BHEL, Bosch now enjoy the same market cap

Bosch India, the largest auto ancillary player in the domestic automotive industry, has surprised the Street with a 104 percent rally in its stock price from the start of the year.

The stock has had a dream run, adding 35 percent gains in just one month. A recent entrant into the F&O space, Bosch has added another 15 percent since it got added on November 28, 2014.

Sitting at its 52-week high today, the company now commands a market capitalization of Rs 65,000 crore, equaling that of capital goods major BHEL. While Bosch in its own right is a behemoth in the automotive component industry, its sales and profits are one-fourth of BHEL.

For FY14, BHEL declared revenues of Rs 38,388 crore and profits of Rs 3,461 crore while Bosch’s FY14 sales and profits stood at Rs 8,820 crore and Rs 885 crore, respectively. Bosch now trades at P/E of 41.8x CY15e while BHEL, India’s largest BTG player with an order book of over Rs 1 lakh crore despite rallying 54 percent YTD, trades at 17.5x 1 year forward. While it may be a case of comparing apples to oranges, the Street seems to be putting more faith in the faster revival of auto and auto – ancillary sector.If you dig deeper, it is not just a case of blind faith – the Street it seems, finds more comfort in the stability of the financial performance seen in the case of Bosch. Even during the downturn, Bosch continued to deliver around10 percent revenue growth and managed to hold on to its pricing power. While Bosch’s margins have suffered a setback of 400-500 bps during tough times – the bounce back has been much sharper on account of company’s strategy of diversification across product categories, high entry barriers and its premium MNC status.

On the other hand, BHEL has suffered from 8 consecutive quarters of steep revenue decline, big erosion in its pricing power and almost a 1,000 – 1,200 bps collapse in margins (due to huge capacity underutilization). And there are no signs of recovery, well not yet!Bosch India is now also the only listed subsidiary of the global group Bosch – anywhere in the world – building a case that the group may want to de-list Bosch India as part of its global orientation to keep subsidiaries unlisted. Which would mean, that even in the worst case scenario, the downside on the stock would be capped. Although this may be a far-fetched possibility at this time, analysts are factoring in that the next upside in the stock price will come from the recovery in the commercial vehicle (CV) sector.No such luck for BHEL in the short term, but despite leveling of market caps – it’s a tale of two sectors for Bosch India & BHEL.