Q1FY17 net profit of Rs 3.79 billion came in flat year-on-year (y-o-y) and marginally lower than our forecast due to surprisingly lower EBITDA margins at 17.9 per cent. Margins were impacted by a 30 per cent growth in other expenses, which management attributed partly to a one-time expense on account of CSR and shifting expenses. However, we think the reason for this disparity remains unclear. Total revenue growth of 9 per cent in the quarter is attributable to a double-digit growth in diesel systems and strong growth in gasoline and the aftermarket segment, which were offset by a 22 per cent decline in automotive exports and muted growth in the domestic non-mobility segment.
Takeaways from the conference call. Management indicated that BS IV volume in the current product mix for the company is not very high. For BS VI in 2020, all two-wheelers have to shift to fuel injection systems (FIS), while for commercial vehicles (CV), all engine sizes will need both FIS and selective catalytic reduction.
Bosch’s e-clutch system, which we think is a game changer, is delayed and will likely lose out to automatic manual transmission’ however, upgrading of norms in commercial vehicles should increase content value and drive growth in FY18e; hence, we retain our ‘hold’ rating. We value the stock using DCF, resulting in our TP rising to Rs 22,300 (from Rs 21,000) as we roll forward our valuation to June 2016.