bosch earnings call nov 2012
TRANSCRIPT
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kindofdepreciation.AndevenagainsttheEuro,Rupeehasdeclinedbyabout15%orso.
Thishashadan impact inthequarterlyresultscomparedtothepreviousyear'sthirdquarterresultsbecauseourmaterialcost in
September2011wasintheregionofabout54%,55%whereasthisyearinthisquarterit'saround57.8%.
Thatmeansourmaterialcosthasgoneupbyabout3.6percentagepoints,3.7percentagepoints.However,youwill remember
thateven in Junequarter2012,ourmaterialcostwashovering intheregionofabout57,57.5.Socompared tothe immediate
quarter,the
material
costs
have
not
gone
up,
but
compared
to
the
previous
year's
corresponding
quarter,
the
material
cost
has
sharplygoneupforthereasonthatImentionedtoyou.
Then thereareotherexpenses like theemployeecostaswellasotherexpensesnothingmuch to talkaboutaccepting some
additionalexpensesrelatingtopowerandfuelandallthat.
Butanotheritemthatneedsexplanationisdepreciation.IhavebeendrawingyourattentioninthepastquartersaswellthatBosch
continuestoinvestbothintechnologyaswellasincapacityexpansionandtheseinvestmentsoverthelastsixquartershavebeen
prettyhigh.
Andasandwhenyoumaketheseinvestmentcomingintoproduction,thedepreciationneedstobechargedandbecauseofsomeof
theseassetscomingintoproductionorcomingintocommissioningandstartupproduction,thedepreciationcosthasalsogoneup
byabout1.5percentagepoints,1.6percentagepointsfromaround3.3%to4.8%ofsalesvalue.
Therefore,overallourprofitbeforetaxaswellasprofitaftertaxhavedeclinedbyabout30%comparedtopreviousyear.Andas
youknow,growthrateslessthan10%cannotreallygivehighlevelofmargins,giventhedepthofinvestmentsthatwehaveand
giventhestructureofourcosts.
However,Imustalsomentiontoyouthatourprofitbeforetaxaswellasprofitaftertaxintheformof,orasapercentageofsales
valuestillcontinuestobehealthyataround14%and10%respectivelyofsalesvalue.Sothatistheperformanceasfarasthethird
quarterisconcerned,exportsIhavealreadytalkedabout,rawmaterialcostsandinvestments.
yeartodate,yeahwehavegrownbyabout6%,7%,itisnotverydifferenttotheadditionsummationofthepreviousfirsthalfand
thethirdquarterthisyearand6%,7%isthegrowthinturnoverandabout9%or10%isadeclineinprofitbeforetaxandprofitafter
tax.
Butclearly,Ithinkgoingbythelasttwomonthsofperformancesoftheautomotivemarket,weseesomeamountofpickupbothin
thelightcommercialvehiclesideaswellasinthepassengercarside.Andgoingbythatandgoingbymydiscussionswithindividual
OEMs,et
cetera,
we
can
perhaps
say
that
the
worse
is
over,
but
the
recovery
is
going
to
be
perhaps
slow,
but
we
need
to
watch
this
closely.
That'sallfrommysideasmyinitialexplanationoftheresultsforthethirdquarter2012.Hello?
QuestionsAndAnswersOperatorThankyouverymuchsir.Ladiesandgentlemen,wewillnowbeginthequestionandanswersession.[OperatorInstructions].
OurfirstquestionisfromVaishaliJajooofAEGONReligare.Pleasegoahead.
VaishaliJajooGoodafternoon.
VKViswanathan,ManagingDirectorGoodafternoonVaishali.
VaishaliJajooYeah.
Sir
first
is
on
the
outlook.
Going
forward
from
here
on
the
CV
and
tractors
ifyou
could
give,
especially
on
the
CV
side
if
you
couldalso indicateMHCVandLCV,becauseLCVhas shown reallyagoodgrowth inpastand stillweareexpecting that itwill
continuetogrowlikethisandMHCVisnotgivinganystrongsignalofrecoveryalso.Socouldyoujustgiveanindicationfromthe
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ordersyougetitmaybefromOEside,howaretheyexpectingthegrowthgoingforward?
VKViswanathan,ManagingDirectorSeemediumandheavycommercialvehiclesmarketdirectlydependsontheeconomicgrowth,particularly inthe infrastructureas
wellas in theminingsectorside.Wesee thateconomicactivitypickingupveryslowlyandwebelieve thatweshouldseesome
improvements in themediumandheavycommercialvehicle segment,particularlybecausewehavehad somepoorquartersof,
threeorfourquartersinthepastoneyear.
Frommyowndiscussions,Ibelievethatwewillseesomegrowthinthemediumandheavycommercialsegmentinthenearfuture,
butIcannotreallypredictthepercentagegrowthrates.Asfaralightcommercialvehiclesareconcerned,whichisthesegmentthat
providesthelastmileconnectivityandthissegmenthaswitnessedsomefabulousgrowthuntilthefirsthalfofthisyear.
Wehaveseengrowthof25%to35%everyquarterformanyquarters.ThisquarterwewillcontinuetogrowandIbelievethatthe
Septemberquarterwasanaberration.Wemaynotseethegrowthratesof20%plus,butclearly12%to15%kindofagrowthrate
isclearlypossibleinthissegment.
The third one is tractors, entirelydependent upon agricultural income, farmers' sentiments and finally the availability of credit
particularlyfromNABARD,whichisthenodalagencyfordisbursingloansetcetera.Thissegmenthadaphenomenalgrowthlastyear
closeto650,000tractors.Weexpectthissectortoshowadeclineforthisyearasawholebyaround6%,7%.Soagain650klast,year
thisyear
you
we
will
have
avolume
of
about
600,000.
But,weexpectthistocomebacknextyear,becauseofthefactthatthelatemonsoonintheKharifsideaswellasgoodmonsoonin
theRabicropside,shouldenabletractorstocomebackbothintheagriculturalsectoraswellasinthecargosector.Sothatismy
prediction,Vaishali.
VaishaliJajooAndsir,whatisthecontributionfromLCVstototalCVnowinyourportfolio,becausethereisadrasticchangeinthegrowthrate.
So,definitelyLCVscontributiontototalrevenuemighthaveincreasedintotalCVsegment?
VK
Viswanathan,
Managing
Director
No forus thecontributioncomesmainly frommediumandheavycommercial segment, lightcommercial vehicle segment
doescontributebutnotasmuchasheavyandmediumcommercialvehicles.
VaishaliJajooOkay.Howmuchwastheexportrevenueforthequarter,sir?
VKViswanathan,ManagingDirectorYeah.ExportrevenueforthequarterasIsaid17%to18%decline,butinabsoluteamountitwas2,320millionor232croresinthis
quartercompared
to
281
crores
in
the
previous
year's
third
quarter.
VaishaliJajooAndwhatwasthemajorreasonbecauseithasshownagoodtrendofgrowthinlastcoupleofquartersandtherewasasequential
declinealso.Couldyoujustgivesomeelaborationonwhytheexportgrowthhascomedown?
VKViswanathan,ManagingDirectorYeah,VaishaliasImentionedevenintheprevioustwoquarters'conference,exportshavebeensluggishprimarilybecauseofthe
weakeconomicscenarioinEuropeanmarkets.Theproblems,thedebtcrisisinEuropehashadatollonEvenNorthAmericaisnot
really very buoyant, although it's much better than Europe. So we are primarily trying to compensate these lower export
performancesin
markets
like
ASEAN
as
well
as
Africa
and
the
other
segments.
So
we
are
looking
at
other
opportunistic
areas.
But
clearly themarket inEuropewherewehaveaverystrongpresence, thathasdeclinedand thereforeYTDourdeclinehasbeen
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around9%andforthisquarterourdeclinehasbeenaboutminus17%.
VaishaliJajooHowmuchisEuropecontributingnow?Itwas60%ifIamnotwrong.
VKViswanathan,ManagingDirectorItwasaroundmaybeit'snowcomedownto45%,50%.
VaishaliJajooOkay.Andjustonequestionon themaintenance side, if youcouldgiveaDiesel segmentandAftermarket segmentgrowth
separately?
VKViswanathan,ManagingDirectorYeah,Dieselsegmentobviouslydidnotperformedtoowellasyouknow,becausebothcommercialvehiclesaswellastractorsdid
notdowell.SoourDieselbusinesshasactuallydeclinedinthethirdquarterbyasmallsingledigitnumber.
VaishaliJajooOkay.
VKViswanathan,ManagingDirectorButautomotiveaftermarketaswellaspowertoolswhichhavebeenstronggrowthenginesinexcessof15%or12%etceterainthe
past.
VaishaliJajooOkay.
VKViswanathan,ManagingDirectorHasalsohadsomeamountofproblemchallenges,Iwouldsayproblems,theyhavegrownbuttheirgrowthrateshavealsocome
downbecauseoftightmoney inthemarket,verypoorsentimentsandalsoconstructionsectorhasnotexactlybemoving.But
theseareshorttermfeaturesinmyopinionandIthinkthesemarketswillrecoverratherquickly.
Wasitalsoinasingledigitaftermarket?
VKViswanathan,ManagingDirectorAftermarkethasbeeninsingledigit,butpowertoolshasbeenindoubledigit,butlowdoubledigitlevel.
VaishaliJajooOkay,okay.Thankyousir.That'sall.
VKViswanathan,ManagingDirectorThank
you
Vaishali.
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OperatorThankyouverymuch.OurnextquestionisfromHRGalaofQuestInvestmentAdvisors.Pleasegoahead.
AnalystHellosir.Wedoappreciate theadversescenariounderwhichourcompanyhasbeenperforming.Sir lookingtotheninemonths
performancewhereinournetprofithasdeclinedby6%,doyouseethatinthefullyearcalendaryear'12ourprofitwilldegrowas
comparedtolastyear?
VKViswanathan,ManagingDirectorAtthispointintime,it'sverydifficulttosay.
AnalystOkay.
VKViswanathan,ManagingDirectorBecauseinthefirstninemonths,wehavenotreallygrowninprofittermsalthoughinsalestermswehavegrown.Buttomewhat
isimportantisnotquarteronquarter,butmedium,longterm.
AnalystIappreciatethatyeah.
VKViswanathan,ManagingDirectorAnalystYes.
VKViswanathan,ManagingDirectorWearealsoinvestinginfactoneofthereasonswhyeventhisquarter'sprofitshavebeenaffectedisbecausewecontinueto
investverystronglyinbrandbuildingaswellasinoursalesnetworkactivities.
AnalystOkay.
VKViswanathan,ManagingDirectorSo clearlywe are looking at laying some strong foundation for the future, despite this sharp, small hiccups in the short term
scenario.
AnalystOkay.SirmysecondquarterpertaintothatononehandwehaveambitiousCapExprogram,etceterawhichatonepointintime
youhadsaiditisaround600crore,700crore,whichIbelievehascomedowntoaround400crore,500croreforthisyear?
VKViswanathan,ManagingDirectorNo,itwillbeintheregionofaboutRs.5billionthisyear.
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AnalystOkay.
VKViswanathan,ManagingDirectorBecausewehadalreadyinvestedasyouknowasperourearlierinvestmentprogram.
AnalystYes.
VKViswanathan,ManagingDirectorAnalystOkay.Andhowmuchareweplanningforthenextyear?
VKViswanathan,ManagingDirectorNextyearasofnowagainsameRs.5billion,Rs.6billion,butthiswillbereviewedineveryquarter.
AnalystOkay.
VKViswanathan,ManagingDirectorTakingintoaccountthemarketconditions,etcetera.
AnalystOkay,okay.That'sfine.Yeah.Anotherquestionpertaintothatwehaveseenthatwearenotrunningouralltheplans,infactweare
operatingfivedaysorsixdayslessinamonthduringAugustandSeptember.Nowthathasgonebacktothenormalof...
VKViswanathan,ManagingDirectorYesexactly.Wehavetotallygonebacktonormalcy.
AnalystOkay.
VKViswanathan,ManagingDirectorOctobermonthasyouknowhadlotofholidaysbecauseofBakriIdandPooja,Navratri,etcetera.
AnalystYeah,yeah,yeah.
VKViswanathan,ManagingDirectorThereforewedidn'thavetoreallyreduceorsuspendourproductioninotherworkingdays.
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Okay.
VKViswanathan,ManagingDirectorAndallthefactoriesareworkingfulltimenow.
AnalystOkay.Sirjustlastquestionfrommyside,ifwehavetoappreciaterevenuebreakupofsay6,500crorethatwehaveachievedin
ninemonths.BroadlycanyoutellussirhowmuchistheCVsegment,PassengerCarsegmentlikethat?
VKViswanathan,ManagingDirectorSeewedon'treallylookatthesekindofsegments.Weareoperatingbasicallyfromthebusinesssectorviewratherthansegmental
view.
AnalystOkay.
VKViswanathan,ManagingDirectorWehaveadieselsector,wehaveagasolinesector,wehaveanelectricalsector,etcetera.
AnalystOkay.
VKViswanathan,ManagingDirectorSowemonitorourresults
AnalystOkay.
VKViswanathan,ManagingDirectorBasedonthesectorialperformanceslikediesel,gasoline,starters,generators.
AnalystOkay.
AndasIsaidearlier,dieselhasmarginallydeclinedinlinewiththemarketdiesel,othershaveactuallyperformedquitewell.
AnalystOkay.Willitbepossibleforyoutogivethebroadpercentagesofcontributiontorevenuebythesethree,fourdivisions?
VKViswanathan,ManagingDirectorNo,wedon'tgivethatandthat'sneverbeengivenofinthepast.
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AnalystNowsirsincethedieselpricesarealsolikelytoincrease,governmenthasalreadydone itonceinthisquarter.Doyouthinkthat
canoverallaffectourbusinesssincewehavemajorcontributioncomingfromDieselsegment?
VKViswanathan,ManagingDirectorIdon'texpectanymajorreactiontothis.
AnalystOkay.
VKViswanathan,ManagingDirectorBecauseRs.5hasalreadybeenfactoredinmonthago.
AnalystOkay.
VKViswanathan,ManagingDirectorAmonthorevenmorethanthat.Sothathasalreadyhappened.
AnalystOkay.
VKViswanathan,ManagingDirectorAnalystYeah.
VKViswanathan,ManagingDirectorBecausethisitselfisaheftyincrease.
AnalystOkay.
VKViswanathan,ManagingDirectorSoIdon'treallyexpectdieselpricestohaveaverymajorimplicationonourdieselbusiness.
AnalystOkay,okay,okay.Fine.That'sall.Thankyouverymuchsir.
VKViswanathan,ManagingDirectorThankyou.
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OperatorThankyou.OurnextquestionisfromApurvaDoshiofHSBC.Pleasegoahead.
AnalystYeahsir.Firstofallonthemarginfront, lastquarterwehadsaidthatbecauseofRupeedepreciationwhatwehaveseenthatraw
materialcostasapercentageofrevenueisgoingupto56%,57%.ButImeanthekindofforbrandingpowerwehave,isitpossible
topassiton?
VKViswanathan,ManagingDirectorPassiton,onwhat?
AnalystPassonrawmaterialcosttotheendconsumers.
No,that
is
depending
on
individual
market
situation,
individual
customer
et
cetera.
Our
objective
is
to
pass
on
as
much
as
possible.
Butitmaynotbepossibleallthetime.Sothat'sverydifficultformetosay.
AnalystButjusttounderstandmy,likeshouldweassumethattheselevelsshouldbetheconstantlevelsgoingforwardorarewelooking
atanypricehikesoranyofthosestuff?
VKViswanathan,ManagingDirectorNo,Ican'tsaythesethingsasyouwouldappreciate...
AnalystBecauseit'sabroadtrendImean,howdoyouseethathappening?
VKViswanathan,ManagingDirectorcomebacktonormalprofitabilitylevels.
AnalystOkay.Buttypicallyitcouldtakeanotherwhat,twoorthreemorequarters?
VKViswanathan,ManagingDirectorVerydifficultformetosay.
AnalystOkay,okay.Andon theCapEx sidewhat you said is you've incurredaround500crores this year.Themajorityof it isalready
incurredorsomethingwillbeincurredinthelastquarter?
VKViswanathan,ManagingDirectorMajorityhasbeenalreadyincurred,becausethisisacapitalexpenditureprogramthatwestartednearlyin2011,itcouldbecloseto
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600croresaswell570crores,600croreskindofasituation.Butwewillwatchthisveryclosely,therearealsoopportunitiesbecause
asandwhenthenewgenerationdieselsystemstakeplace,youneedtobeprepared.
AnalystCorrect.JusttounderstandIthinkmostoftheCapExwouldbeonthedieselside,dieselfuelinjectionside.Sotypicallyhowmuchis
thecapacityutilizationandwhatwouldbethefreshcapacitynowwhichhascomingpostthisCapEx?
Seecapacityutilizationdiffers fromplanttoplantoreventheeachtypeofproductthatwehave.Buttypicallywehaveanything
around80%,90%kindofacapacity.
AnalystOkay.AndpostthisnewCapExwhichhascome in,which isreflecting inthesharp increase indepreciation,thiscouldfallto60%,
70%?
VKViswanathan,ManagingDirectorNo,
it
will
be
around
70%,
75%
Iwould
say.
Maybe
it
will
then
pick
up
as
you
go
along.
AnalystYeah,correct.Sobut like thecapacityhascome inandasyou rightlysay,thedieselhasactuallydegrown,sothatmeansyour
volumesarenotgrowing,rightandthenewcapacityhaskickedin,soyourutilizationhastocomedown?
VKViswanathan,ManagingDirectorAbsolutelyright.
AnalystOkay.ButdoesthischangeourCapExplanforfuture?
VKViswanathan,ManagingDirectorNonothing inamajorway,butwewillcontinuously lookatwhere the investmentsaregoingwhich segmentsareneeding
investments,whichsegmentswecaneitherpostponeordelaytheinvestmentsetcetera.Sothatwillbeanongoingreviewand
decisionmakingbythemanagement.
AnalystOkay.Andsironthetractorsideyousaidthatithasnotgrown,butifyoulookattheresultsofM&M,thetractorbusinesshas
donefairlywell.So,doesthatmeanthatwedon'tsupplytoM&M?
VKViswanathan,ManagingDirectorOfcourse,wedosupplytoM&M.Ican'treallytalkaboutmycustomer.
AnalystOkay.
But,whatwecantalkaboutisthatoverallthetractormarkethasdegrownthisyear.
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AnalystOkay.ButwedosupplytoM&M?
VKViswanathan,ManagingDirectorOfcoursewedo.
AnalystOkay.AndsimilarlyImean,justabasicquestion,arethesegmentsofautomotiveancillarieslikethewipersorthebatteries,are
theyinthelistedentityortheyareoutsidethelistedentity?
VKViswanathan,ManagingDirectorWhichone,wipersetceterawedodistributefromour,intheaftermarket.
AnalystIntheaftermarket.Sointheresult,thatshowsautomotiveproductionothers,theotherswouldbepowertools?
VKViswanathan,ManagingDirectorNo,no.Nonautomotive there isone.One isautomotive, theotherone isnonautomotive.Automotive includesdiesel,gasoline,
startersandgeneratorsevensomeelectronicproductsandautomotiveaftermarket.
AnalystOkay.
VKViswanathan,ManagingDirectorThenwehavenonautomotive,whichincludespowertools,securitytechnology,packagingmachines,etcetera,etcetera.
AnalystOkay.So,thisotherswouldincludeallthesewipersandwhateverbatteryandallthatyousay?
VKViswanathan,ManagingDirectorAnalystIt'sincludedintheautomotivesegmentitself?
VKViswanathan,ManagingDirectorAsyouknowwipersystemsweonlydothesalesintheaftermarket.
AnalystCorrect.
VKViswanathan,ManagingDirector
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Manufacturingourwiper,motors notevenwipersystem,wipermotors.Wedon'tmanufacturewiperbladesinIndia.
AnalystOkay.
VKViswanathan,ManagingDirectorThemanufacturingofwipermotorsetceteraisanothercompanycalledRobertBoschElectricalDrivesCompany.
AnalystOkay.So,basicallywejusttradeonthem?
VKViswanathan,ManagingDirectorThat'sright.It'saverysmallbusiness.
AnalystYeah.So,Ithinkthatwillbemynextquestion.Roughlywhatpercentageofrevenuewouldcomeoutofthesetraded itemsvery
roughly?
VKViswanathan,ManagingDirectorBatteriesand...
AnalystVKViswanathan,ManagingDirectorItisabout200crores,300crores,250croresto300crores.
AnalystOnanannualbasis?
VKViswanathan,ManagingDirectorYeah.Annualbasisyeah,yeah.
AnalystOkay.Sirthankyouverymuchandbestofluck.
VKViswanathan,ManagingDirectorThankyou.
OperatorThankyouverymuch.OurnextquestionisfromAshishNigamofAntiqueStockBroking.Pleasegoahead.
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VKViswanathan,ManagingDirectorPleaseonlytwoorthreequestionsperparticipantplease.
AshishNigamSuresir.Sirmostofmyquestionshavebeenansweredtherearejustcoupleofthings.Atthemomenthowmuchwouldnetimports
beforBosch?Netimports.
VKViswanathan,ManagingDirectorSeeourimportsisroughlyabout3,000crores.
AshishNigamOkay.
VKViswanathan,ManagingDirectorAshishNigamOkay.Andsirtheplanstoincreaselocalizationlevels.Sohowdoyouseethismovingovertwoorthreeyearperspective?
VKViswanathan,ManagingDirectorTwoorthreeyearperspectiveisverydifficulttogivemyowncustomers,onwhomwedependupon.
AshishNigamSure.
VKViswanathan,ManagingDirectorTheydon'tgiveusguidanceandthereforeIcannotreallyprovideguidancetothat.
AshishNigamSoactuallysirlocalizationatthemomentwouldbehowmuchasapercent?
VKViswanathan,ManagingDirectorSee
it
depends
on
product
to
product
it's
growing.
But
Iwould
imagine
it's
in
the
region
of
about
60%,
65%
on
an
average
put
together.
AshishNigamOkay.Andwewanttoincreasethistoaparticularlevelthatyouallhavedecided?
VKViswanathan,ManagingDirectorNo.Ourtargetistoprogressivelyincrease.
AshishNigam
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Sure.
VKViswanathan,ManagingDirectorIt'snotjustan increasesayforthesakeofincrease,becausethereshouldbeenoughvolumesfor localization.Youneedtocreate
capacitiesattheTierII,TierIIIlevels,youneedtoinvestindyesandtooling,etcetera.Thenyouneedtohaveenoughvolumesfor
localizations.
Fairenoughsir.
VKViswanathan,ManagingDirectorSoweareconstantlyevaluatingwhichproductsareidealforlocalization,whichproductscontinuetomakesenseforimporting.
Sowedothatandwecontinuetoprogressonourlocalizationstrategy.
AshishNigamFairenoughsir.Siractuallyalsowanttounderstandhowyourproductmixwillmovegoingintothenextemissionnormchangein
April2014,
because
you
had
mentioned
that
with
CVs
going
into
BSIV,
they
will
be
eligible
for
CRDi.
So
how
would
that
change
things
forBosch?
VKViswanathan,ManagingDirectorSeeCRDiwouldperhapscomein,Iwouldn'tsayCRDi.TheemissionEuroBharatStage4isexpectedin2015,notin2014.Todayin
2012about17or18citieshavegoneintoEuro3.
AshishNigamOkay.
VKViswanathan,ManagingDirectorTheothercities,etceterawe'llhavetogofromEuro2toEuro3andthatisexpecteduntil2014.
AshishNigamOkay.
VKViswanathan,ManagingDirectorSowearetalkingabout2015,whensomecitieslikefiveorsixorsevencitieswillgointoEuro4andthatisalongwayfromatleast
threeyearsfromnow.
AshishNigamFairenoughsir.Sonothinginthetermatleast?
VKViswanathan,ManagingDirectorNonothing.
But generallywhat does this do to your productmix every emission norm change.Does it reallymove the productmixmore
towards,ImeanwithletsayBSIVdocomeineventuallyevenletsay2015.Doyouthinkthiswillbeabiggamechangerforyouallin
termsof
just
being
eligible
for
CRDi?
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VKViswanathan,ManagingDirectorYeah.Butthishasearlybeenreflectedandthisiswhywearealsoinvestingincapacityaswellasintechnology.
AshishNigamSure,surenojustokay.Iwantedtogetasense,likeisthereanyproportionofCVsthattCRDiatthemoment?
VKViswanathan,ManagingDirectorThereareofcourse.
AshishNigamAndImeanrationallythatcanincreasesubstantiallyafterthenextemissionnormchange?
VKViswanathan,ManagingDirectorItcanbutthatisslightlyinthenearterm.
AshishNigamFairenoughsir.That'sallfrommyside.Thankyou.
VKViswanathan,ManagingDirectorThankyou.
OperatorThankyouverymuch.OurnextquestionisfromSrinivasRaoofDeutscheBank.Pleasegoahead.
SrinivasRaoYeah.Thankyousir.Justwantedtocheckwiththat,youmentionedinyourcommentaryaboutthedieselsectornotdoingwell.I
meanonayearonyearbasis Imean is itprimarilybecause theMHCwhichhasdoneextremelypoorly,because inthePVside
dieselobviouslyhasdonemuchbetter.Sojusttryingtounderstandthedynamicsforyou?
VKViswanathan,ManagingDirectorSrinivasRaoYeah.
VKViswanathan,ManagingDirectorFirstandforemostisthecommercialvehicles,whichismediumandheavycommercialvehicles.
SrinivasRaoFairenoughsir.
VKViswanathan,ManagingDirector
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Whichisbasically7tonsandabove.
SrinivasRaoSure.
VKViswanathan,ManagingDirectorAndthissegmenthashadasharpdecline.
SrinivasRaoAbsolutely.
VKViswanathan,ManagingDirectorAmountingtoalmost13%,14%inthethirdquarter.
SrinivasRaoYeah.
VKViswanathan,ManagingDirectorThentheotherdieselimportantsegmentisthelightcommercialvehiclesegment.Normallythissegmentistheverypowerfulengine
ofgrowthinthelasteightorninequarters.
SrinivasRaoVKViswanathan,ManagingDirectorButthissegmentalsohasnotreallygrownsignificantlyinthirdquarter.Butthatisnotaverysegmentforus,althoughwearealsoa
bigplayerinthis,thevaluerealization isnotthatverysignificant.Thenwehavetrackedasegmentwhichisanimportantsegment
thathasalsodeclinedbyaboutfivepercentagepoints,sixpercentagepointssofarthisyear.
SrinivasRaoSure.
VKViswanathan,ManagingDirectorWhat
Iam
saying
is
that
when
we
have
got
passenger
cars
and
utility
vehicles
in
diesel.
SrinivasRaoRight.
VKViswanathan,ManagingDirectorHereofcoursebothpassengercarsandutilityvehiclesaregrowingindiesel,dependingupontheavailabilityofthedieselcars.
SrinivasRaoYeah.
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VKViswanathan,ManagingDirectorTherehavebeensomehiccupsasyouknowinthedieselcaravailability.
SrinivasRaoYes,sir.
VKViswanathan,ManagingDirectorBut SUVs areby and large diesel and that sectorhas performed verywell andwe have a very important stake in that SUV
segment.
SrinivasRaoVKViswanathan,ManagingDirectorAllsectorsareimportant,butintermsofsizeIthinkMHCVaswellastractorsareveryimportant.
SrinivasRaoFairenough.Becausethat'swhyIjustwantedtocheckonthedisconnectthere.Thisishelpful,sir.Thankyousomuch.
VKViswanathan,ManagingDirectorThankyouverymuch,Srinivas.
OperatorThankyou.OurnextquestionisfromPramodDangiofJeetayInvestments.Pleasegoahead.
PramodDangiYeah,thankyouforthetakingmyquestion.Myquestion,afollowuponthelastanswerwhichyougave,thatyousaidthevehicles
didverywell,butweallknowthat in last fiveyears,wehaveseenthe incrementaldieselizationofthepassengervehicles.So,sir
whatwewant to understand like howmuch of the growth in last four five years of the Bosch actually came because of the
dieselizationinthepassengervehiclesexcludingutility?
VKViswanathan,ManagingDirectorThat's verya toughquestion forme toanswer.But Icanveryclearly say that if I takea longtermaverageofourwholediesel
businessfromsay2007to2012thirdquarter.
PramodDangiRight.
VKViswanathan,ManagingDirectorOnanaverage,wewouldhavegrownby14%,15%inthelastfourfiveyears.
PramodDangiRight.
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VKViswanathan,ManagingDirectorPramodDangiRight.
VKViswanathan,ManagingDirectorYeah?Andthereforemyownexpectation isthat increaseddieselization inpassengercarswillcontinuetohelpus inourgrowth
termsofcoursewearealsoasignificantlyimportantplayerintheSUVsegmentandthatisalsohelpingus.
PramodDangiRight.ButwhatwillbeweknowthatintheSCVtoMCVsegment,theBoschhasalmost80%,morethan80%marketshare,what
willbethemarketshareinthepassengervehiclessegmentinthedieselcarpassengervehicles?
VKViswanathan,ManagingDirectorSee,wedon'treallydisclosemarketshares.
PramodDangiOkay,okay,okay.Andgoingforwardlikewealreadyfromzeropercentdieselizationtothealmostthe35%to40%dieselization
inthepassengervehicles.
VKViswanathan,ManagingDirectordieselization1998,wehadincreased20%,22%dieselization.OfcoursethenthatwasTataIndica,TataIndigoetcetera.
PramodDangiOkay.
VKViswanathan,ManagingDirectorThenofcoursewehadbigSUV'sbecominganimportantplayer,thenMarutiwentittodieselsegment,thenothersalsowentitto
dieselsegment.Todayit'smorethan50%.
PramodDangiRight,right.Sothequestionmainlyisliketotargettounderstandlikesincewealreadyreachedmorethan50%dieselization,
soevenifitgoesto50%to60%or70%,howmuchincrementalgrowthwecanexpectfromthedieselizationperse?
VKViswanathan,ManagingDirectorSee,atleastwhateveristhegrowthwecanexpect.Wewillnotlikedoandwewillnot wewillmakesurethatourmarketshares
don't come down. So if the dieselization goes up from 50% to 60% for example. I'm sure Boschwill also grow in that same
proportionifnotmore.
PramodDangiOkay.Yeah,thankyou.
VKViswanathan,ManagingDirectorThankyou.
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OperatorThankyouverymuch.OurnextquestionisfromAdityaMakhariaofJPMorgan.Pleasegoahead.
AdityaMakhariaHello?
VKViswanathan,ManagingDirectorHi,Aditya.
AdityaMakhariaYeah,hisir.IwasjustcheckingwiththelikesofMarutimentioningthattheirenginecapacitywillgoupto700,000unitsoverthe
next by2014,currentlythereareabout300k,isitImean,atsomepointwillyourpassengercarrevenuesovertakethatofthe
commercialvehicles?
VKViswanathan,ManagingDirectorPossible,butitwilltakeawhile.Becausetherevenuerealizationisquitedifferent.Andalsointermsofcommercialvehiclesboth
medium,heavypluslightcommercialvehiclesputtogether,thevolumeiscloseto800,000,900,000.
Todayinpassengercarterms,1.2million,1.3million,1.4millionisthetotalpassengercarsdiesel.Soasofnowitdoesn'tseem
likely,butmaybeinthefour,fiveyears'timeitcouldhappen.
AdityaMakhariaOkay.Andjustsecondquestionisyoumentionedthatyoubelievetheworstisover.Sowhatkindofsignsareyoupickingupon
theground?
Seetherearesome impulses.The impulsesare forexampleOctober.Ofcourse lastyearOctoberwasalsopoor, lowerbase,but
eventhen,weseeofftakeimprovingfromJuly,AugusttoSeptember.SeptemberwasabettermonthcomparedtoJulyandAugust,
October isabettermonthcomparedtoSeptember,November,Decemberalsoarefestivalmonthsandmanyschemesandmany
newlaunchesbyOEMsareplanned.
SoIbelievethat andalsowithsomeeasingofliquidityintheformoflowerCRRetceterashouldaidinnotonlymakingthemoney
availableatlowerratesbutalsoeasieravailability.Soclearly,weareseeingsomeoftheseimpulses,someofthesesignals.Theyare
notverystrongatthispointintime,butneverthelessonecanseethem.
AdityaMakhariaOkay.
Thank
you
sir.
VKViswanathan,ManagingDirectorThankyou.
OperatorThankyouverymuch.OurnextquestionisfromSrinathKrishnanofSundaramMutualFund.Pleasegoahead.
SrinathKrishnanSirthanksalotfortakingmyquestion.
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VKViswanathan,ManagingDirectorYeah.
SrinathKrishnanYouattributedyourincreaseinRMtosalestoprimarilyForEximpact.IfacrossyourRMtosalesandthecurrency,thereseems
tobeclosecorrelationyes,butinthefourthquarter,thereseemstobeadivergence.Isthereanycompensationthathappens
duringthefourthquartergenerally?
VKViswanathan,ManagingDirectorCompensationisacontinuousexercisewhereveritispossible,itdoesn'tparticularlycomeinfourthquarter.Althoughwehaveour
fourthquarterasafinalquarterforthecalendaryear,ourcustomershaveJanuarytoMarchasthefinalquarterforthefiscalyear.
SrinathKrishnanOkay.
Sonothinginparticularthatweseeinfourthquarterwhichwedon'tseeitintheotherthreequarters.
SrinathKrishnanOkaysir. Inthisregardsir,wedounderstandthatECU issourcedfromtheparentcompanyestablished in India,theelectronic
modulewhichwouldhavea lotof importedsemiconductorsetcetera.Sohow isthepricingarrangementbetweenBoschIndia
andthe100%,isthereakindofacostpassthroughthatwehaveintermsofthecontractsforbuyingtheelectronicmodule?
VKViswanathan,ManagingDirectorSeewebyand largefollowtheprincipleofarm's length,what isthecomparablemarketpricesetcetera.Andwemakesurethat
thereisanarm'slengthpricingandthatthecontractsbetweenthe100%subsidiaryandyourcompanyareonafairandaequitable
basisforboththecompanies.
SrinathKrishnanYeah.That'sfinesir.Wedefinitelyunderstandthat.ButistheretheForExportionofthecosting,isthereapassthroughthat
isthereinthecontractorit'safixedpricecontract?
VKViswanathan,ManagingDirectorIt'snotafixedpricecontract.Basicallyit'sacostbasekindofacontractandvolumesareindicatedatthebeginningoftheyear.So
annuallythe
contracts
are
fixed
and
prices
are
monitored
on
that
basis.
SrinathKrishnanOkay.Sirintermsofthetwowheelersegmentwhichisrelativelysmallatthispointintimethoughtherearelotofopportunitiesand
fuelinjectionperseintwowheelersgoingforwardasemissionnormstighten,sowhatisourstatedviewongettingintothespace
andwhat'sthekindofpreparatoryworkthatwehavedoneandwhendoyouseethefirstfuelinjectionmodulethat'sbeensupplied
fromBoschIndiaintothetwowheelersspace?
VKViswanathan,ManagingDirectorNoweare intotwowheelersalready inawayformany,manyyears,sparkplughasbeenthebrandcarrieraswellasthemajor
suppliertoalltheOEMsaswellastwowheelersareconcerned.Ofcoursewearenotinthecarburetorbusinessnowasandwhen
thefuelinjectionsystemscomein,ourenginemanagementsystemscomein,wewillbeofcourseprepared.
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WehaveestablishedaconceptcalledBikeHouse,whichdoesthedevelopmentalworkinBangalore.Andwearealreadysupplying
EngineManagementSystemsorEMSaswecallittooneofthemajortwowheelermanufacturers.
SrinathKrishnanThat'songlobalbasis?
It'snot Iwon'tsayglobalbasis,internationalbasisaswellasdomesticbasis.
SrinathKrishnanOkay,fine.Thankyouverymuchsir.
VKViswanathan,ManagingDirectorThankyou.
OperatorThankyouverymuch.OurnextquestionisfromKrishnanSambamoorthyofFortuneEquity.Pleasegoahead.
KrishnanSambamoorthyYeahhi.Youhadmentionedthatyouarecloselymonitoringtheworkingcapitalfront.What'sthesituationondebtorsandinventory
andhavetherebeendelayinpaymentsbytheOEMsandhowdoyouseethatgoingforward?
VKViswanathan,ManagingDirectorAsfarasinventoriesareconcerned,Ithinkourteamhasdoneaveryeffectivejob,becausewehadhighlevelofinventoriesin
themonths
of
June
and
July.
KrishnanSambamoorthyYeah.
VKViswanathan,ManagingDirectorBecausethemarketssuddenlyturneddownwardsandwehadtothereforequicklyadjustourproduction.Andthatiswhywehad
toresorttosuspensionofmanufacturinginquiteafewofourfactories.
KrishnanSambamoorthyOkay.
VKViswanathan,ManagingDirectorThathascomedowntoalmostnonactivelevelsnow.
KrishnanSambamoorthyVKViswanathan,ManagingDirectorAs far as receivables are concerned, no particular pressure baring one or two here or there,wherewe see some amount of
tightening
of
credit
is
in
the
field
in
the
retail
markets
like
service
market
or
in
the
spares
market.
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KrishnanSambamoorthyOkay.
VKViswanathan,ManagingDirectorButthis isunderstandable,becausewhenthemoneymarketsaretightand interestratesarehigh,youseesomekindofdelay in
payments.Thatdoesn't really lead tobaddebtper se,but thataffects the rotationofbusinessand thereforeourbillingalso is
affected.That'swhyoneofthereasonswhyoursalesrategrowthisslightlymutedisbecauseofthis.
KrishnanSambamoorthyOkay.Thanksalot.
VKViswanathan,ManagingDirectorThankyou.
OperatorThankyouverymuch. [Operator Instructions].Ournextquestion is fromAmynPiraniofDeutscheBank.Pleasegoahead.Mr.
Piraniyourlinehasbeenunmuted,pleasegoahead.
AmynPiraniYeah.Hisir.Thanksfortakingmyquestion.WhatIwantedtoknowisthatwithinthetractors,wouldyoubeabletogiveasenseas
toareyougettingmoreordersforhigherhorsepowertractors,isthereachangeinthemarketmixassuchwhichalso...?
VKViswanathan,ManagingDirectorYeah.Weseeincreaseddemandforhigherpoweredtractors,earlieritusedto25,30,35kindofhorsepower.
AmynPiraniOkay.
VKViswanathan,ManagingDirectorAmynPiraniOkay.
VKViswanathan,ManagingDirector50horsepower typeetcetera.So theyarenotvery significantlydifferent, Imean yes therearecoupleofpercentagepoint
increasesforhigherversuslower.
AmynPiraniOkay.
VKViswanathan,ManagingDirectorButnodramatickindofturnaroundinthesituation.
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AmynPiraniOkay.Andjusttounderstandsirwouldthatalsomeanthatmoreandmoretractorsarebeingusedfornonagripurposesoristhat
conclusionnotreally...?
VKViswanathan,ManagingDirectorIthinktheratioisstillthesame.
AmynPiraniOkay.
VKViswanathan,ManagingDirectorIthink55:45or60:40iscontinuingtobethetrend.
AmynPirani60foragriand40fornonagri?
VKViswanathan,ManagingDirectorThat'sright.
Okaysir.Thanksalotsir.
VKViswanathan,ManagingDirectorThank
you.
OperatorThankyouverymuch.OurnextquestionisfromRikenGopaniofInfinaFinance.Pleasegoahead.
AnalystHello?
VKViswanathan,ManagingDirectorHello.
AnalystSirwantedtojustunderstandtheoutlookthatyouhavegiventhatyoumighthaveseenthebottomrightnow.AndsoistheOEM
productionalsoseenrampingupespeciallyontheCVsideorthatisnotsomethingthatyouhaveseenrightnow?
VKViswanathan,ManagingDirectorInsomesectors,includingOEsegmentforcommercialvehicle,weareseeing.Butthepointisfromwhichleveldoyoulookatit.IfI
look
at
it
from
the
low
levels
of
July,
August,
clearly
there
are
some
signs
of
improvement.
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AnalystOkay,okay.Becauseasyoumentionedaboutinterestrates,sothatactuallyinthelendingmarket,theyhavealreadybeencutby
mostof thebanksandjustquiteabitof reduction thathashappenedon the interest rate side.Butat least theOctoberdata
doesn'tsuggestanypickupatall.Soisthereanytrendthatyouhaveseendifferently,whyyouthinkthebottomisinplaceImean
isthereanyrisktothisthatyouthinkrightnowordoyouthinkmoreorlessitshouldstabilizehere?
VKViswanathan,ManagingDirectorSeeIamnotsayingthatweareseeingaverydramaticincreaseinthedemandsituation.Butclearlygoingbytheordersthatweare
getting and goingby the sentiments that areprevailing and the fact that aswe alluded to that the interest rateshave already
declinedbyabout50to75basispointsattheretaillevelgiveustheoptimismthatmarketwillseesomeimprovements.
Okay,okay.
VKViswanathan,ManagingDirectorAlso please understand that last four quarters I thinkwe have had some,we have not really had a significant growth in the
commercialvehiclesegment.Sonormallyitcatchesup,thepentupdemandcomesupandthereweseesomeimprovements.
AnalystAllright.Andsironethingonthemarginside,asyoumentionedthatthegrossmarginpressureisclearlyonaccountofthecurrency
move.Sowouldwebehavinganypricechangeinordertotakecareofthisinthenextquarterorso?
VKViswanathan,ManagingDirectorComeagainIdidn'tunderstandyourquestion.
AnalystAsyouhadmentioned inyour initialremarksthatthegrossmarginerosion ismainlyonaccountofthecurrencymovement
againstus.Soisthereanypricecorrectionthatwewouldbetakinginordertotakecareofthisorwhatwouldbeourstrategy
toimprovethegrossmargin?
VKViswanathan,ManagingDirectorSeeIthinkweshouldalsolookatitfromtheabsoluteperspective.Whenwearecomparingagainstlastquarter,therehasbeenan
increaseinthematerialcosts.Butifyouseethesequentialquarters,theincreasehasnotbeenverysignificant.
AnalystOkay.
VKViswanathan,ManagingDirectorAndtherefore,Iwouldimaginethatitshouldsettledownatthesepointsintimeandwhereveropportunitiesarethere,wewilltry
andgetpriceincreases.
AnalystOkay.Butasofnow,wehaven'ttakenanypriceincrease?
VKViswanathan,ManagingDirectorAnalyst
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Okay,okay.Thanksalot.
VKViswanathan,ManagingDirectorThankyou.
OperatorThankyouverymuch.Ladiesandgentlemen,duetotimeconstraints,thatwasthelastquestion.Iwouldnowliketohandthefloor
backtoMr.AniketMhatreforclosingcomments.
AniketMhatreThankyou Inba.OnbehalfofStandardCharteredSecurities, Iwould like tothank theseniormanagement teamofBosch for
takingtimeoutforthecallandpatientlyansweringallthequestions.Thankyouverymuchgentlemen.
VKViswanathan,ManagingDirectorThankyou.
AniketMhatreAndthankyoutoalltheparticipants'forbeingthereonthecall.Thanks.
OperatorThank you very much sir. Ladies and gentlemen, on behalf of Standard Chartered Securities Limited, that concludes this
conferencecall.Thankyouforjoiningusandyoumaynowdisconnectyourlines.