Yes. So thank you for the question. And yes, I'll give yo u a quick input on this business, and then our CFO will also add more. So this is a business we carried within our mobility aftermarket division, which was largely doing documentation and wiring and other work for OEMs specifically preparing such material for the aftermarket and service applications, our diagnostic applications. This business, we see that there is very little growth in the upcoming years because of the nature of the business, which is going largely online and changing the nature of the business moving into the future. And the business itself was relatively small part of the mobility aftermarket division. Globally, what is also happening is that Bosch through its sister company, ETAS has consolidated this business and will provide this diagnostic business directly to third -party companies. And we felt the integration of this business into ETAS in India was the right thing to do, and that's mainly the reason. This is not a business that we foresee to grow over the next years and the nature of the business and the kind of diagnostic applications that will come in the future of cars and vehicles will be more software heavy, which are handled more by the OEMs and the kind of things we did would not be the ones which would lead to further growth in this area. And that was primarily the reason for having it off. And if you want to add anything, Karin?
Bosch Limited analyst Q&A
Yes. Thank you very much. Yes. And based, of course, on the -- looking on it from the perspective of what is our core business, that we then followed our process of valuation from the buyer and the seller side. We also made a fairness opinion on it so that we have very good and stable proven process for this hive off. And as already mentioned, this was then the basis when we start to effective of 1st of July, we go ahead with the transfer of the business.
So the first question is from Gokul Maheshwari.
Sir, this first question. I have three questions. And with your permission, I would like to take them o ne by one. So one of the emerging technologies, which is fast gaining acceptance is hybrids. Can you please elaborate what role and what products does Bosch play in this technology globally and in India? And are you working with any of the existing OEMs which are offering this product in India? And what are these products?
Okay. Do you want to finish all your questions, so we can take it all together.
I would prefer it with one by one, if that's okay with you.
Yes. Okay. I'm fine with it. So we have a full range of -- see, okay, let me restart this way. Hybrids have seen recent emergence not just in India, but all over the world. And you know the new energy vehicles in China for example, constitute quite a significant amount of hybrids. It's not at least clear how long this phase will last before full battery electric vehicles will come in and -- or will become more prevalent, having already come in. But in the meanwhile, I think there is a limited time window in our view for hybrids. And we've always believed in that thing. And as a technology company, we have a full range of products for the hybrid market. So we offer the hybrid energy batteries. We have systems which are for different classes of h ybrids. We have from P1 to P4, all classes of hybrids cater to within our product technology. And this, we are offering also to the Indian OEMs. Currently, we are talking to several OEMs. Of course, the big ones who have introduced are using the Toyota hybrid system. And the other OEMs are very open to consider us, and we will -- we are already in discussion with several OEMs on the full range of our hybrid solutions to be offered.
Great. Secondly, in the past few quarters, you've been hi ghlighting the urgency to improve margins. And one of the key levers for that was localization, but are you finding it difficult to justify investment in localizations given the volumes could be still low and there may not be an economic sense to invest. B ecause when I see the gross margins for the company, this is a second consecutive year where we are at a 15, 20 year low gross margins. And this is despite the fact that the commodity prices have been fairly soft in the last 12 months. So my question is that where are we in terms of localizations? Or should we consider these gross margins as a new normal for the company?
Okay. So I'll give you my take on the localization and I'll also let my CFO add on the margins part. See, we've alway s believed in localization for the Indian market. And with or without a subsidy regime, which seems to be prevalent today, we've done substantial amount of localization for the Indian OEMs. In some product classes, we are nearly 90% to 95% localized; in s ome others, maybe we start at 30% and go all the way up to 65%, 70% going up to 90% towards steady state of that product class. So we've always believed in localization and we've invested in localization in line with that. And we know that our OEMs also fully support this time that localization should benefit economically. Otherwise, It doesn't make sense all the time. But of course, there are certain areas where there are government mandates on localization. And in that case, even if the technology costs e nd up to be higher than what it is when imported, we will go ahead and localize. And of course, our OEMs are supportive of that goal. So to answer your question, localization, we've never worried about localizing in India, and we've also not bothered about doing it only when there is a subsidy or incentive towards localization. We have always done it together with our OEMs as and when it is fully justified. Karin, do you want to add on the margins?
Yes. Perhaps, on the margins. And of course, what you currently see in our profit and loss is, yes, a sort of mix because on the one side, we have what we see to come from the conventional products to the common rail products. And as my colleague already said in the conventional product, which we ar e doing for decades already, here in India. We have, of course, a very, very high localization rate already. In the common rail, we are working on it. We are comin g up in the localization rates. So therefore, of course, you see this in the gross margin and in addition, besides the finished goods, it's also a component. We are working on the supplier development, even for very complex parts. Meanwhile, in India, we have the plans or the -- we have decisions made already in the direction of the exha ust gas treatment for the future, which we will start in the SOP in the upcoming years. And I would like also to give you a very good example where we were successful in localization also for export volumes, and this was your question regarding the need. Of course, the volumes of the Indian market, but we also have chances in the export business. And here, we have a very good example, for example, spark plugs where we not only produce for the Indian market, but we also have also export business, and we wer e very successful here in the localization. So to summarize, we are going at with a localization because we deeply believe that this is one of the success factors for our company for the future.
Just a follow -up on that. In that case, and our localization as it plays out over the next 2, 3 years, should we be expecting the benefits of that to convert into slightly higher gross margin over the 2- to 3-year period that they should be trending up?
Well, without giving you a guidance, let's say, of course, whenever you have a localization, we are not doing localization because of localization, but in the end, of course, we would also like to see the result in our figures.
Okay. Lastly, this is not a question, but more of a feedback/observation. There's one more related party transaction done. And I know you have followed all the procedures with respect to appointing a Big4 firm and following the valuation norms. I'm not doubting that intent, but unfortunately, it just creates a wrong perception where we end up incubating certain emerging businesses, and then we sell it to the unlisted firms of the parent terming this is noncore. So just as a feedback, whenever you're making future capital allocation decisions, you may just want to be investing in business which accord to your strategy, and we would want to prevent situations like this because this is sort of ending up taking up negatively by the capital markets. This is just my feedback. So these were my questions.
Maybe just a quick response on that. See, yes, you perceive it that way. But we are, as already indicated a couple of quarters earlier, we are looking at an overall portfolio restructuring internally. And what -- and this is done not just in India, but also at Bosch globally in terms of how to set up things for success for the OEMs and for us. And in that context, there are some parts which don't belong within Bosch Limited, which are small, which occupy a lot of effort, but they don't really add future revenues or growth and it's better in terms of management focus to cut down on such and bring in topics which are much more relevant for the future. So keep tuned and we will let you know how this develops as we move forward in terms of what happens for Bosch Limited.
Sorry, in that context, any more realignments to be done at the portfolio level or you're largely done with them?
No, I won't say it's all done. So we will give you as and when the information is public, we will let you know. We are working on this and together with the Board, we'll let you know.
The next question will be from Jinesh Gandhi.
Hello.
Yes. We could hear you.
So continuing on the localization question. So would you update us on the new facility, which started about 2, 3 quarters back, to what level it has ramped up and by when it is expected to be fully ramped up?
Sorry, could you clarify a bit the new facility you're referring to something?
Primarily, the localization of CV -related components, which started, I think, about 3 quarters back to what level it has been ramped up?
Yes. And I assume you re fer to the localization of the commercial vehicles, so -called injector for the commercial vehicles, which were we have ramped up a line in Nashik.
Right. I'm referring to that.
Yes, exactly. So we have a very good ramp -up of the line of the assembly interesting. Meanwhile, we had last year or in this financial -- in the last financial year, we had a ramp -up of the component business. We are going ahead with the localization of third- party suppliers also for the raw materials, et cetera. So overall, localization is ongoing, we have done the main steps already. And for us, of course, now it's crucial that the commercial vehicle market will grow and that we can use all our facilities and all our localized products in India.
Okay. And you also referred Karin, regarding EGT also being localized. So when is the SOP expected for EGT localization and this would be at Bosch Limited level? Or at the vendor level, we are doing this?
Yes. Okay. So let's say the li ne is on the way, and we expect SOP, the start of production in April '25 because you have to understand that these are quite complex lines. And -- but it's on the way. It's decided. It's ordered SOP April '25.
Okay. And this is at our end, and not at the vendor's end.
No, this is at our end.
Yes.
Got it. And second question pertains to the TREM V norm. So are we getting any clarity on by when it will be implemented? And in that context, would we need to invest in new capacities for localization or there is existing capacity, which is available?
I would say, in general, capacity is available. The current indication is April '26 for TREM V introduction. We hope that standard does not get pushed. It's possible that it's plus minus one quarter earlier even. So we are hoping that by '26 first quarter, second quarter, we should be in with TREM V.
And we'll be starting with a very high level of localization over her e, considering we have already localized the CV part. So would there be any commonalities or we would like to start from next on localization for TREM V?
We will start with a fairly good level of localization here.
Yes. That's great to know. And lastly, if I look at our EBITDA margins, improvement on Y -o- Y basis has been quite small, especially considering that we have seen -- we would have seen some benefit of localization. And also there was benefit of divestment of dig ital mobility business. So are there any one-offs or am I missing anything over here?
So you referred to the EBITDA margin, yes.
Right.
Okay. So financial year to financial year, we see an improvement, of course, coming from the EBIT improvement, and we see a translation of our EBIT improvement translated into the EBITDA, of course, with a little bit more depreciations mainly coming out of the auto body campus here. You see an increase in the operation profit by 4.6%.
So you have to see that the investment and you are referring to the proj ect mobility house, it is after the EBIT. It is below the EBIT and the EBITDA. It is between the EBIT and the profit before tax. So what you see in the EBITDA is really the operational development in the profit.
Next in the question queue will be Lakshmi Narayan.
Two questions. First is in terms of our exports, I just want to understand what has been the mix of exports for this year? And I think in one of the conference calls, you mentioned that you are pushing exports as a lever for a slightly longer term. I just want to understand that particular part. What's the mix of exports this year across various product lines? And second, any new initiatives that have come up recently?
Okay. So exports currently for FY '23-'24 stood at 8.1% overall of our total net sales. And we are working on increasing this over the coming years, but currently, it stands at 8.1%. So our approach is that we continuously look at opportunities to increase exports over the coming years.
And of course, if we link this also to our approach of localization, because it is also important for us, if we want to go ahead with the exports that we are competitive and therefore localization in India and the value at India is a very crucial point for us.
Lakshmi, your questions are over?
I think he's dropped off.
Sir, I'll read some questions from the chat box. When do we expect implementation of OBD 2.2 per two -wheelers as per government notification? Will there be a significant technology upgrade for the OEMs?
Okay. Give me a second, it will be an upgrade for the OEMs for sure. But the OBD 2.2 norms should be applicable in 2025.
Okay, sir. And another question from the chat box is by when do we expect hydrogen ICE to see inflection point?
Okay. So hydrogen ICE is currently undergoing design maturity phase with most OEMs. We are working with them quite closely. Almost all our OEM partners have now trucks running within their premises or on the streets. We also ourselves have a truck ready and that's undergoing our test. The component maturity will take a while, but that's not a bottleneck at all. We expect between 10% to 15% of all trucks sold by 2030 to be with hydrogen ICE technology.
There is another question on EV. Any updates on EV order. What percentage of our FY '24 revenue will be from electric vehicles?
We don't divide it that way, but yes, do we have a...
We don't have a number on that segmentation, but -- we are continuing -- all I can say is we are continuously increasing our EV share. We are already quite good with our EV percentage in two -wheelers. We are now in serious conversations with several OEMs on eAxles and electronics for the electrification in our business, and that trend is continuing. So we are on a good path. And in the coming quarters, you will also see them clearly announced.
Yes, there is a person on Building Technologies, sir. Karin was looking to diverse Building Technology business as per October '23 release. By when do we expect this to go through?
We expect this to go through by Q1, Q2 of 2025.
Okay. Next in the line will be Viraj.
Questions, first on the realignment of portfolio in line with what Karin has been communicating. Will the realignment will largely be of some of the businesses growing after the listed entity or it also would include -- some of the other adjacent products or businesses of other group companies in India coming into listed entity.
I would not speculate at this point of time on anything. These are portfolio discussions that are currently ongoing, and we will keep you updated as things develop.
But is there a time line to it? Because I think the Karin was talking about by CY '24, most of the alignments to be done. But so in terms of the listed entity, do we have internally any time line?
No, I wouldn't put a time line on it. I would say this is an ongoing portfolio realignment overall. And yes, if I were to give you a broad time line, then maybe it's the next 1 year. We will see some amounts of portfolio readjustments continuing to happen.
Okay. Second question is, in the past few years, we've been talking -- we've been giving some guidance in terms of what we expect the growth. And similarly, in terms of capex and the R&D. So for 2025, what would that be for us?
So on an average, we've had a capex of between INR 400 crores to INR 600 crores -- INR300 crores to INR 600 crores, if I can be broade r year -on-year. And this is a trend that we will continue. We believe this is something that is needed year -on-year for us both to include localization and other capex. So this is something that will continue.
And in terms of the R&D and the expectation for growth this year?
Yes. Again, bordering on guidance, but I would say the growth of FY '23-'24 is something that we are looking forward to also in the upcoming year. The first quarter could be a little slow because of the election effects. We have seen that already in the market right now. And there is also a little bit of a liquidity crunch for some of our businesses in the market. And these things should be resolved by June. And after that, we expect a very good year for the r est of the year. So overall, we see continued improvement in our margins and performance as we move forward.
Just two more questions. One is on the opex part. I think one of the earlier participant was also trying to understand. In last few quarters, we had this investment in P&L from the project House Mobility. And I think on an annual basis, we had around INR120 crores, INR130 crores of losses, which we are investing in the business, which is not bad. So what -- if that is not reflected in other expenses, then what explains the drop in other expenses on a year -on-year basis?
Well, I think we have -- in the other expenses we have, as you rightly said see -through topics. One topic is that we do have a lower spending related to the new business, which we hived off. On the other side, we also put in place cost measures, which are sustainable. And of course, what we also have to see in the other expenses besides the variable costs, which we are in line with the growth that we have in the other expenses, also some fixed costs, which we would like to grow under proportional compared to the revenues. So overall, let's say, we are working further on the other expenses because we see this also as a very important topic to the -- to our competitiveness and, of course, to profitability. Nevertheless, I think we are already on a good way. We were in April, March 2024 on a 14.7%, comparable in '23, 16.8%. S o besides the lower spending and, of course, some more costs variable due to the growth, we also see that our cost measures are well fit in the base now.
Okay. Just last part. It's again on the localization piece. I'm just trying to get more perspective in terms of how we had Bosch look at it. So when you say localization, is there a change in terms of approach versus the past, say, where we used to kind of localize a lot more internally vis-a-vis outsourcing or local vendor development in India. And why I'm asking this is, in the past, we communicated that we will be looking to spend somewhere between INR 300 crores, INR 400 crores to INR 500 crores, INR 600 crores. And that figure also included the PLI, which we were looking to participate. So roughl y around INR200 crores per annum. But when I look at, say, FY '24 also, our spend is very meagre INR300 crores, INR 350 crores odd and that is below the depreciation which we have on annual basis. So somewhere the optimism of the localization, which we alw ays talk about, that doesn't get reflected in the numbers per se. And when we look at the product level margins, which we own at Bosch for a proprietary product, it's much below than what other auto ancillaries in the commoditized products on. So it seems a big disconnect. So I'm just trying to understand, is there a marked shift in terms of how we look at localization. And if that is the case, then how one really perceive the use of cash. So these are two parts of the question.
Yes. There's actually no new view on the investment. If I look at the capex 2023 or for the financial year, then we see -- I informed you already we got the new product, the NOx sensor, which is very important in the exhaust gas treatment. What we are looking at, of course, is how can we prepare ourselves or how can we adjust our existing machines? And how can we upgrade to new generations? What we are doing is that we are using already invested lines and machines and via upgrade to make them a fit to the new generations. So there is no change in the investment policy. Localization is a key also in -- as you rightly said, third-party supplier development as well as in our own plant. And therefore, there is no change. Localization and investment, what we have to invest, we invest.
Just to put it differently, say I'm not talking about very near term, I am talking at more next 3, 4, 5 years. For you to achieve the level of localization, which you already aspire, like you talked about 85%, 90% in the past. What is the level of capex , one would require in the business? And if the capex intensity is not much because of refitting, upgrading, which you're talking about, then what is the use of cash we are looking for?
So the -- we've estimated that our capex requirements will be in the region of INR400 crores to INR600 crores.
Okay. And in terms of the use of cash, sir?
In terms of usage of cash, you mean our reserves?
Yes, we have a sizable surplus cash on th e balance sheet and even post the capex , it will just keep on building up.
Yes. So there is certainly a plan that's being worked on. And as soon as we are clear with it, we will let you know.
Can we take only one more caller, sir?
Yes, sure.
Yes, due to lack of time. And the last person will be from Mr. Sonal Gupta. I think he's not able to ask the question.
Probably dropped out.
Can we close or I'll go for one more question, sir?
We can close for today.
Okay, sir. Do you have any closing comments, sir?
No, I think we are on a good path in my view. Overall, there has been a cont inuous improvement in our performance, and we will continue to keep this momentum going for the future.
Thank you. Thank you everyone.
Thank you. Bye-bye.
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