Bosch Limited analyst Q&A

No, we do not have any further updates on the implementation date. At least we have not heard of any further changes there.

So, as of now that 1st April 26, there is no change as of now, sir?

Yes, that's where it remains. We have not heard of any further changes. If there is any update on that from the government, we will certainly let you know.

If anybody has any question, please raise your hand. Mr. Lakshmi Narayan an, you can unmute and ask your question.

This is Lakshmi Narayanan here. I think two questions I have. One is, I just want to understand, our employee cost has been elevated as a percentage of revenues. What band of employee cost as a percentage of revenue you normally targeted?

Okay, I would take this. So in the employment costs in this quarter, it's mainly coming out of we had a very good turnover in our service projects where we have the service projects is R&D projects with our customers. And therefore, you can see one portion which is going, for example, for testing into the other expenses. And the other portions, these are the engineering costs, are going into the personal costs. So therefore, or due to the fact that we had in this quarter a lot, I think it was all over 27 projects which we have closed for this year, for the calendar year, we have over proportional bookings in the employee costs as well as in the other expenses. These are the counterparts of the income from services.

Well, in a steady state, of course, also depending on the product mix, we are seeing on the current product mix roughly 10%, I would say. It depends all the time a little bit on the product portfolio which we deliver in this month, 10% on the mid-run is normal figure. Currently we have a very good productivity also, so 8% to 10%.

And another question is pertaining to your rental income. Just want to understand the first nine months, what has been our rental income or income from rental properties and when compared to last year nine months, how is it?

Yes, so what we see in the rental received, we have mainly the Adugodi of course, where we also offer office space to other group companies. And this is of course in accordance with the market prices, the rentals, they will be updated every year. And the rent received was more or less April-December ‘24 to April-December ‘23, marginally lower. But this depends how much of his demand do we have all the time. Sorry, it is slightly higher by 6.5%. Sorry, it's the other way around. We have a slight increase coming out of the yearly check, the rental rates that we rent it out to comparable market prices.

So, for last year, for the full year, you had almost 1, 569 million. So, for the full year, and you anticipated to be around 7% higher?

Yes, exactly. So, we could rent out some more offices. And in addition, the adjustment of the market prices for the rental fees.

And regarding this sale of the building technologies division, can you just tell me what is the profit contribution they have to the overall Bosch and what kind of cost associated and how does one look at it for the next financial year?

It's a very small business. About the revenue that goes out is about Rs. 450 crores. We have how much? Rs. 400 crores approximately, that's the revenue that goes out. And the profit is also quite small, it's 6%.

So what kind of cost it would actually have so that just to understand whether the impact on our margins next year when this is actually gets re-based?

About 6%. Margin is about 6%. It’s not a major impact on our business operations in any way. My part of the business remains, a major part of that building technology in businesses is being sold.

Last question is a little long term. So, if you look at what we hear from the slowdown in Europe and we see that there is a movement of manufacturing from Europe, particular Germany to other parts, especially India. So how do you look at it and what has been any kind of capacity build up here actually making to utilize this opportunity for Bosch Global? And any thoughts on that?

Yes, I mean, this is something we constantly assess as you're probably well aware, the Bosch operates in what's called the International Production Network concept. India is well integrated into that the International Production Network and is fully visible in that network. We have full visibility of the rest of the Bosch International Production Network as well. We know what's happening globally in terms of slowdown, what is likely to happen as well. Not everything is known, of course. Things are very dynamic as you have noticed in the last 2 weeks , also there has been a lot of changes. These are things we are watching constantly, and we are planning several scenarios. We continuously do that. And our manufacturing colleagues are constantly looking at several scenarios on how to keep looking at what could be the right strategies to shift or have manufacturing shifted to India or things which are moved either in the midterm, short term, long term into India for manufacturing here. So this is something that's constantly ongoing topic and we constantly assess this. So, to answer you, yes, this is something on our radar all the time and we do this assessment on a very regular basis, and we keep track of this very regularly.

My question is that as the velocity of these discussions or the intensity of these discussions have increased in the last 18 months or so and how do we think about it?

Yes, I mean, this is at least for us, it's not something new. We've been having this discussion over the last several years already and they have only intensified for some companies in the last 18 months or two years, especially for some post COVID, but we've had this discussions for several years and we've had several relocation projects already ongoing. We continue to assess this on a very regular basis, see what makes sense, where does India have the right kind of base for either loc al manufacturing because the technology is also available here. The market is available here and we can locally manufacture and use it in India or locally manufacture, use it in India and export out of India. So, this is an assessment we constantly do. And then we take the next steps as we go forward. So like I said earlier, this is an assessment we do on a very regular basis and we keep updating this as part of our manufacturing strategy assessment all the time.

Thanks, Lakshmi Narayanan. Reminder to all the participants, anybody has a question, please raise your hand. Next, Mr. Pramod, you can unmute and ask your question. I think still he is having some problem. In the meantime, I'll take some questions from the chat box.

Can hear me?

Yes, now I can hear you. Okay, please go ahead.

Yes, thanks. Sorry for that. Sir, this is with regard to your gasoline engine portfolio, which you’re showing in the Auto Expo. It's interesting to see more of gasoline products being displayed as compared to your strength in diesel. And also many of the manufacturers have displayed new products to be launched in the CNG and also in terms of flex fuel. Wanted to understand from you, what are the real challenges your customers face, which you resolve in this area of operations, one. And how does your content per vehicle change here for supply like Bosch?

Sorry, I don't know whether I understand the second part of your question. How does…?

How does Bosch resolve some of the technical challenges these new fuels bring on board? And how does the content per vehicle, what supplies in the gasoline improve or change with these new technologies or new fuels?

I think it's hard to give a very generic answer on content for vehicle. I think if you are also at the Bharat Mobility show and you said you were, we've showcased our complete portfolio on gasoline injection as well. And that should have given you an overview. We have the full portfolio there as well and pretty good market share there too. So, yes, I think to answer your question, yes, there is more and more usage of this with our OEMs. A lot of them are going in this direction. And we continue to have more engagements with several OEMs, and this is increasing. Content per vehicle, of course, depends on several factors depending on whether we sell a system, whether we sell a component, whether we go just with an ECU, in some cases or another sensor or whatever. So, it actually depends on what we offer to the customer. So, it's very hard to say what exactly is the content per vehicle.

Thanks. And so, the second question is with regard to the aftermarket growth. It's good to see near double digit growth, almost like 8.8% in the first nine months versus your Company as the overall top line growth of just around 5%. Wanted to know what sub segments of this after market are driving it, in the sense filters or lubricants. What are these drivers for this aftermarket one? Second, why is considering that rule of thumb after market is supposed to be a superior profit margin business? Why is not fully reflecting into your profitability or EBITDA margins?

All segments of aftermarket have grown quite a bit, especially our diesel components, lubricants, filters, for OEMs and for exports, all segments have grown. We've had very good growth in our aftermarkets. And our margins have been very good with the aftermarkets like always. So, I would say the aftermarket business has been doing well . Yes, so the aftermarket business, the margins have been very steady and very good.

Because you have hardly seen some 30 basis point improvement in margins considering the growth variation.

Yes, it depends on the weighted average, right? So, it is the sales in that area. T he auto market sales volume versus what we had , what we had in the other areas. So that's why you don't see that directly. You want to comment? Sales de-grew quite a bit. Our power solutions area degrew quite a bit and that's why you don't see direct contribution on the margins this time.

So, of course, the growth in the aftermarket is helping us all the time in the overall EBIT. And as Guru already mentioned, we had a good increase in the sales of diesel components, but we also make some exports in the filters and lubricants. Meanwhile, if we look at a quarte r-to- quarter compared to the last year, we see in this quarter a slightly lower sales in the power drain solutions. We see good sales in the two-wheeler business. And if you then have the overall mix, of course, then we are still having a good development also of our margins.

Thanks, Pramod. In the meantime, I'll go for some questions in the chat box. So, first question is, we have had a sharp improvement in gross margin by around 350 bps Q -on-Q. Could you please explain the reason for the same?

Can you repeat the question?

There is a sharp improvement in the gross margins by 350 bps Q-on-Q. Could you please explain the reason for the same?

First of all, of course, if you see the gross margin it is depending on one time on the product mix. But what we also see is that we had a carryover effect of the RMI and ECI from the big customers. And in addition, of course, we are also working in the gross margins to make further improvement on the material cost side with our material ratio, with RPP measures, with engineering, etc. So it is not one single thing, it is a combination out of different measures.

Okay, so then there is a question. How does Bosch India plan to leverage its position in the automotive industry with the ongoing shift towards electric vehicles and the alternate fuel technologies like hydrogen? And also, there are some sub questions also on that. What are all the Bosch strategies for maintaining its position as the leading supplier of technology in the mobility sector, especially given the rapid technology advancements? And can you discuss some of the key innovations Bosch India is working on in terms of mobility solutions, particularly in areas like software development, hardware design, or hydrogen technology? And also, are we doing any work on hydrogen technology for global Bosch?

I wish you were present at the Bharat Mobility Show. Whoever asked the question, we would have been able to share. I mean, we shared a lot of our technology demonstrators and products and our software and hardware. You would have had a first-hand look at what we had to show. So, it would have probably convinced you better rather than me orally telling you something now on the call. But let me try and answer you briefly. See, we've always been a Company which has invested globally 6% to 8% on R&D and that's been our core strength and that we continue to do 6% to 8% of our sales on R&D I meant and that is what keeps our innovation engine going all the time and this is something which is core for Bosch as a technology Company. We do this very consistently and over many, many years. And this is what keeps us ahead of many other competitors and keeps us in a very, very strong position in the auto tier-1 space. And also makes us one of the most preferred partners for our OEMs. In terms of advanced auto technologies, some of which you named, be it hydrogen, be it electrific ation, and even within electrification topics like silicon carbide or other technologies which go there or today topics on artificial intelligence or others. So, we do these advanced investments and just to give you a number on fuel cell developments today we have invested maybe over two and a half billion euro in Europe. And on electrification over the last 10-15 years, we've invested over 7-8 billion euro developing various products in this segment. So there has been a consistent track record of investments led development, which creates not just IP, but also a solid portfolio, which gives us a generational lead into products, technologies, and lots of advanced ability to go to customers and showcase and be a preferred partner to customers. So, this is what we do. And this is what we do in the context of being an advanced technology Company in the world. And we do the same also in the context of India. And where we leverage the strength of our parent by using platform developments which happen globally. We also use that in India. Sometimes we do local developments. Many times, we use developments which have happened globally, and we also use that to bring it into India. And then we also do totally local developments if it warrants locally. What is also unique in India is that we have a very big sister Company called Bosch Software Development Center, which BGSW which is about 25,000 engineers, which does a lot of software hardware and product development, which is one of the biggest software development companies for Bosch globally. And this does a lot of developments for us and helps us build advanced technologies for India, for the world, and also sitting out of here. So, in that sense, this has been part of our DNA. This is how it keeps us on the cutting edge, and this is what makes us unique. What is also unique in our context is that we are not just a design Company, we design to manufacture. We have a legacy of doing a lot of things which are highly manufacturable. So, we have an extremely strong design for manufacturing, and we do all our design strength into manufacturing. So, we have extremely good manufacturing capabilities and that's how we ensure that everything we design, develop and work with our OEMs is also very good with high quality, high volume manufacturing capabilities. So, this is the end -to-end manufacturing design led manufacturing capability of Bosch, which is what you see consistently over the last 130 plus years globally and in India already over 100 years now. I wish you were at the Bharat Mobility Show and there you could have seen flavor of this as well.

I would like to add and give you an also commercial perspective because in our purchasing organization, we have a dedicated group which are screening the Indian market for suppliers for the future, especially in the context of electrification and hydrogen. And this is not only in India for India, but we are working very close together with our German organization because what we are looking for the future is local for global as well. And therefore, we set up this a couple of years ago already this dedicated group and work from this perspective also on the topic.

Thanks for the detailed answer. And there were two questions on the same subject. So, what has led to sharp decline in consumer good margin this quarter? And where do we see the margins hitting going forward?

Yes, okay. The consumer good market, it is all the time a seasonal effect, and especially the consumer good market also at the calendar year. Dealers look at their inventories. We have all the time in December a quite low market, we can see this seasonal effect year -over-year. So therefore for the consumer goods, please have a look at the average and we don't worry that we will see in other quarters a very good take of our consumer goods.

Okay and then there is a question on the F orex. What is the Forex rate for import during this quarter? And is Forex pass through to the OEMs?

So, the exchange rate effects on the one side, of course, we are usually, as all other companies also doing a hedging. And in addition, yes, there are clauses in several contracts where we see where we have implemented this as well.

Okay. And then there is a question. So, you had previously mentioned that Bosch is looking at consolidating the automotive businesses in India. Is there any update on the same?

Yes, I mean, I don't want to jump the gun on any information as sensitive as this. If there's any update, we will let you know when the news is allowed to be shared. So, till then, I can't share such information.

Okay. Can you please explain the nature of the restructuring cost, and will this continue for coming quarters also?

Yes, okay. Thank you very much for this question. And we are looking forward of course, we have portfolio, we have more common rails, we have a very good plan, we have the plan to go further ahead with the productivity, etc. So, therefore, you have sometimes to make some adjustments. But this is not as a beginning of everything. So this is really we are looking now into the next year. We are looking forward to look at our product mix. We get new products in like the NOx sensor who has a comparable low value. And so, we look at the product mix. We look at our productivity, which we need to be competitive here in the market. And therefore, sometimes we have also to think about some adjustments.

There is a question on this building solution business. What is the rationale for divesting building solution business, and you indicated 6% margins. Is it a PAT margin or EBITDA margins?

This is the EBIT margin. And the first part of the question was the rationale. This is a product business, and therefore, we all the time also have to look at our portfolio and we have to manage our portfolio. And we have to see what is our core and what is our strategy. And we also therefore have to overall see the Bosch strategy.

So just to add to that, this was something which was announced already some time ago as part of a global realignment. It's not something new that we're doing. It's part of an ongoing process. It's realignment of our building technologies division globally and it's being carved out globally. And you may have seen that the building technologies division globally has been sold to venture capitalist Triton, and this is an ongoing part of that sequence and in India , we are doing it to subsidiary of our parent who will then take it back to Triton.

I will have to get back on the exact number. So, I don't have the exact number here.

And I don't know whether there is a question on eAxle project, status of the eAxle project or do we see any demand from the OEMs?

Yes, I don't know what do you mean with the status of the eAxle project because there are quite a lot of eAxle topics under discussion. So, we are talking about quite a lot of eAxle projects currently with several OEMs and since the projects are all under discussion with OEMs, I cannot be more open in a forum like this. But I can assure you that there are sev eral projects under discussion.

Yes, I'll just run through the questions. Any mis sed out I'll just ask. There is a question on this after sales. So, what is the expected growth rate in FY26 for the after sales division or business?

Yes, we typically expect between 8% to 10%.

Broadly, those are all the questions. Okay. No more questions. There's no more. Do you want to make any closing comments, sir?

No, I think it's been a tough quarter overall. I think in my view, we've done reasonably well considering the environment and the circumstances. I would say thank you for your attention and your questions. We hope the upcoming quarter is a good one. In view of the cyclicality, we expect it to be a much better one. Thank you everyone, and let's look forward to a better quarter.

We thank all the participants and the management. Have a good day.

Thank you, bye bye. NOTE This document is a transcript and may contain transcription errors. This transcript may not be 100 percent accurate and may contain misspelling and other inaccuracies. While the transcript has been edited for clarity, the Company takes no responsibility for such errors.