Bosch : Letter to SE dated 31.05.2024 - Transcript

Corporate Relationship Department	The Manager
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Dear Sir/Madam,

Sub: Compliance under Regulation 30 and 46(2)(oa) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) regulations, 2015- Disclosure of Transcript of the Investors' Concall

Pursuant to Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Please find attached herewith the transcript of the investors' call with Investors/Analysts held on May 27, 2024.

This is for your Information and records.

Thanking you,

Yours faithfully,

for Bosch Limited,

VENKATARA

MAN Digitally signed by VENKATARAMAN

SRINIVASAN

Date: 2024.05.31 14:50:38 +05'30'

SRINIVASAN

Bosch Limited Post Box No:3000 Hosur Road, Adugodi Bangalore-560030 Karnataka, India Tel [phone] www.bosch.in L85110KA1951PLC000761 [e-mail]

May 31, 2024

V. Srinivasan

Company Secretary & Compliance Officer

Registered Office: Bosch Limited, Hosur Road, Bangalore-560030, Karnataka, India

Managing Director: Guruprasad Mudlapur, Joint Managing Director: Sandeep Nelamangala

"Bosch Limited

Q4 FY'23-24Post-Results Conference Call"

May 27, 2024

MANAGEMENT: MR. GURUPRASAD MUDLAPUR - MANAGING

DIRECTOR - BOSCH LIMITED

MS. KARIN GILGES - CHIEF FINANCIAL OFFICER -

BOSCH LIMITED

MODERATOR: MR. ANNAMALAI JAYARAJ - B&K SECURITIES

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	Bosch Limited
	May 27, 2024
Guruprasad Mudlapur:	Good morning. Again, thank you for joining us today. I hope it's better for all of you right
	now, for us.
Annamalai Jayaraj:	Now it's better, sir.
Guruprasad Mudlapur:	Okay, we don't have any echo on our side as well.
	So today, I'll begin with a brief overview of the global and Indian macroeconomics, followed
	by that, I'll give an update on the automotive market before getting into our financial results.
	Lastly, I conclude with the business and other key highlights for the fiscal year ending 31st
	March '24. The global economy is projected to see a flat growth at 3.1% in 2024, same as 2023
	before edging up slowly to 3.2% in 2025. Despite the challenging global macroeconomic
	environment, the Indian economic growth remains positive and very optimistic.
	The IMF forecasts a 6.5% growth rate for the Indian economy in 2024, with expectations of
	continued growth into 2025. Robust domestic demand and investments in infrastructure are the
	primary drivers for this growth. Despite global headwinds, the Indian automotive industry
	exhibited resilience. Overall, the vehicle production, excluding two-wheelers surged by 5%
	during FY '23-'24, compared to FY '22-'23, solidifying India's position as the third largest
	automotive market worldwide.
	However, Q4 FY '24 showcased a mixed performance. While the passenger car, two-wheeler
	and three-wheeler segments witnessed growth, commercial vehicles remained stagnant, and
	the tractor market experienced a correction. In Q4 of FY '24, heavy commercial vehicle
	production experienced a correction of minus 7%, primarily due to the high base established
	by pre-buying in Q4 FY '23 to circumvent price increases ahead of emission norm changes.
	However, growth in the medium and heavy commercial vehicle sector is being propelled by
	the bus segment, a trend anticipated to persist. In Q4 FY '24, LCV segment grew by 5%, fueled
	by increased private consumption, e-commerce expansion to Tire 2 and 3 cities and hub and
	spoke network adoption. However, the risk of three-wheelers encroaching on the sub-1 ton
	segment remains a concern here.
	Tractor sales declined by 15% in Q4 FY '24 attributed to an erratic monsoon pattern and low
	reservoir levels impacting rural sentiments, particularly in Central and Southern regions of
	India. The tractor segment is notably sensitive to rural sentiments, rainfall and reservoir levels.
	The passenger car production achieved a double-digit growth of 11% in Q4 FY '24, buoyed by
	robust demand for SUVs. However, sedans and compact cars experienced a decline as
	consumers displayed a preference for premium goods. This trend is mirrored in car purchases
	with buyers gravitating towards the Utility Vehicle segment, enticed by enhanced features,
	superior ride quality, and premium aesthetics.
	Furthermore, there is a growing inclination towards alternate fuels evidenced by increased
	demand for strong hybrids and electric vehicles. Two-wheeler production staged a remarkable
	recovery, surging 27% in Q4 FY '24. This growth is primarily propelled by strong demand
	from rural customers and replacement demand from urban areas for premium vehicles.
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However, export volumes continue to face pressure due to local currency depreciation and forex availability issues. Additionally, there is a notable increase in the share of higher-priced 125 cc scooters, reflecting evolving consumer preferences. The three-wheeler segment witnessed a growth of 12% in Q4 FY '24, indicating sustained demand for passenger transportation.

Additionally, this segment has seen growth in last mile operators, catering to e-commerce and food delivery services, among other applications. While three-wheelers are steadily recovering in domestic markets, export remain weak. In this slide, we depicted the market's journey from its peak in 2018, navigating the challenges posed by COVID to the subsequent recovery.

The automotive market concluded on a positive note in '23 reaching an all-time high in LCVs and maintaining momentum in other segments. Looking ahead to '24, factors such as election year and historical trends indicate restrained growth in the automotive industry. Additionally, the erratic monsoon of '23 may impact rural sentiment potentially affecting tractor volumes.

Nonetheless, the underlying economic conditions remain robust, and the overarching growth narrative of India remains unchanged. We anticipate a moderate growth trajectory for the upcoming year, influenced by election year dynamics, the high baseline set in the current year and the impact of erratic rainfall patterns.

Sector-wise sales performance quarter-on-quarter. Our mobility business has grown by 2.7% in Jan to March '24 as compared to Jan to March '23, driven mainly due to growth in mobility aftermarket business by 9.4% on account of increased market demand for spark plugs and diesel products, growth in two-wheeler business by 17.6% due to higher demand and new product launches.

However, Power Solutions business remained relatively flat due to weak tractor market. Consumer Goods business grew by 10.5%, driven by higher demand for blue tools and accessories. The Building Technologies business grew by 13.9% on account of execution of high number of orders for installation of security systems.

On a year-on-year basis, the mobility business grew by 11.1% in FY '23-'24 as compared to FY '22-'23, mainly due to the growth in Power Solutions business by 10.9% aided by growth in sales in bus, car and heavy commercial vehicle segments and higher content per vehicle, mainly exhaust gas treatment components.

Growth in mobility aftermarket business by 10.2%, mainly due to higher sales of spark plugs, lubricants, filters owing to higher demand. Growth in two-wheeler business by 19.2%, mainly due to higher sales of fuel injectors and exhaust sensors to TVS and Bajaj. Consumer Goods business grew by 15.8% due to higher sales in tools and accessories due to market campaign and new product launches for grinders and cutters.

The Building Technologies business has increased by 17.0%, mainly on account of execution of higher number of orders for installation of security cameras. The key financial highlights. Revenue from operations quarter-on-quarter. Revenue from operations in Jan to March '24 stood at INR42,334 million, which is a growth of 4.2% over Jan to March '23. The growth is

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mainly driven by mobility aftermarket business, two-wheeler business and consumer goods business, as seen in the previous slide.

Year-on-year, likewise, overall revenue for FY '23-'24 was INR1,67,271 million, which grew by 12% over previous year. The growth is mainly contributed by increased sales in mobility business and consumer business -- consumer goods business. EBITDA. Quarter-on-quarter EBITDA in Jan to March '24 was INR5,572 million, which grew by 6.7% over the same quarter of previous year. EBITDA as a percentage of total revenue improved from 12.9% in Jan to March '23 to 13.2% in Jan to March '24.

The improvement in EBITDA margin is mainly attributable to increased revenue and lower spending in other expenses. Year-on-year, similarly, EBITDA in absolute terms for FY '23-'24 increased by 15.9% as compared to FY '22-'23. EBITDA as a percentage of total revenue improved from 12.1% to 12.5%. The EBITDA margin improvement is again on account of revenue growth and lower spending in other expenses.

PAT. The profit after tax in absolute terms, grew by 41.4% in Jan to March '24 over the same quarter of previous year. This includes a onetime credit of income tax received pertaining to assessment year 2013-2014 as the assessment was completed during the quarter. PAT as a percentage of total revenue for the quarter is 13.3% as compared to 9.8% in Jan to March '23. Year-on-year, likewise, profit after tax, including exceptional items, increased from INR14,245 million to INR24,905 million. The exceptional item mainly pertains to the profit of

• on sale of Project House Mobility Solutions business, which was hived off in July of '23. Profit after tax as a percentage of total revenue for FY '23-'24 was 14.9%, including exceptional items compared to 9.5% in the previous year.

In the Mobility business, the Power Solutions division experienced a 10.9% surge in sales during the financial year '23-'24. This growth can be attributed to the rising year-on-year sales of both passenger car and commercial vehicle segments, driven by the adoption of BS-VI technologies across diesel, gasoline, natural gas and electric vehicles.

Additionally, TREM IV projects within the tractor segment and the development of electric vehicle systems contributed to some extent, despite the limited volume in India. We pioneered the development of the first hydrogen engine demo truck in India, demonstrating our unwavering commitment to innovation in the automotive industry.

Our company introduced this technology to a diverse array of stakeholders, including OEM representatives, nodal agency experts, ministry secretaries, and legislators at prestigious events such as Symposium on International Automotive Technology and the Bharat Mobility Global Expo. Through these efforts, we are making significant strides towards securing projects with our valued customers further cementing our position as leaders in technology advancement.

Bosch's Power Solutions division plays a pivotal role as a partner for vehicle manufacturers in transitioning from reliance on conventional liquid fuels to alternate low to zero carbon fuels. Our system solutions and products for CNG and flex fuels are poised to support OEMs during

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this transition period. However, it's worth noting that conventional fuels, like diesel and gasoline, will remain relevant until alternate energy infrastructure becomes more widespread.

Two-wheeler and Powersports division achieved a record sales growth of 19.2% over the previous year. This success was supported by stabilized semiconductor supplies, new customer acquisitions, new projects and growth in the two-wheeler market. The division continues its journey of profitable, sustainable growth, focused primarily on cultivating talent, fostering a culture of excellence and driving strategic innovations.

The net sales of the two-wheeler division are anticipated to rise in FY '24-'25 due to the transition to BS-VI OBD II norms and the projected growth in two-wheeler sales following the general elections. The two-wheeler division has proactively prepared for OBD 2.2 regulation upgrade by making appropriate investments in Lamda sensor technology, foreseeing a substantial surge in demand in -- by 2025.

We are fully equipped to assist our customers with advanced sensor solutions. Bosch is dedicated to supporting Make in India and electrification initiatives by offering comprehensive two-wheeler solutions, encompassing engineering, software and testing facilities. Our solutions crafted by riders for riders are engineered to elevate safety, efficiency and overall riding experience. We are proud to have received accolades such as the gold consistent category award from Bajaj Auto Limited and a prestigious performance award from Suzuki Motorcycle India Private Limited. These recognitions underscore our commitment to excellence and our value partnerships with esteemed industry leaders.

The Mobility aftermarket division achieved highest ever total net sales in FY '23-'24, with a growth of 10.2% compared to previous year. The independent aftermarket segment, the largest segment within the Mobility aftermarket division accounted for approximately 63% of the total business witnessed a notable growth of plus 9.1% in FY '23-'24 compared to the previous year. This growth can be primarily attributed to increased sales of lubricants, spark plugs and filters. The mobility aftermarket segment now proudly boasts of over 50,000 retail touch points, spanning across 650 districts, offering a comprehensive range of over 15,000 part numbers. This expansive network ensures widespread availability of both products and aftersales services.

Additionally, the division operates over 1,500 authorized workshops and service centers, including Bosch Car service, Bosch Diesel Service centers, electric modules and bike service centers throughout India. Furthermore, the mobility aftermarket has ventured into the home segment with the introduction of Bosch I6 inverter battery for power backup solutions. The independent aftermarket segment's growth was driven by the zinc plus strategy, focusing on demand generation and market penetration.

We increased the visibility with "Har Shop Mein Bosch" improved branding in dealer networks and achieved top retail branding in key towns. The Mobility aftermarket division was also honored with 2 awards from Mahindra for outstanding performance in the spare parts division recognized in both construction equipment and farm division categories.

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The beyond mobility sector saw a 17.7% increase in sales, driven by growth in both power tools and Building Technology segments. During FY '23-'24, Power Tools achieved significant double-digit growth of 15.8% over the previous year. The manufacturing accounted for 30% of the total power tools sales in India and the company gained market share across various categories. The power tools business in the coming years is expected to continue its growth trajectory.

The focus will also be on cordless tools, industrial tools, dealer engagement and innovative new product launches tailored to the medium and entry-level segments. Concurrently, medium-priced products will be pivotal, serving as essential drivers of overall business growth. The cordless tool segment reached approximately 11% of total sales, marking its first double-digit contribution.

The launch of "Cordless Means Paisa Vasool" campaign was awarded the Marketing Campaign of the Year by the Global Marketing Excellence Awards and recognized for best use of out-of-home media by e4m Indian marketing awards during 2023. Dedicated engineering setup -- engineering center has been set up at the Bosch Chennai power tools plant. The Chennai plant became the first plant in -- at Bosch in India to sign an MOU with the Tamil Nadu government for skill development program. The company also launched a new B2C online repair service to better serve customers. The service network has been expanded to 21 new towns during the year. With the celebration of 30 years of Bosch power tools in India, the company has also launched its purpose statement, Bosch tools in every artisan's hand.

The Building Technologies business achieved a double-digit revenue growth of 17% compared to the previous year, securing significant wins across various verticals. The division secured pivotal projects across transportation, including metros and airports, government, energy and consumer sectors, which remain significant contributors to business growth. Additionally, support from the education and health sectors verticals further bolstered our performance. We anticipate a positive outlook for Building Technologies business in '24-'25.

In addition to the building -- in addition to the business unit communication, our local for local program has been extended to include business units, video systems and our fire systems. Sustainalytics, a global leader in ESG ratings has reassessed Bosch Limited. I'm pleased to announce that the company's scores have improved, dropping from 8.5 in 2022 to 6.5 in 2024. Bosch's sustainability commitment is driven by our "Invented for Life" ambition.

Over the past decade, Bosch's corporate social responsibility has positively impacted millions of lives across various locations. During the year, we trained youth, including persons with disability and LGBTQs with 68% to 70% placement rate. Our trainers and teachers through the train the teacher modules.

Our efforts in environmental sustainability include conserving water through rejuvenation, planting and maintaining trees. In education, we supported government schools, benefiting numerous students and teachers through provision of mid-day meal schemes, need for basic infra support towards Anganwadis, training students in IT skills. We provided basic health

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care, including eye care for children and cataract surgeries for the elderly to many beneficiaries across villages in 4 states.

Our Outreach Connected program in over 100 villages connects the rural community members with over 50 government schemes and has trained several women through sustained self-help groups. Additionally, we supported more than 1,000 families through disaster relief and engaged employee and participants of future leadership program at Bosch, who contributed over 10,500 volunteering hours through their time, expertise and knowledge for social causes. These achievements were made possible by the unwavering commitment of our CSR team, invaluable partnerships, stakeholders and Bosch employees.

Bosch continues to develop and refine CSR interventions, which are nationally engaging and locally relevant, empowering individuals and uplifting communities. Thank you all for your contribution and for listening patiently through the call. We will now address your queries. Thank you for your attention, and we are open for questions.

Annamalai Jayaraj: Thanks for the detailed presentation, sir. We will now begin the question-and-answer session. I'll now take the questions from the chat box, sir. Why did you hive off the OE/OES diagnostic business from the mobility aftermarket? What products you used to manufacture in this segment that accounted for INR36 crores revenue?

Guruprasad Mudlapur: Yes. So thank you for the question. And yes, I'll give you 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?

Karin Gilges: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.

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Annamalai Jayaraj: So the first question is from Gokul Maheshwari.

Gokul Maheshwari: Sir, this first question. I have three questions. And with your permission, I would like to take them one 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?

Guruprasad Mudlapur: Okay. Do you want to finish all your questions, so we can take it all together.

Gokul Maheshwari: I would prefer it with one by one, if that's okay with you.

Guruprasad Mudlapur: 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 hybrids. 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.

Gokul Maheshwari: Great. Secondly, in the past few quarters, you've been highlighting 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. Because 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?

Guruprasad Mudlapur: 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 always 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 some 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

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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 end 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?

Karin Gilges: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 are 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 coming 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 exhaust 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 were 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.

Gokul Maheshwari: 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?

Karin Gilges: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.

Gokul Maheshwari: 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

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