Bosch : Q2 FY22-23 Earnings call Transcript

"Bosch Limited Q2 FY-23 Post Result Conference

Call"

November 08, 2022

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

November 08, 2022

Annamalai Jayaraj: Bosch Limited 2Q FY22-23 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 Ms. Karin Gilges - Chief Financial Officer. At this point, all participants line will be in the listen only mode and there will be an opportunity for you to ask questions after the management presentation and opening remarks. Also may I remind you of the Safe Harbor, the company may be making some forward-looking statements that have to be understood in conjunction with the uncertainty and the risks that the company faces. Over to you sir.

Soumitra Bhattacharya: Thank you very much, Mr. Annamalai Jayaraj. Good afternoon colleagues, and thank you for being part of this call. At the outset, I would like to thank all of you for the excellent in person interaction that we had in August at Mumbai for our annual investor meet. Today, I will start with a brief on the macro economy policy followed by an automotive market update, and then I would like to walk you through our financials. Finally, I will end with the highlights of the quarter affecting our business.

Next slide, please. The global economy is facing significant downside risk to growth with persistent high inflation. In relation to the Indian economy, the IMF released its latest forecast of the world economy this week in which India's FY23 real GDP growth was revised downward to 6.8% from the 7.4% projected to July 22. Having said that, the domestic demand continues to be quite robust in India.

Next slide. Overall automotive market production has increased by +28% on year-on-year with the current quarter, this excludes two wheelers. However, on a low base of the quarter two of fiscal year 22. The production volumes in quarter two fiscal 23 stood robust across the segments aided by the inventory getting filled for the festive season. The passenger car segment outperformed other segments growing at +35% year-on-year volume growth supported by the somewhat easing of chip supplies for semiconductors, and the pent up festive season demand. By the way colleagues you must know that October had the highest sales for pass cars due to the festive demand. Serving this already healthy order book and thereby mitigating longer waiting periods. The two wheeler segment also witnessed a healthy +8% year-on-year growth, largely supported by the festive season and premiumization trend. The LCV segment continues to witness growth, and which was (+30%) on year-on-year while the heavy commercial vehicles or HCD segments saw a (+37%) year-on-year on a low base. However, on the ground situation is steady as fleet utilization levels are healthy and have led by an increased economic and infrastructural activities.

The customer segment also de-grew marginally by around (-2%)year-on-year of course, very high base with the OEMs building up the dealer inventory in anticipation of the strong demand which was there for the festive season. The three-wheeler is on a recovery path with shared mobility is slowly picking up. Overall automotive market production has increased by +30% quarter-on-quarter in the current quarter, this of course excludes two wheelers.

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Bosch Limited

November 08, 2022

Let's have a look at the automotive market outlook for 22. In this slide, each row represents a particular segment for instance, the first row represents the pass car, followed by PCV, LCV, tractor, two-wheeler,three-wheeler segments respectively. The first column represents the 2018 production volume which is considered as one of the best years in the Indian automotive industry which was at its peak. So, by the way, we have shown 2018 but you can also tangentially read it as 2018/19, but the numbers here indicated are the calibrate. Second column represents 2020 production volumes, and the third column represents 21 production volume and the fourth column gives you an outlook for the 2022 calendar year. Basis this numbers we are expecting a solid year for pass car, LCV segment and very likely they will reach the 2018 peak. You can see in pass cars we set 4.3 million for the current forecast of 22 as against the 4.07 million in the year 2018.

The tractors peaked, in case of heavy commercial vehicles, two wheelers and three wheelers recovery continue however and we can see, based on differentiated situations, they are still far away from the 2018 peak. Practice peak already last year and we are expecting a minor de- growth on a very high base. Let's look at how the company has performed in the July, September 2022 quarter as compared to the July, September 21. Amidst all these aforementioned factors. Our overall revenue from operations for July, September 2022 stood at 36,616 million or 3662 crores, which is an increase of 25.5% as compared to the July, September 21. Here the automotive sales have grown by approximately 31%, largely driven by the power grid solutions, while non-automotive sales have increased by 7.5% largely led by the energy and building technology division. Overall product sales have increased by 27% primarily on account of a low base in the July, September 2021 owing to the impact of COVID ranking. Income from services mainly comprised of R&D services provided to OEMs as also our parent Bosch in Germany. While billing for R&D services was at a healthy level for the quarter, income recognized in the books based on customer SAP dates was 648 million or 64.8 crores, balance income would get recognized in subsequent quarters based on project completion dates of customers. Other operating income mainly includes income from lease rentals, facilities income and export incentives. In July September quarter of the previous financial year, we have received an installment of claim for refund of taxes under the mega projects team of the government of Maharashtra pertaining to our Nashik plant. However, other operating income for the current quarter was comparatively slightly lower.

The Material cost as a percentage of total revenue from operations has increased from 62.8 in July, September 62.8% in July September 21 to 64.9% July, September 22. Increase is mainly due to two reasons; one change and product mix was credit goods over the same quarter of the previous year. And second, what is happening internationally which is raw material price increase it will be increases in the prices of electronic competence. Employee cost for July, September 2001 includes reversal of employee related provisions on a like-to-like basis without the reversal of provisions employed costs in July, September 22 would have remained the same as compared to the previous year. Other expenses stood at 5781 million or 578 crores, which is 15.8% of the total revenue in July, September 22 as compared to 4757 or 476 crores, 16.3% of total revenue in July, September 21 increase is in-line with the increase in sales and also higher

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Bosch Limited

November 08, 2022

spending on new business areas and one time technical access fee paid for localization of new products. Our depreciation for the current quarter is at Rs.919 million, to 0.5% of the total revenue as compared to 829 million, 2.8% of total revenue in July, September 21. Increase in depreciation is on account of capitalization of our new Spark.NXT campus and the plant machinery for localization of our new products in the current quarter. With these operating profits stood at Rs.3392 million. In July, September 2022 as compared to Rs.2747 million in July, September 2021 which is an increase of 23.5%.

Other income primarily consists of interest on fixed deposits and changes in the market value for our mutual funds which are debt based. Other income has also increased from Rs.1243 million in July 2021 to Rs.1497 million in July, September 2022 mainly on account of increase in interest income on fixed deposits and dividend received from equity shares. For the quarter ended July, September 2022 your company has posted a profit before tax or PBT of Rs.4870 million as compared to Rs.3975 million in July, September 2021. As a percentage of total revenue from operations profit before tax stood at 13.3% of total revenue in the quarter. PAT or profit after tax for the quarter ended September 2022 stood at Rs.3724 million which is 10.2% of the total revenue from operations. Profit after tax in July, September 2021 was Rs.3720 million which included tax adjustments which is a credit amounting to Rs.765 million pertaining to previous years.

We in Bosch believe that by 2030 approximately one in three new vehicles across the globe is likely to be an EV. Bosch has already geared up for this change and hence offers comprehensive offers and solutions from PC to CV at hybrids to BEV as well as FCEV or battery electric vehicles and fuel cell electric vehicle. On hydrogen our powertrain solutions division in India located inside RBIN has deep engagement with key energy sector players and OEMs for hydrogen engine business. And you will be glad to know that we have also received our first hydrogen pilot project. This includes the conversion of ICE engine, BS4 to hydrogen ICE, and the details of this will be shared with you later at the time of SOP by our OEMs. The SustainAnalytics or global ESG ratings agency, ESG stands for Environmental, Social and Governance, has again rated Bosch Limited and our scores have improved from 13.2 in 2021 to

12.8 in 2022, the lower the score, is the better. Bosch Limited currently ranks at level out of 208 within the automotive components, industries, and on 734 out of 14,794 within the global universe. We would like to thank you for your contribution as well as for your patient listening throughout this call. We will now address your queries and thank you for your questions.

Annamalai Jayaraj: Thank you sir. We shall now begin with the question-answer session. The first question is from Mr. Dinesh Gandhi. Please unmute your line and ask your question.

Dinesh Gandhi:My first question pertains to the CAPEX. So, first half CAPEX was close to about Rs.3.1 billion. Any indication of what kind of investments we expect in second half or for the full year FY23 and in which areas are we investing for future growth?

Management:So, as I've said Dinesh that we are investing in the future both for our plant and machinery, as also we have invested for our smart campus which the Prime Minister inaugurated which is

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Bosch Limited

November 08, 2022

called Spark.NXT campus. So, we have also based on this quarterly since we have capitalized it, this has also come into the books and therefore chosen the (Inaudible) 15:37. In relation to the CAPEX plan for 2022 they have approximately anywhere between 520 to 560 crores with that bandwidth as you know Bosch Limited over the last many, many years does between 400 to 600 crores and Bosch India does anywhere between 600 to 1800 Cr.

Dinesh Gandhi:Right and these 520 to 560 crores will also include investment towards PLI scheme related CAPEX right?

Management:Naturally, we have applied for Bosch Limited as also our other sister companies and we plan to of course apply and also go ahead for the PLI.

Dinesh Gandhi:Okay. And second question pertains to this hydrogen engine business award which we have got in India. So, as you indicated, this is conversion from ice to hydrogen, any indication of whether this is pilot or it's actually for commercial application and by when do we expect this to get commercialized?

Soumitra Bhattacharya: So, as I mentioned two things, then I'll request our CTO to talk about it, who is also handling this portfolio. We have got a pilot conversion project, the pilot conversion project will be done based on our having put up our lab, our hydrogen lab at our Adugodi campus and only on SOP by our OEMs which is our standard practice, we will give further details, but over to you Guru.

Guruprasad Mudlapur: Yes, thank you Soumitra. The project itself is a pilot right now. So, the first engine conversions have happened and there is proof both in terms of engine conversion, and those engines being fitted on the vehicle, that hydrogen conversion of current engines is possible. So, this is what has been done right now and based on that we have acquired a project. And we will now support the OEM to build additional vehicles before December and from then on the series project will start and the timeline is about one and a half years for series.

Annamalai Jayaraj: Thanks Dinesh. Next, will be from Pramod Amte, your line is unmuted you can go ahead with your question.

Pramod Amte:So, first is with regard to the currency movement. If I had to look at your annual report, almost 38% is your FOREX usage as proportion of net sales. Would you give a breakup in terms of what is the dollar exposure and euro exposure because both these currencies are moving in a different direction this time. So, hence, to understand the volatility impact of a currency and second, how these are passed on to the clients, do they come through easily or they are tough negotiations?

Management:Thank you Pramod for a very insightful and interesting question. You will be happy to know that our company over decades has a very robust #A treasury management system and #B, a very robust hedging system. And we have been doing it consistently. And of course, we follow the mark prints and then to it. So, in summary for Bosch Limited, we are pretty well secured against a huge currency fluctuation while the exchange rate changes have been, I won't say it

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