Ladies and gentlemen, good day and welcome to Bosch Limited 1Q FY 2023-2024 post-results conference call, hosted by BNK Securities. We also congratulate and welcome the Bosch Limited new leadership team to the investor call. We have with us today the new Managing Director and Chief Technology Officer, Mr. Guruprasad Mudlapur, new Joint Managing Director, Sandeep N., and Ms. Karin Gilges, Chief Financial Officer. At this point, all participant lines will be in the listen-only mode, and there will be an opportunity for to ask questions after the management presentation and opening remarks. Over to you, sir. Rishit, you can start.
Hi, everyone. Do you hear me, alright?
We could hear you, sir.
Okay. Okay. Good afternoon, everyone, thank you for being part of this call. Today, I'll start with a brief on the macroeconomic policy, followed by an automotive market update, then I'll walk you through our financials. Finally, I'll end with the highlights of the quarter affecting our business. As per the recent IMF report, the global economy is expected to grow at 3% in 2023, up from 3.5% in 2022. The advanced economies to grow by 1.5% in 2023, from 2.7% in 2022. Amongst this backdrop, the Indian economy is doing well and is expected to grow by 6.1% in FY 2023-2024.
More importantly, our inflation remains controlled and the financial sector is resilient. Next slide, please. Overall, the automotive industry displayed a mixed performance, with certain segments showing resilience and growth, while others faced hurdles due to the pre-buying effects and exports decline. Passenger vehicle segment saw growth, driven by the SUV category, supported by strong order books from OEMs. However, the commercial vehicle segment saw moderation. While the medium and heavy commercial vehicle segment showed a better performance, LCVs experienced a decline of 2%. Three-wheeler segment continued to recover in the domestic market, while exports remained sluggish. The tractor segment declined by 9% year on year, due to a high base of FY 2023, coupled with inventory moderation in Q1 FY 2024.
Two-wheeler demand recovery sustained during the marriage season, however, export market remains a concern with sluggish demand. Let's now look at the automotive outlook for 2023. Next slide. From the lows of COVID, Indian automotive industry bounces back and reached new peak in the year 2022. From this high base, we expect the market to grow in 2023 compared to 2022. This shows the robustness of the Indian auto industry and the economy, despite global headwinds and reduction in exports. Let's look at how the company performed in April to June 2023 quarter, compared to April, June 2022, amidst the above-mentioned factors. Next slide, please. Sector-wise sales start with the mobility solutions sector.
The mobility solution sales have grown by 13.6% in Q1 FY2024, as compared to Q1 FY2023. 12.5% growth in product sales of powertrain solutions is driven mainly due to the growth in overall automotive sector, and increase in share of content per vehicle, mainly in exhaust-gas treatment. Automotive aftermarket has grown by 12.7% quarter-on-quarter, mainly due to increase in export of spark plugs and higher market penetration of lubricants. Two-wheeler business sales have also increased by 42.8% quarter-on-quarter, due to improvement in semiconductor supplies as compared to previous quarter. The beyond mobility solutions sales have grown by 21.5% in Q1 FY2024, as compared to Q1 FY2023.
Consumer goods business, comprising of Power Tools segment, has increased by 17.9% quarter-over-quarter, mainly due to increased sales of new tools due to higher demand. The Building T echnologies, area grew by 13.6%, 36.9%, mainly on account of higher number of orders for installation of security systems. Our profitability statement. The overall revenue from operations for April, June 2023, stood at INR 41,584 million, which is an increase of 17.3% as compared to the corresponding period of previous years, mainly driven by growth in product sales by 14.5%. The Mobility Solutions area sales grew by 13.6%, while sales from business beyond Mobility Solutions increased by 21.5%.
Income from services, mainly comprising of engineering and application services provided to OEMs and Bosch, Germany. Service income for the quarter is towards completion of BS6 Stage 2 projects for OEMs. Other operating income mainly includes income from lease land rentals and miscellaneous income, and of course, export incentives. In the current quarter, increase is mainly on account of rental income owing to additional space let out in the RZD campus. Material cost as a percentage of total revenue from operations is at 64.5% in April-June 2023, as compared to 64.6% in April-June 2022. However, material cost as a percentage of net sales, that's excluding income from services and other operating income, is at 68.7% in April-June 2023, as compared to 67.2% in April-June 2022.
The increase is mainly on account of higher share of traded goods in the current quarter, as compared to the same quarter of the previous year. Impact on account of price increase given to import suppliers on account of higher energy costs. The employee costs. Employee costs for April-June 2023 is INR 3,094 million, as compared to INR 2,702 million for April-June 2022. As a percentage of revenue from operations, the employee cost is better as compared to the same quarter of the previous year.
Other expenses stood at INR 6,977 million, which is 16.8% of the total revenue in April-June 2023, as compared to INR 5,334 million, which is 15% of the total revenue in April-June 2022. The current quarter has seen certain one-time impacts in other expenses. Increased spending on new businesses, higher spending on customer projects for engineering and application services, which is in line with higher income from services. Depreciation for the current quarter is at INR 921 million, which is 2.2% of the total revenue, as compared to INR 648 million, which was 1.8% of the total revenue in April-June 2022.
Increase in depreciation in current quarter is majorly on account of major additions to plant and machinery and buildings during financial year 2022/2023. With this, the operating profit stood at INR 3,738 million in April-June 2023, as compared to INR 3,847 million in April-June 2022, a decrease of 2.3%. Other income primarily comprises of interest on fixed deposits and change in market value of mutual funds. The other income has increased from INR 566 million in April-June 2022 to INR 1,875 million in April-June 2023, mainly on account of higher mark-to-market gain on mutual funds, higher FD interest income, and dividend received from investments in equity shares.
For the quarter ended April-June 2023, your company posted a profit before tax of INR 5,325 million, as compared to INR 4,377 million in April-June 2022. As a percentage of total revenue from operations, profit before tax stood at 12.8% of total revenue in the current quarter. Profit after tax for the quarter ended June 2023, stood at INR 4,090 million, which is 9.8% of total revenue from operations. Profit after tax in April-June 2022 was INR 3,342 million, which was 9.4% of the total revenue from operations. Next slide, please. Thank you all for your contribution and for listening patiently through the call. We will now address your queries. Thank you, and Annamalai, questions, please.
Thank you, sir. We shall now begin the question and answer session. Ladies and gentlemen, at present, you are all in the listen-only mode. For participants who wish to ask a question, I request you to please raise your virtual hand. As a moderator, I shall be able to see your virtual hand, and will invite your questions in turn. Alternately, participants can also type in their questions in the chat box. Please address your questions to all panelists. We will now wait for a moment as the question queue assembles. The first question is from Pramod Amthe. Please unmute and ask your question.
Yeah. Hi, Jayraj. Can you hear me?
Yeah, yeah, I could, I could. Please go ahead with your question.
Yeah. Thanks for this opportunity. So two questions. First one, you have explained in detail in the annual report, and also already in the call, about spark plug export opportunity. Can you just tell, is this a trend that you have one of the low cost production base and long-standing in this business, and it's opening up an opportunity? Which all areas India is components you feel such opportunity can emerge for Bosch India for exporting to the global markets in the next 1-2 years?
Yeah, thank you, Pramod. Yes, indeed, you are right. The timing is right for us. Also, there have been some shifts of our production out of Russia, so a lot, a lot of spark plugs, which were earlier made in our Russian location, have moved out, and they've been relocated into India, and that helps us produce more out of India, and specifically with regard to spark plugs. There is a possibility that this phenomenon will extend to other areas. We are in discussions right now. We are looking at all possible opportunities, and right now, I would not like to comment on any specific area that we may extend this to.
Thanks. The second question is with regard to the electric vehicle space. We are seeing new MNCs making inroads into India, like recently, Schaeffler winning a big order in the axles. My question related to that is, Bosch has a similar product lines globally and enjoys amazing customer relationship in India for many of the clients. So wanted to know, where is the gap in terms of when you see to win such orders versus others already having it in the bag? How you plan to cover those gaps in the next 1- 2 years to make inroads into EV orders?
Yeah, I'll let my colleague, JMD, Sandeep, answer this.
I think on the, on the eAxle portfolio, we as Bosch, have quite a widespread portfolio, globally, especially coming out of our operations in China. The market in India is in a, in a formative phase, and we are basically trying to align best the portfolio, what we have globally, to the requirements, regionally in India, and this is going to take time. We are making progress in the field of electronics and software. Coming back specific to your question about eAxle, we are in the process of aligning the portfolio. I don't see a gap, but this would take time before we are able to bring together the specifications of the global platforms and the local requirements.
Thanks a lot for this.
Thanks, Pramod. The next two question is from Dinesh Gangwani. Please unmute and ask your question.
Immediately. This is Dinesh here.
Yeah, yeah. A bit louder.
Yeah. Okay. Yeah. Th- thanks for taking my question. Just continuing on eAxle, just to clarify, would eAxle be opportunity coming in the listed entity, given it's not, per se, powertrain related, or would it be part of the unlisted entities?
Well, we are, at the moment, first focusing on, like I mentioned, very generic level, the requirements engineering, which includes multiple domains. We are yet to get to this, to this point about, where would the technology lie. Our focus primarily is to, the mobility level, focus on requirements engineering.
Okay. Okay, got it. Second question pertains to a broader direction of margins from where we are today. We have seen our margins stabilizing in 11%-12% range on sustained basis. Given many of the headwinds which we faced over the last few years are, are, are going away, plus we are seeing ramp-up in our BS6 localization solution. How should one think about margins from where we are today?
Karin?
Yeah. Okay. I, I would go first, and then if you can, my, my colleagues can add. If you look at the margins, and if you are look, looking at the margins in the ICE business for manufactured goods here in India, in the limited for the Indian market, we are seeing actually that we have for the self-manufactured goods, quite good margins on the market. We also have to see that in the overall operating margin of the 9%, we we have currently a high part of traded goods. Goods which we are importing from, from other Bosch groups mainly, or from other countries, and then trade it here in the market. Therefore it is a mix.
What we currently see is we have an increase in the content, especially in the exhaust-gas treatment, but also an increase in the demands in the market of the common rail system. Where we have compared to the conventional products we have, we have up to now not reached the level of localization, if you compare it to an conventional product like the APM. What we are doing looking forward, we are investing and going ahead with the localization. I told you last time, for example, the injector for the commercial vehicles, where we started in October last year with the testing and assembly, and now we are currently ramping up the production of the trial parts here in India. This is overall...
where we have different transfers in the next 2-3, four years, where we have to drive the localization, before we see the really stabilization, let's say, also in the margins.
Okay. Okay. This increase in, traded goods is effectively the structural change in the business, right? I mean, EGT or, SCR, those things will, where content has increased materially at post BS6, this will remain, as it is. I mean, we can't. Many of these things we won't like to make it in-house. Is that the correct understanding?
That is the correct understanding. It will not reverse anymore, and therefore, because we have now a good view on the market and see the volumes we need, and now we are going for localization and start also in the exhaust-gas treatment, the localization of different products.
Yeah, that would be localized by our supplier partner, not at Bosch level?
No, this is the. Of course, we also try to ramp up the supplier base for the products, but the finished goods itself, for the exhaust-gas treatment, will be mainly as our, our self, manufactured, goods.
Got it. We are calling out for one-off expenses for the service part, that there is a commensurate benefit on the service income, right? Both will go away as things normalize.
Yes. Yes. If you look at the, at the, at the higher spendings, we also have to see the other part, we have higher income from service. That means whenever we, whenever we see in the revenues, the service income, then we book it, also, of course, the related spendings with it.
Got it. Got it. Thanks. I'll come back to you.
Thank you, Dinesh. Next will be Ravi Purohit. Your line is unmuted, you can ask your questions. Okay. I think he's not on the line. I'll go for some questions in the chat box, sir. Please quantify the one-off expenses included in other expenses. That is a question from Mr. Abhishek. Could you hear me, sir? Hello? Hello.
Hello?
Yeah. No, the question is, sir-
Yeah, please.
Can you quantify the one-off expenses included in the other expenses?
Okay. There are actually, one important point, and this is the new business expenditures, and therefore we have, in this quarter, increase in the spendings related to the new business areas. What we can also see in the other expenses is the higher spendings related to, to the higher service income. These are the main two issues. one, the professional charges, which is the spendings to the higher service income, is about 1.3 percentage points, and the spendings in the new business expenditures is roughly 0.6 percentage points.
Okay. If anybody has any questions, please raise your hand. In the meantime, I'll go for the questions in the chat box. This is from Ravi Purohit. Our current gross margins are the lowest ever. Is this, is this the new trend or new normal?
In principle, we do not talk about gross margins at all. As I mentioned before, what we saw in the last quarter, that we have a jump in the traded goods. We had a high content or, or high revenues with exhaust-gas treatment, which are currently traded. In this overall, we have in this quarter, to give you an idea, a traded percentage from total of 54.4 percentage points, versus the same quarter in the last year of 51.3%. This is, of course, influencing then also the EBIT. Is the EBIT the new normal?
It highly depends on the mix, of course, but what we expect in the upcoming quarters is that we, that we have a change in the mix, that we have more manufactured goods in our revenues.
Okay. Uh-huh. The next question in the chat box is: Does Bosch Group has any supply agreement with Tesla? If Tesla enter India, will that open up opportunities for Bosch India?
I think Bosch has a business relationship with Tesla, primarily in the U.S. and partly in China, but these are more in braking and wiper components. Let's, let's, follow up on what happens with the Tesla plans in India and their value chain, and we will align accordingly.
We do not want to speculate at this point what's the Indian scenario for Tesla. Yes, we have global supplies towards Tesla, both in China and in North America.
Okay. Next question in the chat box is: Has the audit qualification issue sorted out by taking approval in today's AGM? Please update.
It has been, it has been sorted out.
Next question is: Can we expect margins to improve from Q1 levels, or it will remain flattish?
Margins stay.
Once again, the margins or the overall EBIT, EBITDA is highly influenced by the mix we have between traded and manufactured goods. If you look only at the manufactured goods, then depending, of course, of the cluster of products, we see a stable situation. Nevertheless, it depends how much of our revenues are coming out of traded goods and how much coming out of manufactured goods. Overall, if you say, yes, margins are stable, but of course it depends, what is the setup or the product portfolio behind the revenue?
Okay. The next question is: Can you please highlight the rationale behind the rationale for business transfer of Project House Mobility Solutions? What do we do here in this business segment, and last year sales and EBITDA for this segment?
Okay. I think we've already explained the basic rationale for why we sold this. Let me quickly explain that one more time. The Project House for Mobility Solutions, which was handling the digital mobility solutions area, we realized that this requires global scale and global expansion. There is considerable growth globally. Of course, the Indian market, we did not foresee a lot of currently, and it also required massive infusion of capital to make the business grow across the world. As Bosch Limited, we are chartered to take care of the India business, and we're not really focused on the global part of the business.
Primarily, this was the reason that we decided that it's better to sell the business to our parent, and the parent has the skills and the necessary capabilities currently to take the business global. That's what happened in the previous quarter. Yes, the business has been sold, but links to the business remain in India, and we will continue to work together.
Okay. The next question is: How is engineering complexity in diesel versus gasoline versus hydrogen? Is there business entry barriers or superiority of part makers in each of these technologies?
Well, I think in the, the, in the diesel technology, we have been having a long, long-standing footprint in that, with system engineering competence, component engineering competence, and also a relatively higher depth of manufacture. When we moved from diesel to gasoline, most part of the system and component engineering competence remains. In the value chain, manufacturing, there are, of course, much, many more, players in the market in gasoline compared to diesel. I think your other question was, how do you see that in case of hydrogen? In hydrogen, we see a high degree of overlap with, with, a diesel kind of, a complex system, which needs competence build-up in system engineering and also the competence with, components with, hydraulics.
That matches very close to the competence which we have established for diesel. That kind of gives you a perspective of what happens when we move from diesel to gasoline back to hydrogen.
One question on two-wheeler. See, other than fuel injection, does Bosch supply any other components for the two-wheeler sector?
We have ABS.
Yeah.
Single-channel and dual-channel ABS. We have infotainment systems.
... display indicators and also in-hub motors with motor control units. That's the, that's the, let's say, end-to-end portfolio spread of Bosch outside the electronic fuel injection.
Okay. In the tractor segment, broadly, how much % of Bosch revenue is from tractor segment? What is the outlook for FY 2024 and 2025? Also, the associated with that, emission norm change in track, tractor segment, TREM IV, has been implemented. When is TREM V expected?
Yeah, I'll, I'll sort of give you a response on the second part. We do not share details of segment-level revenue and so on. On the TREM V, currently, we are all prepared for in terms of technology. Of course, we are a technology company. We provide technology to the OEMs, and we are prepared on offering TREM V technology to them. The chance of a postponement or a chance of introduction of TREM V, I mean, I do not want to speculate, but it looks more and more certain that there will be further postponement of TREM V legislation. Yeah, we leave that to speculation.
Okay, sir. Next, question is from Senthil Manikandan. I have unmuted your line. You can ask your questions.
Good evening. First question is with respect to the two-wheeler segment, from the electric powertrain side. What's the scope going forward over the next two to three years? What kind of components that Bosch plans to add to this segment?
Yeah. Like I, like I mentioned earlier, I think in the electrified scooter space, we would primarily focus on in-hub motors in the range of 2- 3 KW power range, along with the motor control unit. That would be the focus of portfolio from a Bosch side on the electrified two-wheelers.
Just related to that, can you quantify our market share or business acquisition? Are we working with key players in the market?
Can you talk a bit louder? Your voice was not clear.
e two-wheeler electric part, if you can quantify in terms of business acquisitions and or market share in these products, and how do you see as a percentage of overall consolidated sale, two-wheelers performing? Any color over this look on?
Well, I'd like to, I'd like to not get into forecast or a trajectory of market shares now, because we are in a extremely early stages of a formative business. You noticed how the volumes are going back and forth, being so sensitive to FAME II. At the moment, we are focusing on requirements engineering, we're focusing on the first engagement on system concepts with the customers. I would rather keep it this way than make a statement on a projection of market share or market development, because there are too many open parameters and variables at this point in time.
I just add that we are, of course, working with all OEMs on these projects.
Okay, sir. Second question is, how do you see the two-wheeler market itself evolving? Like, because entry-level under this segment hasn't been performing well of late. Just, you can share your perspective on that.
I think the entry-level growth is still sluggish, and there is a movement of the market more towards the 125, while the premium segments are doing relatively better. I think this is also linked with a certain amount of, I wouldn't call it distress, but a slowdown in the rural spend towards the entry-level bikes. I don't... We don't really foresee that there will be a big change, but good news for us in, in terms of business, is that the premium segment is continuing to do well.
Of, entry-level two-wheelers get exported, and the export market is also sluggish currently.
Mm-hmm.
Okay, sir. Yeah, that's it from my side. Thanks.
Thank you. There's a follow-up question on your answer on two-wheelers, sir. Is ABS a part of the listed entity?
No, it isn't.
ABS is not.
It's not a part of the listed entity.
... Okay. The next question is: Can you highlight within automotive products, which items have higher traded goods element, and what is contribution of those product items in % terms to our current revenue?
Traded.
Traded goods. Traded goods are, of course, mainly in the powertrain solutions, where we see it. I mentioned already the exhaust-gas treatment, which are currently traded goods, where we now going in the next upcoming years, going ahead with the localization. This, and partially, of course, in our power tools, we have partially localized and partially be traded.
Okay. Then the next question is: Can you please tell us how much CapEx is planned for the current year and the next year? In addition, is there any change in the CapEx under P&L?
CapEx, we have planned for the current year, roughly INR 4.9 billion. This is a little bit lesser than last year, because last year we have finished our nice Adugodi campus here, as you know, and this is mainly in the plants, and this is mainly in machinery and equipment.
Okay. Next question is: What is your view on usage of artificial intelligence, the service business of Bosch? Does it improve the efficiency significantly and consequently reduce our dependence on increased manpower in the service business?
Yeah, I mean, it's a very generic question, but I'll give you the answer in two perspectives. One is the utilization of AI in products and services that we make and offer. Here, Bosch has been investing quite a lot in AI, which is useful in our products, and this will continue. We will see what is used in our products. This will continue. We will see quite a lot of growth in this as the automotive technologies also moves ahead. Of course, there is another aspect to AI, which is now the more popular one under discussion, which is the generative AI, like ChatGPT or so on. This certainly is also a topic of focus within Bosch.
We look at it, from the perspective of how can it enhance our productivities, inside, and, what can we do more with the, tools like ChatGPT, either for, coding, software development, kind of aspects, or for other purposes, in terms of, helping documentation or generation of reports or, even, multiple, we're working, on productivity measures. Both aspects are looked at, and certainly we see AI as a productivity enhancer in the second aspect. Of course, AI in a product will add significant value.
Okay, sir. Next question on the chat box is: Can you clarify why interest cost is higher, INR 30 crore in Q1 FY 2024?
The interest is on the account of the interest provision created due to the levy of the interest on GST payables. Another reverse charge in respect of the salary cost of the experts deputed in the legal, Indian legal entities. This is a reason why we had to put in the provision.
Okay. The next question is on the employee cost. It could be great if you could throw some light on the employee cost. How is the trend going forward?
Going forward, the trend and that we have an an extra thing, this, because we had a reversal in the provision, and, therefore, we see normal is at 8%. Of course, you have in each quarter, sometimes you have a reversal of the provision, on the other side, you have an increase in the provisions. We see for this financial year, at 8%, which is reasonable and compared to the last year's or to the former years where before the EBR, we are really now on a very good basis.
Okay. I think these are all the questions in the chat box, sir. As there are no more questions, on behalf of BNK Securities, we thank all the participants for joining the call. Special thanks to Bosch management for taking time out for the call and giving us the opportunity to host the call. Have a good day.
Thank you.
Thank you very much. Bye.