Bosch Ltd

NSE:BOSCHLTD

Earnings Call Transcript 2023-Q2

[Annamalai Jayaraj, analyst]

Ladies and gentlemen, good day, and welcome to Bosch Limited 2Q FY '22, '23 post-results 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, our Chief Financial Officer. [Operator Instructions]

Also may 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 risk that the company faces. Over to you, sir.

[Soumitra Bhattacharya, executive]

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 macroeconomic 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 a significant downside risk to growth with persistent high inflation. In relation to the Indian economy, the IMF released its latest forecast on the world economy this week in which India's FY '23 real GDP growth was revised downwardly to 6.8% from the 7.4% projected in July '22. Having said that, the domestic demand continues to be quite robust in India.

Next slide. Overall, automotive market production has increased by plus 28% year-on-year in the current quarter. This excludes 2-wheelers. However, on a low base of the quarter 2 of fiscal year '22, the production volumes in quarter 2 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 plus 35% year-on-year volume growth supported by the somewhat easing of chip supplies or semiconductors and the pent-up festive season demand. By the way, colleagues, you must know that October had the highest sales for fast cars due to the festival demand.

Serving this already healthy order book and thereby mitigating longer waiting periods. The 2-wheeler segment also witnessed a healthy plus 8% year-on-year growth, largely supported by the festive season and premiumization trend. The LCV segment continues to witness growth and which was plus 30% on year-on-year, while the heavy commercial variables or HCV segment saw plus 37% year-on-year on albeit 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 [indiscernible] segment also grew marginally by around minus 2% year-on-year, of course, to very high base with the OEMs building up delayed inventory in anticipation of the strong demand, which was there for the festive season. The 3-wheeler is on a recovery path with shared mobility slowly picking up. Overall, automotive market production has increased by plus 30% quarter-on-quarter in the current quarter. This, of course, excludes 2-wheelers.

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 LCV factor 2-wheeler, 3-wheeler segments respectively. The first column represents the 2018 production volumes, 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 here 2018, but you can also tendentially read it as 2018 [indiscernible] but the numbers here indicated are the calendar year.

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 volumes. Basis these numbers, we are expecting a solid year for pass car, LCV segment, and very likely, they will reach the 2018 peak. Example, you can see in pass cars, we've set 4.3 million for the pass cars current forecast of '22 as against the 4.07 million in the year in 2018.

The tractors peaked. The -- in case of heavy commercial vehicles, 2-wheelers and 3-wheelers recovery continues, however, and we can see based on differentiated situations, they are still far away from the 2018 peak. Tractors peaked already last year, and we are expecting a minor degrowth albeit on a very high basis.

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 in 2022 stood at INR [ 36,616 million ] or INR 3,662 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 Powertrain Solutions, while nonautomotive 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-19. 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 SOP dates was INR 648 million or INR 64.8 crores. Balance income would get recognized in subsequent quarters based on project location completion days of customers.

Other operating income mainly includes income from lease rentals, miscellaneous 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 project scheme of the government of Maharashtra pertaining to our top 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 '21 to 64.9% in July, September '22. Increase is mainly due to 2 reasons: one, change in product mix towards traded goods over the same quarter of the previous year. And second, what's happening internationally, which is raw material price increase, including increases in the prices of electronic components.

Employee cost for July, September '21 included reversal of employee-related provisions. On a like-to-like basis, without the reversal of provisions employee cost in July, September '22 would have remained the same as compared to the previous year.

Other expenses stood at INR 5,781 million or INR 578 crores, which is 15.8% of the total revenue in July, September '22 as compared to INR 4,757 million or INR 476 crores, 16.3% of total revenue in July, September '21. Increase is in line with the increase of sales and also higher spending on new business areas and onetime technical access fee paid for localization of new products.

Our depreciation for the current quarter is at INR 919 million 2.5% of the total revenue as compared to INR 829 million 2.8% of total revenue in July, September '21. The increase in depreciation is on account of capitalization of our new Spark.NXT campus and the plant initially for localization of our new products in the current quarter.

With this, the operating profit stood at [ INR 3,392 million ]. In July, September 2022 as compared to [ INR 2,747 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 of our mutual funds, which are debt-based. Other income has also increased from [ INR 1,243 million ] in July 2021 to [ INR 1,497 million ] in July, September 2022, mainly on account of increase in interest income of fixed deposits and dividend received from equity shares.

For the quarter ended July, September 2022, the company has posted a profit before tax or PBT of [ INR 4,870 million ], as suspected to [ INR 3,975 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 current quarter.

PAT or profit after tax. For the quarter ended September 2022 stood at [ INR 3,724 million ], which is 10.2% of the total revenue from operations. Profit after tax in July, September 2021 was [ INR 3,720 million ], which included tax adjustments, which is a credit amounting to INR 765 million pertaining to previous years.

We, in Bosch believe that by 2030, approximately 1 in 3 new vehicles across the globe is likely to be an EV. Bosch is already gearing 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 vehicles.

On [indiscernible], our Powertrain Solutions division in India located inside [ RBEI ] is a 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 BS-IV to hydrogen ICE and the details of this will be shared with you later at the time of SOP by our OEMs.

The sustainable analytics or global ESG ratings agency. ESG stands for environment, 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 scores, the better. Bosch Limited currently ranks at 11 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, analyst]

Thank you, sir. We shall now begin with the question and answer session. [Operator Instructions] The first question is from Mr. Jinesh Gandhi.

[Jinesh Gandhi, analyst]

Yes. My first question pertains to the CapEx. So first half CapEx was close to about INR 3.1 billion. Any indication of what kind of investments we expect in second half or for the full year FY '23? And in which areas are we investing for future growth?

[Soumitra Bhattacharya, executive]

Yes. So as I said, Jinesh 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 called Spark.NXT campus. So we have also, based on this quarterly since we have catalyzed it, this has also come into the books and therefore, it shows in the [indiscernible]

In relation to the CapEx plan for 2022, we have approximately anywhere between INR 520 crores to INR 560 crores, is that bandwidth. As you know, Bosch Limited for over the last many, many years, does between INR 400 crores to INR 600 crores and Bosch India does anywhere between INR 600 crores to [ 800 crores ]

[Jinesh Gandhi, analyst]

Right. And this INR 520 crores to INR 560 crores will also include investment towards PLI scheme related CapEx, right?

[Soumitra Bhattacharya, executive]

Actually 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.

[Jinesh Gandhi, analyst]

Okay. Okay. And second question pertains to the 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 it is pilot or it's actually for commercial application and when do we expect this to get commercialized?

[Soumitra Bhattacharya, executive]

So as I mentioned, 2 things, and then I'll request our CTO to talk about it, who's also handling this portfolio. We have got the pilot conversion project. The pilot conversion project will be done based on our [indiscernible] at our Adugodi campus only on SOP by our OEMs, which is our standard practice, we will give further details. But over to you, Guru.

[Guruprasad Mudlapur, executive]

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 that this is what has been done right now.

And based on that, we have acquired a CVs project. And we will now support the OEM to build additional vehicles before December. And from then on, the CV project will start. And the time line is about 1.5 years for CVs project.

[Annamalai Jayaraj, analyst]

Next will be from Pramod Amthe.

[Pramod Amthe, analyst]

Sir, first is with regard to the currency movement. If I had to look at your annual report, almost 38% is our ForEx as -- ForEx usage as a 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 currency.

And second, how these are passed on to the clients? Do they come through easily or they are tough negotiations?

[Soumitra Bhattacharya, executive]

Thank you, Pramod for a very insightful and interesting question. You'll 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 market trends and then do it.

So in summary, for Bosch Limited, we are pretty well secure against huge currency fluctuations. While the exchange rate changes have been, I won't say massive, but it has been there. For example, the quarter July rate, the changes were approximately 8.5% or this is compared to the sequential what about 3% or YTD at 7%. We have both at USD and at euro thanks to our hedging policy, had a pretty stable situation. And this is handled by our CFO, who's also participating.

The second point of yours was how is our contractual obligations. So we have systemic contracts with different OEMs in relation to different elements. So these are both based on the past as well as in the future. So we do put in some of these clauses, but naturally, as you would understand, they are not uniform across all.

So in summary, I would say, 3 sentences. One, India's exchange rate fluctuations have been thanks to our financials not massive. Two, we have a very solid hedging policy, which has allowed us not to have any major impacts. And 3, our contracting with OEMs are pretty good. And yes, they are slightly differentiated depending on different OEMs including the timing.

[Pramod Amthe, analyst]

Sure. And second 1 is with regard to the alternative technologies. Congrats on winning this pilot project on hydrogen. And considering that EVs have taken a big spike in the festivals in recent months, any update in terms of wins or what product offerings have been accepted by the OEMs in the recent times...

[Soumitra Bhattacharya, executive]

Nothing compared to the past that we declared, Pramod.

[Annamalai Jayaraj, analyst]

Next question is from -- next caller will be Ashish. Abhishek, sorry. Abhishek, your line is unmuted. You can go ahead. Abhishek?

[Unknown Analyst]

Am I audible?

[Soumitra Bhattacharya, executive]

Yes, Abhishek, go ahead.

[Unknown Analyst]

In the beginning of your narration, you said that there were some one-off kind of localization expenses included in other expenses. So can you please quantify and explain the nature of the expenses?

[Soumitra Bhattacharya, executive]

Which one are you referring to?

[Unknown Analyst]

Sir, there were some -- is there some one-off expenses included in other expenses in this quarter, sir?

[Soumitra Bhattacharya, executive]

Look, Abhishek, we have -- which we have explained multiple few times. We have technical access fee at arm's length based on when we take in new technology from our parent. So unlike royalty which is a regular payment again, which is at an arm's length that's very reasonable our onetime technical access fee was paid for a localization of a few new products. And that was the one time at this time.

[Unknown Analyst]

Can you please quantify that?

[Soumitra Bhattacharya, executive]

It's around INR 35 crores.

[Unknown Analyst]

35, okay. And sir, can you please elaborate something on about your BS-VI order book, which you said that last time it was the highest ever. So have you seen further increase in that and your outlook on the [Audio Gap]

[Soumitra Bhattacharya, executive]

At the time of the Auto Expo before the COVID. And at that time, I have declared if I correctly recall, around INR 23,000 crores on the lifetime of the acquisition of the BS-VI. This is, by the way, the definition of lifetime is between 5 and 6 years.

I also mentioned later that after the COVID, the same value based on the changed demand for vehicles at the COVID had come to approximately 18,000. So you can imagine, again, that 18,000 will move up because the demand has been doubled. So a couple of years have also gone by.

So in summary, we had already shared the BS-VI Stage 1 -- it's not stage 2 in the last Auto Expo, which happened physically before the COVID. That was in 2020 sometime in January or February.

Now coming to what I mentioned in the last quarter was something different. Having acquired the BS-VI stage 1, you are aware that there has been several government announcements based on which OEMs have actually started investing, whether it is [indiscernible] other efficient law legislations for which in the Powertrain Systems, we've had 1 of the highest acquisitions in the year 2022. And therefore, based on the current legislations, which have been announced and started to be acted upon by the OEMs, we are having a good order book. So I hope I've clarified between BS-VI stage 1 and the current acquisition.

[Annamalai Jayaraj, analyst]

Next question will be from Mr. Priya Ranjan. I have unmuted your line. Priya Ranjan, you can unmute and ask your question?

[Priya Ranjan, analyst]

Yes. So just on the commodity cost outlook. Even this quarter, you have highlighted that the commodity cost has been on the higher side, while we are seeing the commodity and the pure commodity like steel, aluminum, et cetera, is coming down. So what's your thought on going forward, the commodity cost?

[Soumitra Bhattacharya, executive]

So I will request our CFO to briefly speak about it, having said a sentence or 2. So the first sentence Priya Ranjan is that yes, there is a slight easing of commodity costs compared to the peak. Yes, there is a slight easing also, as I mentioned, on the availability of semiconductor. But please remember that those same costs on materials are nowhere near the base of when it started. So having said that, a little bit more from our CFO, Ms. Karin Gilges.

[Karin Gilges, executive]

Thank you very much. As mentioned already Soumitra that the RMI what we currently see is, of course, based on the past and on the past increases. So we are expecting an ease in the high RMIs. But nevertheless, we will see also in the upcoming months that we will not come to the base we have before.

In addition, if we look at our material costs, we also see that in the traded goods, we have an increase in the last quarter of the trading goods, which is also an influencing of our material cost. So both effects together, you can see reflected in our material costs of the current quarter.

[Soumitra Bhattacharya, executive]

Having -- Priya Ranjan, you must also realize that in a very systemic way we are approaching our customers for these increases, which are unusual. And as we know that OEMs have also on several locations this year had to increase the prices of their end product, the cars. And therefore, we, from our side, are also systematically approaching.

[Priya Ranjan, analyst]

Understood. And in your press release, you have mentioned about the injector, the common rail injector being localized. So in this quarter, have we seen some kind of supply from that? Or we are expecting localization of that to benefit in the subsequent quarters or years?

[Karin Gilges, executive]

Yes. I suppose you are [indiscernible] the localization of the injector and the commercial vehicle injector, yes. We just had the SOP of this. So we are step by step now going to the production but it is not a onetime launch. So the overall localization needs a little bit longer. So we have started the production, the assembly line is already capitalized and step by step, we are ramping up now the production. And back to your questions in the current quarter, we do not see this influence. We expect it now in the upcoming months.

[Soumitra Bhattacharya, executive]

So if I can add a sentence. The key point Priya Ranjan, to note is that we have actually got the line up and running in midyear. This also coincided with the Nashik Plant, 50 years of being in India. So, a, we have committed to the localization. It will happen step by step. The line is up and running as our CFO mentioned, already in our plan. And like what we did in the past decades, now that the line is committed in India, it's not been imported, the part components will have a step by step...

[Priya Ranjan, analyst]

Understood. And 1 thing on the consumer products goods. So I guess -- in your annual report, you have also mentioned as in from the related party transaction, there was a lot of traded goods in that segment. So -- and the margin for that segment has been lower compared to the automotive products segment. So I think the first phase of localization was started from that product line. So when can we expect the benefit coming from that line?

[Soumitra Bhattacharya, executive]

Which line are you referring to?

[Priya Ranjan, analyst]

So the power tools, the consumer goods segment because that was the first project, which I think in the last couple of years where we have undertaken more localization because they were doing a lot of traded goods out there.

[Soumitra Bhattacharya, executive]

I got it. I got it. So Priya Ranjan, there are 2, 3 points on the power tools that we must note. The power tools production line, which was at a very nascent stage, was shifted around 4.5 years from Bangalore -- 4.5 to 5 years around from Bangalore to Chennai to the automotive area. This power tools plant for 3 times have been selected as the best power tools plant overall rating out of 18 power tools plant is the word. From a very low base, we are nearly at 40% localization of our power tools, and we are committed to increase the localization where we have now shifted to our own premise at a larger premise.

In power tools, we are the market leader in a very fragmented market and our commitment towards further localization is there. And our commitment also is to have a very clear commitment on Cordless Matlab Bosch, which means Cordless means Bosch. And along with this, we will share in the future further and deeper commitments on power tools.

[Priya Ranjan, analyst]

Understood. And just last question is on the electrification and your way of participating in the electrification. So are you looking 2-wheeler, 3-wheeler electrification also as a key driver for Bosch or you are more inclined towards commercial vehicle and the passenger vehicle side in the future? What's your thought on that?

[Soumitra Bhattacharya, executive]

So already in the 2-wheeler, 3-wheeler Bosch has clearly participated with respect to what we discussed earlier on OEMs, when they announced, example, TVS, example, Bajaj, we had already mentioned it. And as we speak, our 2-wheeler division, which is located inside RBEI, but caters -- Bosch Limited -- sorry, located with Bosch Limited, but also works with Bosch Limited as well as other divisions is having various electrification projects at a system and a component level with various 2-wheelers greatly and also 3-wheelers. As you know, 3-wheelers in India today pre-COVID and post-COVID as a different scenario.

[Guruprasad Mudlapur, executive]

Just to add to that, in terms of your question. Bosch has a complete portfolio right from e-bikes. So these are cycles which are electrified all the way up to trucks and heavy commercial vehicles in terms of our electrification portfolio. And we are discussing with various Indian OEMs on the complete portfolio to offer in India.

Two-wheelers, as Soumitra already explained, we have acquisitions and we are fighting for from projects here. Passenger cars, we are discussing with key Indian OEMs, and then you will, over the coming months, also here, we focus there.

On commercial vehicles, there is not much action on electrification which means battery electric vehicles. But hydrogen has taken off, and you've already heard our pilot acquisition.

[Annamalai Jayaraj, analyst]

Next, I'll read a question from the question box. Are we expecting a shift in manufacturing from Europe to India in the coming years in our automotive segment and what are all the benefits that we can reap out of it.

[Soumitra Bhattacharya, executive]

Who had asked this question, Annamalai?

[Annamalai Jayaraj, analyst]

One minute sir. Tejas Shah.

[Soumitra Bhattacharya, executive]

Thank you, Tejas. It's a very generic question, so I can give you a generic answer. We have mainly a strategy called Local for Local, which we have shared with you, because India is a huge domestic market. However, our export percentage of our total sales is hovering between 7% and 8%, as you are aware from our annual report. This in a strategic way, over the next years, we want to increase it to double-digit and then attain the double digit. So this is a part.

In summary, Bosch Limited will always remain focused towards our big Indian market, which gives huge opportunities while seizing opportunities for export based on our products, components or systems, which are available, which can be given to designated markets with a focus on increasing the current value and percentage to a healthy double digit in the near future.

[Annamalai Jayaraj, analyst]

Next question will be from Mr. Sonal Gupta.

[Sonal Gupta, analyst]

Good evening to everyone. Sorry, I have a little bit of bad cold. What I really wanted to understand was we have the OBD2 norms for the BS-VI coming in. So what sort of an implication do you see of that? Do we see any major shifts like we've already seen a significant shift away from diesel. Now there's a lot of speculation on the passenger vehicle side that this could further raise significantly the cost of diesel engines. So I just wanted to understand that -- I mean, is the technology still valid or everybody needs to move to SCR for OBD 2? If you could just shed some light on that?

And also, for your other key categories like medium and heavy commercial vehicles, do we see a major change in content for you?

[Soumitra Bhattacharya, executive]

So first of all, Sonal, if I come with your second question and then come back to the legislation. On the heavy commercial vehicle, as I mentioned before, both on heavy commercial and light commercial Bosch has a lot of content, especially after BS-VI Stage 1 and also as and when stage 2 takes on and also on the various other emission-related legislations for which we have also acquired projects, yes, including [indiscernible].

So in summary, we see that to be healthy. I had also mentioned to you that the light commercial vehicles at 670,000 which was a peak has already reached in the year 2022, heavy commercial vehicles the peak in '18 was around 480,000 and it will take a little time to reach up to that. But even at 360,000, we are sitting pretty on our higher than 10 per vehicle.

Coming to the OBD, we had already mentioned last time that the slight delay in OBD, which has happened, industry-wide phenomenon, but we are prepared to delever even after the revised OBD days, OBD2 days. I think that should be answering your question?

[Sonal Gupta, analyst]

Sorry. So do we see a significant change in cost for the OEM as a result of this transition to OBD2 from OBD 1?

[Soumitra Bhattacharya, executive]

Look, Sonal, let's take the matter of cost of material, including cost of upgrading based on emission. Every emission change, including BS-IV to BS-VI, including [indiscernible], including OBD has certain cost changes. However, unlike what was discussed the 2019 and 2020 that would -- numbers take off, the numbers have taken off. In the year '22, we see no change or let up on pass car sales. And if I look at the data, the value per car, the price per car has increased significantly, but the demand has not come down.

So in summary to your question, we do not see a change in the demand based on the improvement, which is legislated, either at the component level or at the overall vehicle.

[Guruprasad Mudlapur, executive]

Just to add another perspective for the OEMs, in either emission norms or safety norms, which have also greatly improved in the Indian context, keep growing continuously to the next levels. For the OEMs, this also opens up an opportunity to take the vehicles globally, which has not been the case earlier when we lag behind all regulations and standards. And so our vehicles would not really fit many markets other than maybe Africa or some places like that.

So this also is a significant opportunity for OEMs to have a level playing field towards having global markets which are opening up. And this should also be seen as a stepping stone towards electric vehicles when many of these things simply disappear. There are no emission laws. So everything becomes open and an electric vehicle in India is also and equally capable of operating in any other region provided it meets all other norms.

There are different advantages while the cost may go up a little bit and premiumization continuously happens in terms of features or addition of technology into the vehicles. This also opens up a much bigger opportunity for Indians. And also for us as a Tier 1 to export to other regions.

[Soumitra Bhattacharya, executive]

Thank you for that. And if I could add to what Guru mentioned, today the inventory for pass cars, which is around 460,000 at the end of October is the normalized inventory and the only area of this inventory, which is lower is on the high-end cars and definition of high-end cars if I pay indicators around 12 lakhs plus for India. So that's slightly higher income.

So the sales in October, retail sales has been 380,000 this festive season. As compared to the last 4 years, where the festive season, we have sold between 320,000 and 330,000. So significant decrease number one. Number two, our annual sales will be at INR 4.3 billion or INR 4.4 billion against INR 4.07 billion or INR 4.1 billion. And number three, the sales for lower end cars for India are having good enough inventory, but not so for the high-end cars where the demand has been higher. So you can actually make out from this Sonal, what the trend is.

[Annamalai Jayaraj, analyst]

Next I'll read out a question from the question box. It is from Mr. Ajit Motwani. What's our exposure to USD and euro? And how does the movement impact us with our plans, is Forex impact the pass through.

[Karin Gilges, executive]

So as mentioned before, regarding the Forex, we have a very good hedging start achieving credits. As Soumitra Bhattacharya already explained. And therefore, we see a change in the U.S. on a negative way and the euro on a positive way, we are importing for both of the markets, of course, mainly on the euro base. But based on our hedging policy, which we have in place for a very long time, we do not see an influence, which is significant based on our stable policy.

[Soumitra Bhattacharya, executive]

Yes. I mean, thanks, Karin. I think [ Satish ] track to ask us that I'll be buying in U.S. and selling in euro. The answer is no Satish, a as our CFO said, for years, we have had a strong hedge policy. And we do this for both U.S. as well as for Europe, number one. Number two, we are not 1 of those companies who are in the slightly unfortunate situation of having that on matters USD and then selling attention. Does that answer your question, Satish?

[Annamalai Jayaraj, analyst]

Ajit Motwani. I think it's clear sir. Thanks sir. Next question will be from Mr. Pramod Kumar.

[Pramod Kumar, analyst]

Sir, my first question -- for 2-wheeler segment because that is something which is still being debated, whether it will come through or not, and given the demand in this category is already pretty weak. So any sort on that on as to what do you see the cost implication there, whether you expect it to be a minor 1 or a meaningful one. And when I say meaningful, around like 4% to 5% kind of a cost implication for the category...

[Soumitra Bhattacharya, executive]

Can you repeat that last sentence, please. What will be...

[Pramod Kumar, analyst]

What will be the cost implication for the category, sir? Because this is in context of the kind of demand what this category has seen as well as transition to BS-VI and to the new safety norms. So just wanted color -- the OBD norm impact on the 2-wheeler cost curve.

[Soumitra Bhattacharya, executive]

So again, I repeat, Pramod, you must understand in 2018, '19 or the calendar year 2018, which the 2-wheeler peaked at 25 million. I showed you that graph where the calendar of '22, we would be at 19/20 million. So first of all, the Indian industry is not reaching up to the 25 million, number one.

Number two, in the '18, '19, we are talking of apples and oranges between '18, '19 and 2018 and '22, why? Because at that time there was a carburetor. Today, we have fuel injection system. Number three, the OBD2 will come. Number four, very important, the base models during that period, you must remember were between INR 65,000 to INR 80,000. Today, the base models are between INR 1 lakh and INR 120,000. So when you take a standard 100 cc vehicle or 125 and so on. So we are actually comparing apples with oranges.

Having said that, I would say, at 19 million, 20 million vehicles, it is not a bad size in India. And of course, we hope that it will further pick up and go towards the peak, but we are confident that India has seen a very clear growth curve on value-added by making vehicles both at 4-wheelers or 2-wheelers, 3-wheelers safer by bringing in technology, the cost naturally will go up, both from inflation as well as value-added products being brought into make in the contemporary and still are relatively affordable in the Indian context. So I've already shared the other details on a OBD2, so I won't repeat that.

[Pramod Kumar, analyst]

Yes. And just a follow-up to that, sir. Given the increased [indiscernible] electronic carburetors still be relevant? Or would you expect the 2-wheeler market to [indiscernible] projection with the OBD2 norms?

[Soumitra Bhattacharya, executive]

So OBD2 norms have been made very clear by the government. On matters of [ e-carb ], Bosch has very clearly said that we are believing in the technology, which is there, not only in the West, but also declared by the government. And I would not like to comment on the e-carb because different people do it and I would not like to indicate that.

[Pramod Kumar, analyst]

I understand. I appreciate that. Final question on the [indiscernible] how do you see this kind of impacting the current battery procurement in India, which is heavily dependent on a lot of Chinese imports, including the [indiscernible] Does Bosch as a large EV players see a big opportunity there where you expect incrementally a lot of these smaller electric vehicles and OEMs approaching you because the government is clearly up the ante there in terms of the kind of safety standards they need and the kind of even the kind of [indiscernible] or the battery assembly. So do you see this as a big opportunity for Bosch to ramp up its EV wallet share?

[Guruprasad Mudlapur, executive]

Yes. So I'll take this question. Thank you. I think the tighter regulation was going to happen anyway. So the government, I think, initially let this a little bit free for market to get established and then use the opportunity of battery fires and other things to send a message to all the OEMs and all the players in the market. So that's what has happened.

This is a very good move in our view, this tightens technological preparedness in this area in terms of safety and significantly to make the batteries safer, the vehicles safer. This is something that we are always believing in. So all our batteries, which we design and offer to the market have very high levels of safety and standards compliance, including diesel level compliance built in. So we are able to offer this already now into the market, and we have also worked closely with the government to help them refine these standards over the past year or so. So overall, I think this is a very good move, and we certainly hope to benefit from this in the coming years.

[Pramod Kumar, analyst]

And sir, any cost implication which you can share because we are getting closer to the deadline for the first stage, right, because -- entail cost inflation, right, for the battery for the electrical vehicles in general.

[Soumitra Bhattacharya, executive]

Cost implications due to the as norms being introduced?

[Pramod Kumar, analyst]

Yes, sir.

[Soumitra Bhattacharya, executive]

Okay. I think it's going to be very difficult to quantify this because there is no baseline we are comparing against. See, there are a lot of batteries today in the market without even basic battery management systems. So they just wire that to deliver 48 volts or 12 volts or whatever is the voltage system without any basic requirements in terms of voltage of battery management system to manage the batteries, both for thermal performance and our cell level degradation or protection.

So it's very, very hard to compare any, I mean, Western system or systems offered in the West, which are compliant as [indiscernible] standards always have had these things built in. So in that sense, this will not -- from a good, well-designed battery, a lot of these protection mechanisms in the BMS are already there, so that the new norms should not add any further prior costs.

[Annamalai Jayaraj, analyst]

Next question is from [ Navin Matta ]

[Guruprasad Mudlapur, executive]

We need to close at 5:30...

[Annamalai Jayaraj, analyst]

This is the last caller.

[Unknown Analyst]

I just wanted to check on the gross margins, if you had commented in this quarter, we've seen some further pressure. So just wanted to understand, is it largely commodity? Or is it also a product mix effect out there?

[Karin Gilges, executive]

Yes, it is mix effect, but we see the product mix effect mainly out of -- between the manufactured goods and the traded goods, which have implication. And if you look at the P&L, you can see that the material cost especially increased, and this is based on the product mix on the 1 side, but also and is partly based on the increase of the raw material and on the electronic components.

And as Soumitra Bhattacharya already mentioned, we are in discussion with our customers regarding the recovery of especially this raw material increases. But overall, if you look for 1 quarter last year to this quarter, then you see an [indiscernible] in the margin especially due to the raw material increases and the product mix.

[Unknown Analyst]

Understood. And just on this common rail localization that we've spoken about. I just wanted to get a sense as to once this is fully productionized, where will it take our localizations level up to?

[Karin Gilges, executive]

It will take up our localization level from roughly 73% up to 76%. And this is -- but besides the pure percentage in the localization and the strategic objective of the localization of this injector on the commercial vehicle is much more important because if you look on the midterm and of the long term, this was a very strategic step to localize this line here in India for the Indian market. So I would not go rather for the fuel percentage. But please look from the strategic point of view, this is a very important step for Bosch here in India.

[Unknown Analyst]

Got it. And just 1 last one, if I can try. I just wanted to get a sense if we could share any thoughts on where our EV order book stands at currently, just to understand our progress in this space.

[Soumitra Bhattacharya, executive]

Yes. We do not -- we are working actively. We do not make statements, as you know, Navin, until the SOPs, which happened from our customers. So while we are working, as we mentioned and also as CTO mentioned, further statements would come only when the SOPs happen, which is consistent to our practice of declaration also.

[Annamalai Jayaraj, analyst]

We thank all the participants. We thank Bosch management for taking time out for the call and also providing us the opportunity to host the call. Have a good day.

[Soumitra Bhattacharya, executive]

Thank you.

[Guruprasad Mudlapur, executive]

Thank you.