Bosch, a leading automotive car component maker, has been reaping the benefits of a strong revival in demand for automobiles, especially for commercial vehicles that form a large chunk of its business. For the year ended December 2010, the firm clocked a double-digit growth in net profit in line with the performance of some other large auto component makers, like Motherson Sumi Systems. Bosch, the Indian arm of German engineering firm, has sustained a 30% year-on-year revenue growth in each of the past four quarters. Being debt-free, it is also able to shield itself from rising borrowing costs, unlike some of the auto ancillary makers. The growth in topline was supported by almost a two-fold increase in commercial vehicle sales to 9.8 lakh in the past one year, besides a strong growth in the passenger car segment.
In the December 2010 quarter, sales grew 33% over the yearago period, matching the performance in the third quarter. However, the company's operating margin contracted 200 basis points to 18% during the quarter due to a rise in the raw material expense compared with the corresponding period of the previous year. But due to a lower in-crease in depreciation and higher interest earnings, the firm recorded a 45% growth in the net profit over the year-ago period.
According to stock brokers' reports, Bosch is expected to report a compounded annual growth of 26% in revenues for the next two calendar years beginning 2011 while net profit will grow 30% in the same period due to a better sales outlook for commercial vehicles.
Bosch plans to invest in upcoming segments, like hybrid technology, which can act as a new growth avenue in the coming years, even though it's too early to ascertain revenues from such investment bets.
The stock has outperformed the 10-stock ET Auto Ancillary index in the past one year. This can be attributed to its consistent business growth, besides leadership in the segment of diesel systems of commercial vehicle.
At the market price of . 6,080, the scrip trades at 23 times its earnings for the past 12 months, which is slightly higher than the industry average of 20. But Bosch typically commands premium in the market due to its healthy operating cash flows.
