M&A Critique

BOSCH on the path to an exciting journey

Combining innovation and focus on core business, Bosch India has been able to maintain its leadership despite many macro and micro headwinds.

Bosch Group is a leading global supplier of technology and services. It comprises of Robert Bosch GmbH and its roughly 440 subsidiaries and regional companies in 60 countries.

BOSCH has been successful in creating value for its promoters and shareholders.
Bosch has been operating in India for more than nine decades through Bosch Limited. The business divisions of the company include diesel systems, gasoline systems, packaging technology, power tools, automotive aftermarkets, starter motors & generators, energy & building solutions and thermos technologies and security technologies.

The company’s non-automotive business (Others) comprises of Industrial Technology, Consumer Goods and Energy and Building technology. Over the last five years, non-automotive segment’s contribution in total revenue increased marginally from 10% in 2011 to 13% in 2016.

Table 1: Revenue Contribution (All Figures in INR Million)

Particulars Automotive Others
Revenue92,84113,481
EBIT15,716805
Capital Employed13,2892,304
RoCE118%35%

Restructuring during last 5 years

2012

After an agreement between Robert Bosch GmbH and SPX Corporation, USA in January 2012, the company had acquired Indian unit of ‘Service Solutions’ business from SPX India Private Limited in December, 2012 on a going concern basis for an aggregate consideration of Rs 9.9 crore.

2016: Sale of Starter Motors and Generators business in India

In a move to realign its global Starter Motors and Generators division (SG), all the assets and liabilities pertaining to Starter Motors and Generators, transferred as a going concern on a slump sale basis for Rs 486 crore to a 100% subsidiary of Robert Bosch Starter Motor Generators Holding GmbH.

This division was started in 1989 and it broke even in 2013. Despite contributing 10% to the top line, EBIT contribution of the division was only 1% to the Bosch Limited’s total EBIT.

Wealth Creation for shareholders

Capital Appreciation

Last five years were exceptionally good for shareholders. Bosch Limited’s share price soared 200% as against the 30-share S&P BSE Sensex, which registered double-digit growth rate.

Dividend

Table 2: Dividend Pay-out Over the Years

YearDividend per share
201250
201360
201455
201585
201685
Total335

In 2015, the promoter, Robert Bosch GmbH received Rs 190 crore in the form of the dividend. In 2016, Bosch maintained the same dividend.

Buyback

With the free cash flow, if the company has no acquisition opportunity then, it’s only option is to go for a buyback.
In August 2016, the company announced the buyback of 8,78,160 equity shares representing 2.79% of pre-buyback equity share capital of the company at Rs 23,000 per equity share amounting to Rs 2019 crore. Promoter Robert Bosch GmbH offered its share for the buyback. Out of total shares offered for buyback, 95.3% of total shares were offered by the promoters. As result of the buyback, promoters shareholding decreased to 70.49% from 71.18%.

Financials

Please note that 2014-2015 represents 15 months’ period starting from January 2014 to March 2015.

Table 3: Capital Expenditure & Free Cash Flows (All Figures in INR Million)

Particulars2016201520132012
Fixed Assets12,86912,43513,77712,716
Depreciation3,9505,4843,8423,670
Operating Cash Flow13,25913,94210,5709,591
Capital Expenditure4,3844,1424,9037,262
Free Cash Flow8,8759,8005,6672,329

Table 4: Other Financials Year-Wise (All Figures in INR Million)

Particulars2016201520132012
EBIT %16.95%15.84%13.80%14.97%
Borrowings1915551,3161,850
Net Worth82,80773,47062,94355,733
RoE15.05%18.21%14.06%17.19%
Capital Employed82,99874,02564,25957,583
RoCE22.45%27.07%19.56%23.47%
Total Assets1,14,9561,04,30888,91079,039
Fixed Assets Turnover Ratio0.961.211.021.14
EPS397426282305

Conclusion

Over the years, Bosch India’s focus and investment in technology paved the way for it to maintain its position. However, it generates free cash flow almost equal to PAT (as capital expenditure and depreciation in last three years are equal) which it does not need for expansion. If the company has no acquisition opportunity or plans, then the only option available is to go for frequent buyback as permitted under the law to compensate its shareholders. Bosch group has eight other group companies in India. It may also consolidate one or more of them if any of them need cash for expansion and in the process payout to holding company or increase its stake in the listed entity.

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Aniruddha Jain