Bosch : Q3 F.Y 2022-23 Earnings Call Transcript

"Bosch Limited Q3 FY23 Post Result Conference Call"

February 14, 2023

MANAGEMENT: MR. SOUMITRA BHATTACHARYA - MANAGING

DIRECTOR, BOSCH LIMITED

MR. GURUPRASAD MUDLAPUR - JOINT MANAGING

DIRECTOR AND CHIEF TECHNOLOGY OFFICER -

BOSCH LIMITED

MS. KARIN GILGES - CHIEF FINANCIAL OFFICER -

BOSCH LIMITED

MODERATOR: MR. ANNAMALAI JAYARAJ - BATLIVALA & KARANI

SECURITIES INDIA PRIVATE LIMITED

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Bosch Limited

February 14, 2023

Moderator:Welcome to Bosch Limited 3Q FY '22-'23 Post Result Conference Call hosted by B&K Securities. I also take this opportunity to welcome the senior management team of Bosch Limited. We have with us today, Mr. Soumitra Bhattacharya - Managing Director; Mr. Guruprasad Mudlapur - Joint Managing Director and Chief Technology Officer; and Mr. Karin Gilges - Chief Financial Officer.

At this point, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the management's presentation and opening remarks.

Also, may I remind you of Safe Harbor. The company will be making some forward-looking statements. That has to be understood in conjunction with the uncertainty and the risks that the company faces. Over to you, Sir!

Soumitra Bhattacharya: Thank you, Annamalai Jayaraj. A very good afternoon to all the colleagues who are participating in this call.

Today, I would like to brief you a little bit on the macroeconomic policy as well as what's happening on the automotive market, and then I will walk you through our financials. And finally, I would like to tell you something about the quarter relating to our business.

The global economy is facing a significant down risk on the growth with persistently high inflation. If you look at India and its economy, IMF expects for the FY '23, a real GDP growth of around 6.6% to 6.8%. India is expected in FY '24 to be anywhere between 5.5% to 6%. And of course, the government has a continued focus on CAPEX as you have seen in the budget, while, of course, also trying to balance and reduce its fiscal deficit.

The overall automotive market production has increased by 17% or (+17%) year-on-year in the current quarter. This, of course, excludes two-wheelers. And this is on a low base of Quarter 3 FY '22.

The robust order book across pass car OEMs on a strong festive-led retail across the segments, inventory destocking that has happened amid a calendar year change, and continued correction of commodity prices were some of the key highlights of Quarter 3 FY '23.

Pass cars segment has outperformed other segments growing by a plus 21% year-on-year, volume growth supported, on one hand, by easing chip supplies to the past. On the other hand, I have to also say that the supply chain on semiconductors and chip are still extremely vulnerable, and the inventory levels on the supply chain very low.

However, based on the past quarter relative easing, we have seen a healthy order book. And we have seen also, relatively, the longer waiting periods have got reduced. The two-wheeler segment has been stable on a year-on-year basis, albeit nowhere near the past records of 25 million. We expect in the fiscal year '22-'23 to be about 20 plus million.

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Bosch Limited

February 14, 2023

LCV segment at plus 5% year-on-year, and the HCV segment has grown on a plus 20% year-on year, albeit on a low base. On the ground situation, there is a steady fleet utilization levels, which are healthy. And this is primarily led by healthy economic growth, including infrastructure activities.

The tractor segment grew on a (+6%) year-on-year on a high base. The three-wheeler is on a recovery path with shared mobility picking up, albeit the peak of FY '18-'19 far away to be reached.

Let's have a look at the automotive market outlook for '23. In this slide, the rows represent a particular segment. For instance, the first row recommends the pass cars followed by HCV, LCV, tractors, two-wheelers,three-wheelers, respectively. The first column represents 2018 production volumes, which is considered to be one of the best years in the Indian automotive industry.

The second column represents the year '2020 production volumes. The third column represents 2021 production volumes. And of course, the fourth column gives the 2022 actual volumes released by SIAM. And the fifth and sixth provides low and high scenarios based on how we look at GDP growth.

Based on the numbers in 2023, industry will grow, albeit, of course, at a slower pace over 2020. This can be attributed to multiple factors. For example, the instance of slowing down in the pace of GDP growth, the higher base of 2022, and a more stable demand as opposed to a pent-up demand, which happened in 2022.

The bulk of the growth across the segments can be attributable to the replacement demand. Within PVs, we can continue to expect a shift towards utility vehicles. Within HCVs, we are seeing a shift towards higher tonnage vehicles. And LCVs continue to grow giving the increased last-mile transportation requirements, mainly, intra-city.

The tractor segment is expected to witness a minor degrowth, of course, on a high base, while two-wheelers will continue to grow, and though it will be well below the 2018 peak, which I spoke about.

Within two-wheelers, we will continue to see and witness the growth in greater segments than the 125 cc variants.

Let's have a look now at how the company has performed in October-December '22 quarter compared to October-December '21 amidst all these above economic and automotive sectors. The overall revenue from operations for October to December stood at INR 36,599 million, which is an increase of 17.7% on the comparable basis of the corresponding period of the previous year.

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Bosch Limited

February 14, 2023

Here, the automotive sales have grown by 21.2%, largely driven by powertrain solution, while the non-automotive sales have increased by 2.9%, largely led by the Consumer Goods division.

Overall product sales have increased by 18.8%, primarily on account of improved market demand and positive consumer sentiment.

Income from service is mainly comprised of R&D services provided to OEMs and Bosch Germany. While billing for R&D Services was set at a healthy level, income recognized in the books based on customer SOP dates was INR 1,701 million. Balance income would be recognized in subsequent quarters on the project completion days of the customers.

Other operating income mainly includes income from lease rentals and miscellaneous income, and export incentives. In the quarter, the increase is mainly on account of recovery of central regional charges and rentals owing to additional income from the leasing of our smart campus, which we call as Spark.NXT campus.

Our material cost as a percentage of total revenue from operations is at 60% in October to December 2022 as compared to 60.8% in October to December 2021. However, when you look at material cost as a percentage of net sales, that is excluding income from services and other operating income, then material cost is at 64.9% in October and December 2022, as compared to 66.4% in October-December '21.

The reduction in material cost percentage is greatly on account of actualization of the year end closing inventory. Post restructuring that we have done, the employee cost has stabilized at a level of INR 2,700 million to INR 2,800 million per quarter. However, as a percentage of total revenue from operations, this looks low at around 7.4% due to higher revenue in the current quarter.

Let me share a few elements on the other expenses. Other expenses stood at INR 7,890 million, which is approximately 21.6% of the total revenue in October-December '22 as compared to INR 5,700 million that is 18.3% of the total revenue in October-December '21. The reason for the increase is that the current quarter has seen certain one-time impacts in our expenses.

For example, provision was made for special warranty for customer claims on certain field complaints for automotive products. This amounted to approximately INR 350 million. Exchange rate impact due to depreciation in the INR versus the Euro and the USD amounted to approximately INR 300 million.

We also increased our spending in these areas. We have told you earlier that we were doing new business areas in the project of electrification, mobility solutions, as well as hydrogen. And this amounts to approximately INR 250 million. And we have a few other higher spending also in this quarter.

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Bosch Limited

February 14, 2023

The depreciation for the current quarter is INR 1,083 million, which is 3% of the total revenue as compared to INR 851 million, which is 2.7% of the total revenue in October-December '21. Increase in depreciation in current quarter is a majority on account of depreciation impact on the capitalization of our smart campus, which we call as the Spark.NXT campus, and the plant and machinery localization of new products, which was done also in July-September '22.

With this, our operating profit stood at INR 2,954. Million in October-December '22 as compared to INR 2,723 million in October-December '21. So, while EBIT was at 8.1%, EBITDA was at 11%.

The other income primarily comprises of interest on fixed deposits and change in market value of mutual funds, which are debt based. The other income has increased from 804 million in October-December '21 to 1,312 million in October-December '22 on account of higher mark-to- market gain on mutual funds, as well as higher FD interest income, as all of you know that FD interest rates have firmed up.

For the quarter ended October-December '22, your Company posted a PBT or profit before tax of INR 4,276 million as compared to INR 3,358 million in October-December '21. As a percentage of total revenue from operations, PBT or profit before tax stood at 11.6% of total revenue in the current quarter.

Profit after tax for the quarter ended December '22 stood at INR 3,189 million, which is 8.7% of the total revenue from operations. Profit after tax in October-December '21 was at INR 2,349 million, which was 7.6% of total revenue from operations.

Let me provide you a few insights to our aftermarket business, which has delivered the highest ever turnover in 2022, also with a decent and high EBIT. Our aftermarket continues to be a benchmark on working capital management, with net working capital currently at 23 days.

We are the fourth largest cars service network, currently with 500 locations across the country. And we have also witnessed strong growth in exports by expanding largely untapped markets with our product range in the countries of Sri Lanka, Bangladesh, and Nepal. This has been delivered with the help of our strategy in our market, which we call as Zing+, which is a demand creating and generating strategy and has enhanced the customer experience.

Bosch Limited offers complete system solution also for hydrogen-based powertrains in India. My colleague, Guruprasad Mudlapur, will later explain some of these areas if you have interest.

We offer systems and components catering to hydrogen engine and fuel cell electric vehicle technology. Bosch has entered into a partnership to offer hydrogen tank system as well. We have set up a state-of-art hydrogen engine test facility at our technical center in Adugodi at Bangalore where internal demonstrators are currently being developed and optimized for performance as well as emissions.

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