countries and greater adoption of connected and electric vehicles would be key growth drivers for the company.

Bosch has a strong technological parentage and operates in a high-entry barrier industry with a strong balance sheet, zero debt, and healthy returns ratios. Bosch is well-prepared to tap on emerging opportunities in electrification and connected vehicles with strong technological support from its parent, Robert Bosch GmbH. Hence, we retain a Buy rating on the stock.

Transition and transformation a key theme

Bosch Ltd. (India) continues to work towards accelerating India's transition to smart and sustainable country. Inspired by its parent, Bosch Global, the company's India portfolio continues to focus on strengthening products, services and solutions in mobility, industrial technology, consumer goods, and energy and building technology.

Focus on improvement content per vehicle

Bosch's content per vehicle would increase with change from BS4 to BS-VI emission norms, commencing supplies in the fast-growing EV segment and emerging technologies such as connected vehicles. Bosch is witnessing increased offtake in the engine and exhaust gas treatment systems as automotive OEM customers have started rolling BS-VI emission norm-compliant vehicles. Moreover, supplies of fuel-injection systems to two-wheeler players provide an incremental opportunity.

Leveraging group's strengths give Bosch competitive edge

Leveraging a strong global portfolio, Bosch in India is rightly positioned to support Electric Vehicle (EV) adoption across segments. Bosch India would take leverage of technology and customize products for Indian markets that will continue to boost company's market share and maintain its leadership position.

 

Sharekhan Maintain Buy Rating with a revised Price Target of Rs.19,135

The brokerage said, "Bosch's management is cautiously positive about the demand scenario, expecting it on the path to recovery. We expect the company to be a key beneficiary of the revival in automotive demand, driven by pent-up offtake and normalisation of economic activities. Bosch is a strong technological company with a robust balance sheet, zero debt, and healthy return ratios."

It added, "The company's strong brand positioning, focus on technology, and electrification of vehicles will enable its high growth visibility. The company's order book of Rs. 18,500 crore for BS-VI grade products is likely to be executed in the next 5-6 years, which provides healthy growth visibility. We expect Bosch's earnings to report a 26.4% CAGR during FY22-FY24E, driven by a 20% revenue CAGR and a 240-bps rise in EBITDA margin expansion to 14.8% in FY24E from 12.4% in FY22. Thus, we retain Buy with a revised PT of Rs. 19,135, factoring recovery in automotive demand across segments, access to robust e-mobility technology, and improving content per vehicle. The stock trades below its historical average at P/E of 24.8x and EV/EBITDA of 16.8x its FY24E estimates."

Key Risk - The company's performance would be hit if commodity prices continue to rise at the current pace. In addition, prolonged shortage of semi-conductors can materially affect our revenue and margin projections.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.