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Bosch's stock may peak out soon


Auto component player, Bosch, has been buzzing on bourses due to better than expected operational performance in March 2012 quarter and optimistic outlook expressed by the management. The stock touched a new high today at Rs 9,190.

The management expects revival in the automobile industry in second half of calendar year (CY) 2012 aided by a lower base and expects to grow better than the industry rate. It has earmarked a capex of Rs 700 crore in 2012 or an addition of 66% to CY2011 gross block of Rs 1,061 crore. This will be followed by another Rs 600 crore in CY2013. Further, it targets to add 50 service stations each year to its current network of 500.

However, all these positives seems to be priced into the company’s stock price, feels Divyah Ahooja, analyst, Karvy Stock Broking. The stock has had a phenomenal run in 2012 till date with gains of 34%. Based on analysts’ target price estimates of average Rs 9,667 there is an upside of less than 10%.

Disappointment in terms of slower sales growth--10% in March 2012 quarter compared 16% in nine months ended December 2011--was shadowed by substantial improvement in margins especially at the operational level (up 220 basis points).

Going ahead, challenges like slowing demand in domestic market, recession in Europe (60% of total exports which in turn form around 15% of overall sales), rupee depreciation (company is a net importer) and upside risk to input costs will negate the positive benefits of measures like cost rationalisation and increased localisation. Yaresh Kothari, analyst, Angel Broking maintains accumulate rating on the stock.