investment idea: BOSCH CHASSIS ( formerly Kalyani Brakes )

BOSCH CHASSIS ( formerly Kalyani Brakes) is a part of the Robert Bosch group , Germany after Bosch in June 2005 signed an official agreement to purchase Kalyani’s stake for Rs2.75bn (US$63m), boosting its own share to 80%. Bosch and Kalyani Group owned a 40% stake each in the joint venture, while the remaining 20% is held by public shareholders. After completing the share transfer, Bosch has renamed the company Bosch Chassis Systems India.

The company manufactures hydraulic and air brakes and brake systems for light and heavy commercial vehicles and passenger cars.It produces brake systems such as tandem master cylinder, front caliper assembly, etc,. and supplies them to Original Equipment Manufacturers.
Bosch also plans to extend its worldwide manufacturing base for modern braking systems to India, including manufacture of the antilock braking system (ABS).

Shareholders (percentage ownership)
Foreign Promoters/ Collaborators 80.00%
Indian Public 11.92%
Private Corporate Bodies 3.87%
Mutual Funds & UTIs 2.63%
FIIs 1.43%
NRIs/OCBs 0.14%

INVESTMENT RATIONALE :

1>The effective acquistion price of Bosch Group works out to Rs 685 per share .The acquistion is not a trading investment. We have seen that whenever Bosch Group has started buying out from the open market as in the case of MICO which happened 4 years back the stock price has zoomed close to 10 times now from those levels.Heuristics makes the beleif stronger for this case.

2> Kalyani Group's exit was a part of overall strategy to focus on core business( Bharat Forge)
and not a desparate sell-off.

3> Low liquidity of stock.Prices can get driven up fast whenever the market realises the potential.

4> Huge potential of India as an auto outsourcing hub and low cost destination.
The Indian auto-ancillary sector has grown at a CAGR of 16% over the last eight years
(FY06 revenues at US$ 10bn). Exports accounted for 18% of revenues in FY06 and
have grown at a 24% CAGR over the period. US and Europe each account for 30% of
exports.
Over the next five years, the sector’s domestic revenues could grow by15% and exports
by over 30%. Several global auto OEMs/vendors are running into losses
due to competition from Asian OEMs, and wage and environment dynamics in those markets. More than being a strategy, outsourcing has become a survival issue for these companies.
Labour-intensive components will see maximum outsourcing as wage costs of global vendors in forgings are around 30-35% compared to 6- 8% for Indian vendors. India ranks ahead of China in cost competitiveness due to higher degree of engineering and processing skills in forgings, castings, stampings, and engineering services.

VALUATIONS:

Return on Total Assets (ROTA) 12.23%
Return on capital employed (ROCE) 23.17%
Net profit margin 8.81%
Current Ratio 1.16
Quick Ratio 0.91
Gearing Ratio 81.66
Interest Cover 55.91


Company Sales (rs cr.) PAT (rs cr.) Market Cap (rs cr.) PE P/BV
Amtek Auto . 655.53 92.85 3,680.30 25.7 4.41
Bosch Chassis . 365.63 32.43 881.24 15.4 8.77
ANG Auto Ltd. 19.00 1.01 327.39 34.2 1.41
Rane Brake 139.44 19.08 139.03 10.1 22.70

Thus we see Bosch Chassis depite superior parentage appears cheaper than its
peers on the basis of PE , P/BV and Sales/ MktCap .
With the macro signals positive and earnings visbility for the auto ancillary its
valuations are decent.


RECO: A BUY at current levels of INR800 and an accumulation at every fall with a medium to long term perspective