Bosch Ltd

NSE:BOSCHLTD

Earnings Call Transcript 2023-Q3

[Annamalai Jayaraj, analyst]

Ladies and gentlemen, good day, and welcome to Bosch Limited 3Q 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 Mr. Karin Gilges, Chief Financial Officer. [Operator Instructions]

Also a reminder of the safe harbor. The company will be making some forward-looking statements that has to be understood in conjunction with the uncertainty and the risks that the company faces. Over to you, sir.

[Soumitra Bhattacharya, executive]

Thank you, Annamalai Jayaraj. A very good afternoon to all the colleagues who are participating in this call. Today, I'd like to brief you a little bit on the macroeconomic policy as well as what's happening on the automotive market and then I'll walk you through our financials. And finally, I would like to tell you something about the quarter relating to our business.

The global economy is facing a significant down risk on the growth with persistently high inflation. If you look at India and its economy, IMF expects for the FY '23 a real GDP growth of around 6.6% to 6.8%. India is expected in FY '24 to be anywhere between 5.5% to 6%. And of course, the government has a continued focus on CapEx, as you have seen in the budget, while, of course, also trying to balance and reduce its fiscal deficit.

The overall automotive market production has increased by 17% or plus 17% year-on-year in the current quarter. This, of course, excludes 2-wheelers. And this is on a low base of quarter 3 FY '22.

The robust order book across pass car OEMs on a strong festive led retail across the segments, inventory destocking that has happened [ mid-layer ] change and continued connection of commodity prices were some of the key highlights of quarter 3 FY '22. So pass cars segment has outperformed other segments growing by a plus 21% year-on-year volume growth supported, on one hand, by easing chip supplies to the past; on the other hand, I have to also say that the supply chain on the semiconductors and chip are still extremely vulnerable and the inventory levels on the supply chain very low. However, based on the past quarter's relative easing, we have seen a healthy order book, and we have seen also relatively the longer waiting periods have got reduced.

Two-Wheeler segment has been stable on a year-on-year basis, albeit nowhere near the past records of 25 million we expect in the fiscal year '23 -- '22, '23 to be about 20-plus million.

LCV segment at plus 5% year-on-year, and HCV segment has grown on a plus 20% year-on-year, albeit on a low base. On the ground situation, there is a steady fleet utilization levels, which are healthy. And this is primarily led by healthy economic growth, including infrastructure activities.

The tractor segment grew on a plus 6% year-on-year on a high base. Three-wheeler is on a recovery path with shared mobility picking up, albeit the peak of FY '18, '19 far away to be reached.

Let's have a look at the automotive market outlook for '23. In this slide, the rows represent a particular segment. For instance, the first row recommends, the pass car followed by HCV, LCV, tractors, 2-wheelers, 3-wheelers, respectively. The first column represents 2018 production volumes, which is considered to be one of the best years in the Indian automotive industry. The second column represents the year 2020 production volumes. The third column represents '21 production volumes. And of course, the fourth card gives the 2022 actual volumes released by SIAM, and 5th and 6th provides low and high scenarios based on how we look at GDP growth.

Based on the numbers in 2023, industry will grow albeit, of course, at a lower pace over 2022. This can be attributed to multiple factors. For example, the instance of slowing down in the pace of GDP growth, the higher base of 2022 and a more stable demand as opposed to a pent-up demand, which happened in 2022.

Bulk of the growth across the segments can be attributable to replacement demand. Within PVs, we can continue to expect a shift towards utility vehicles. Within HCVs, we are seeing a shift towards higher tonnage vehicles, and LCVs shall continue to grow given the increased last-mile transportation requirements, mainly intracity.

Tractor segment is expected to witness a minor degrowth, of course, on a high base. While 2-wheelers will continue to grow and is -- though, it will be well below the 2018 peak, which I spoke about. Within 2-wheelers, we'll continue to see and witness the growth in greater segments than the 125 CC variants.

Let's have a look now at how the company has performed in October, December '22 compared to October, December '21, amidst all these above economic and automotive factors. The overall revenue from operations for October to December stood at INR 36,599 million, which is an increase of 17.7% on the comparable basis of the corresponding period of the previous year. Here, the automotive sales has grown by 21.2%, largely driven by Powertrain Solutions. While the nonautomotive sales have increased by 2.9%, largely led by the consumer goods division. Overall product sales have increased by 18.8%, primarily on account of improved market demand and positive consumer sentiment.

Income from services mainly comprised of R&D services provided to OEMs and Bosch Germany. While billing for R&D services was set at a healthy level, income recognized in the books based on customer SOP dates was INR 1,701 million. Balance income would be recognized in subsequent quarters on the project completion days of the customers. Other operating income mainly includes income from lease rentals and miscellaneous income and export incentives in the quarter. Increase is mainly on account of recovery of central regional charges and rentals going to additional income from the leasing of our smart campus, which we call as Spark.NXT campus.

Our material cost as a percentage of total revenue from operations is at 60% in October to December 2022 as compared to 60.8% in October to December 2021. However, when you look at material costs as a percentage of net sales, that is excluding income from services and other operating income, then material cost is at 64.9% in October and December '22 as compared to 66.4% in October, December '21. The reduction inventory cost percentage is greatly on account of actualization of the year-end closing inventory.

Post the restructuring that we've done, the employee costs have stabilized at a level of INR 2,700 million to INR 2,800 million per quarter. However, as a percentage of total revenue from operations, this looks low at around 7.4% due to higher revenue in the current quarter.

Let me share a few elements on the other expenses. Other expenses stood at INR 7,890 million, which is approximately 21.6% of the total revenue in October, December '22 as compared to INR 5,700 million that is 18.3% of the total revenue in October, December '21. The reason for the increase is that the current quarter has seen certain onetime impacts in our expenses. For example, provision was made for special warranty for customer claims on certain field complaints for automotive products. This amounted to approximately INR 350 million. Exchange rate impact due to depreciation in the INR versus the euro and the USD amounted to approximately INR increase 300 million. We also increased our spending in [indiscernible] areas, and we have told you earlier that we were doing new business areas in the project house electrification, mobility solutions as well as hydrogen. And this amounts to approximately INR 250 million, and we have a few other higher spendings also in this quarter.

The depreciation for the current quarter is INR 1,083 million, which is 3% of the total revenue as compared to INR 851 million, which is 2.7% of the total revenue in October, December '21. Increase in depreciation in current quarter is a majority on account of depreciation impact on the capitalization of our smart campus, which we call as the Spark.NXT campus and the planted machinery localization of new products, which was done also in July, September '22. With this, our operating profit stood at INR 2,954 million in October, December '22 as compared to INR 2,723 million in October, December '21.

So while EBIT was at 8.1%, EBITDA was at 11%. The other income primarily comprises of interest on fixed deposits and change in market value of mutual funds, which are debt-based. The Other income has increased from INR 804 million in October, December '21 to INR 1,312 million in October, December '22 on account of higher mark-to-market gain on mutual funds as well as higher FD interest income, as all of you know that FD interest rates have firmed up.

For the quarter ended October December 22, your company posted a PBT or profit before tax of INR 4,276 million as compared to INR 3,358 million in October, December? 21. As a percentage of total revenue from operations, PBT or profit before tax stood at 11.6% of total revenue in the current quarter. Profit after tax for the quarter ended December '22 stood at INR 3,189 million, which is 8.7% of the total revenue from operations. Profit after tax in October, December '21 was at INR 2,349 million, which was at 7.6% of total revenue from operations.

Let me provide you a few insights to our aftermarket business, which has delivered the highest-ever turnover in 2022, also with a decent and high EBIT. Our aftermarket continues to be a benchmark on working capital management with net working capital currently at 23 days. We have the fourth largest car service network currently with 500 locations across the country, and we have also witnessed strong growth in exports by expanding largely untapped markets with our product range in the countries of Sri Lanka, Bangladesh and Nepal. This has been delivered with the help of our strategy of market, which we call Zing+ , which is a demand creating and generating strategy and has enhanced the customer experience.

Bosch Limited offers complete system solution also for hydrogen-based powertrains in India. My colleague, Guruprasad Mudlapur, will later explain some of these areas if you have interest. We offer systems and components catering to hydrogen engine and fuel cell electric vehicle technology. Bosch has entered into a partnership to offer hydrogen tank system as well. We have set up a state-of-art hydrogen engine test facility at our technical center in Adugodi at Bangalore, where internal demonstrators are currently being developed and optimized for performance as well as emissions.

We are also building an H2 engine power demonstrated vehicle in India to run extensive trials in order to offer the best value proposition to all our customers, current and future. Bosch Limited has established also close collaboration with technical experts in Germany. And together, we are supporting Indian customers on series of applications to develop as well as release hydration powered vehicles in the Indian market.

A few words on people. Bosch Limited embarked its journey of Great Place to Work Institute, and launched the UllaS program as a program with an objective to build a high-trust, high-performance culture in the year 2019. As per the trust survey in December 2022, Bosch Limited has a trust index of 79.

So basically, we have improved from 67 in 2020 to 77 in 2021 and now at 79, which means that the employees who participate in this survey, and 96% of our employees have participated, nearly 80% shared a positive perception across all the statements. The culture audit is also at a score of 4 out of 5 where we had begun our journey of 3 out of 5 in 2019 With a truck index score of 79 and a culture audit score of 4.0, Bosch Limited continues to remain in the top quartile companies with best cultures in India, We continue our journey to provide a consistently positive work experience and inspire every individual to achieve their full potential.

As a team from Bosch India, we would like to thank you for, as always, listening patiently throughout the call. We would now like to address your queries. Thank you very much, and we look forward to hearing your questions.

[Annamalai Jayaraj, analyst]

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

[Jinesh Gandhi, analyst]

Can you hear me?

[Soumitra Bhattacharya, executive]

Yes.

[Jinesh Gandhi, analyst]

Congress on a good set of numbers. Two questions from my side. One is -- on the RD norms, given that many OEMs decided to exit small diesel, how are we progressing on our gasoline portfolio? Are we seeing market share gains on that side? Are we also getting more fraction on the gasoline direct injection system, given mainstream OEMs are launching products on that technology?

Hello? I can hear you now, sir.

[Soumitra Bhattacharya, executive]

Yes. Okay. Jinesh, I said there are 2 points. Since you said that they are going away from small-scale diesel -- small diesel engine. I would just like to say that you must remember that diesel, which had gone up to a 48% market share has come down to 18%, but it's stable around that. So the 18% may come down to 16% or so, but it's not going to go down to 10% and 5%.

So first, you must remember that there are certain segment of utility vehicles, which are selling still well albeit at a lower market share percentage on diesel, number one. Number two, on gasoline, though relative to diesel, we in Bosch came later. The gasoline division is doing very well. So basically, I can say that the growth figures that you see, Jinesh, from Bosch Limited, where 1 year ago, we were in the region of, let's say, INR 2,800 crores per quarter and we have transitioned to about INR 3,600 crores per quarter and growing. The Powertrain division has also done well.

And so I would say we are quite firmly entrenched. We have made big acquisitions on the BS-IV to BS-VI, which I told you. We have made very good acquisitions in the [ train ] 4 to [ train ] 5 on the off-highway, and we are confident on both the core and rewiring of the core that we will continue to see a good growth path for Bosch Limited, mainly led by a Powertrain division.

[Jinesh Gandhi, analyst]

Okay, okay. And on the on GDI side, anything to share on that side? Are we seeing increased acceptance now?

[Soumitra Bhattacharya, executive]

We do see GDI having come in, especially for the higher value cars. And we do see that both the technologies are there to be in India, in India GDI lesser compared to the western world, et cetera. But we see the coexistence of both. And as I said, we have a strong position in gasoline. Gasoline is relatively -- slightly compared to diesel a fragmented market. But our Powertrain division has good growth going, both in FY '22, '23, and we are looking forward to that growth in '23.

[Jinesh Gandhi, analyst]

Okay, okay. And second question pertains at a broader level, given that Bosch India, the listed entity is operating on its own, and then there are other entities. So are we -- is there any thought process on making Bosch Limited as go-to-market company and in turn channelizing the revenues of other companies through the listed entity? Any thoughts on that?

[Soumitra Bhattacharya, executive]

Jinesh, I had given an answer to this earlier, but I'll repeat it again. Many of our legal entities actually gives their products or part of their solutions to Bosch Limited. Take the example of our automotive electronics company, which is growing at a very fast pace. A majority of their products, which are ECUs and other electronics, come into Bosch Limited. They go into a powertrain, and this example can be extended to our 2-wheeler division. And so it's not an exception on its own. And we have seen that, that because of the type of divisions that we have in Bosch Limited, we work very closely, both as being responsible for the region in India, where we provide a lot of services, which many of them are also financially linked; and also technology services and also collaboration projects, which actually result also in billing. So this will continue, and we will continue to have a very healthy-focused working of all our Bosch companies where the parent of all these companies is the listed company.

[Jinesh Gandhi, analyst]

Okay, okay. So just to clarify the 2-wheeler business that you mentioned. So the entire, all other components like ABS also gets routed through the listed entity or that goes separately given that there is no direct synergies?

[Soumitra Bhattacharya, executive]

Two-wheeler has 2 parts. So there is a certain part which gets done through the listed company, and there are some smaller parts which go out. But a sizable part of the 2-wheeler business goes to the listed company.

[Operator]

Next, Mr. Pramod Kumar.

[Pramod Kumar, analyst]

Sir, my first question is pertaining to the electrification side. We've seen rapid EV adoption on the 2-wheeler side. and a lot of new companies -- a lot of component companies have started to launch motors and win big order -- substantial orders. Some of your peers on the listed side have gone on the public record to state the kind of order wins they're getting. But in that context, if you can just share how is Bosch ship faring in the 2-wheeler EV and the 3-wheeler EV side, sir, in terms of what's the kind of prospect to loop you're seeing for this business?

And related to that is the extension on the PLI side as to what are the kind of PLI benefits, which you expect for the business, including ICE and the EV side for the foreseeable future as to kind of reduce their import content?

[Soumitra Bhattacharya, executive]

Let me start with the PLI. And then with a couple of remarks, I would request also my colleague and our JMD to come in on that. So first, on the PLI, we have extensively worked with the government on advanced technologies, and I think the government has taken a very good approach to take agnostic inputs and really put in advanced technologies, and we complement the government. Like all other companies or many other companies, we've also applied for the PLIs, and we believe that over the years, whether this is a time frame. You will see that the PLI usage, we will do in a proper manner. So that is clearly an assurance, especially for the listed company, where we are very focused. On further details, we would not like to talk right now.

On the EV 2-wheeler, we have certain products and solutions, which we are already doing. Our part of the EV turnover, and this is already a part of Bosch Limited of the 2-wheeler, they are -- our 2-wheeler division is doing well already. So in relation to now EV 2-wheelers as both startups and regular OEMs, I hand over to my colleague, Guruprasad is here.

[Guruprasad Mudlapur, executive]

Thank you, Soumitra. I think Pramod you are aware that we already have been supplying electric vehicle components to 2-wheeler OEMs. And we also have very large orders from them moving forward. So that is already existing. We are now working towards higher levels of localization content to match the requirements of frame and the local norms on subsidy towards this. So this is also an ongoing process for us. We are increasing our market share in several other components. We have acquisitions on battery systems now and other portfolio like ECUs for electrification.

Of course, you know that 2-wheeler OEMs are -- I mean are also the 2-wheeler economics today does not really favor a match to the ICE vehicles if you take out the subsidy. So there is -- and also a lot of 2-wheeler OEMs are really struggling to make ends meet on pricing. And we are conscious about the fact that we will not go and destroy the market by offering things which are below value. So there, we are going to be very careful. But at the same time, on healthy margins, we are in on all OEM acquisitions. We are already doing it with several big ones.

[Pramod Kumar, analyst]

And second and final question that pertains to localization, sir, which is -- which could be a big driver for margins as well as that's the expectation. So how do you see with the entire lot of the focus on EV work being done in India and the PLI scheme? And should one expect a reasonable reduction in the percentage contribution from traded goods or imported components for Bosch going forward?

[Soumitra Bhattacharya, executive]

So Pramod, this part is applicable to any component here. And I would really like to tell you, localization has 2 sides of the coin. You can have a healthy localization or you can have unhealthy localization. It's about the timing of the localization that you do and for the volume of the localization that you do. Both timing and volume are very important.

So in Bosch, we always take a stated call, a very calculated call, on phase localization, and this is either about our traditional conventional products or our new age products or even the completely new age like EV and future, it will be also hydrogen.

So in summary, you already heard from my colleague on what we are doing in EV. You heard a little from me at the starting on what we are doing for hydrogen. And I can assure you, Bosch India is doing a lot of work at Bosch Limited on hydrogen. And we will do the localization, and we'll continue to do localization at the right time. So this, you can be rest assured.

[Pramod Kumar, analyst]

And sir, just a clarification on that, forgive me for this, but given the fact that Bosch globally has enough and more reasonably strong capacities and capabilities on the ICE component side, so as a responsibility for Bosch India, the subsidiary in India, the listed entity, would it be wise to assume that you will be deploying your -- the incremental resources and the focus on electrification, where you can do a lot more value-add in India? Or just simply duplicating capacities in India in addition to what you have at the parent level globally? And then -- so I'm just trying to understand the prioritization. How does it work? Is it more towards advanced technologies or to kind of reduce the cost and reduce the import content and on the existing parts, which are anyway you can source from the global parent?

[Soumitra Bhattacharya, executive]

So that's a pretty deep question, and I have to give you an answer in simple 3 parts. We have a very clear focus on the core, which will continue for a long time in India. We have an equally clear focus on rewire core, which is our advanced core which also -- there are certain parts of advanced technology in that. And that also, we are equally focusing. And the third one, where we have given a very clear focus, and you remember, 5 years ago, we established a project house electrification, which included hydrogen. Five years ago, we established project house mobility solutions and services, which is on digital. So we actually have done a few things well in advance. And I shared with you also, this quarter, we spent a decent amount of money for our new business areas.

So all this is -- and this will come into play as we go along and as India moves along. So it's not either/or. It is all 3 in a very systematic way with -- it's like a piano key that you have to play to make music.

[Annamalai Jayaraj, analyst]

And the next 2 questions is from Viraj Kacharia.

[Viraj Kacharia, analyst]

I have 3 specific questions. First just on the margins, especially the contribution margins. If you look at this particular quarter, we did something like close to 40% contribution margins. Now this is despite you talking about high-cost inventory, impacting the overall raw material cost. So considering that, I mean I'm just trying to understand, is there any further high-cost inventory still there? And on the pricing part, where are we in respect to a recovery of both the raw material and the ForEx. So that is one.

Second is largely the question on the CapEx side. You talked about us investing in EV to meet same localization. And to use analogy, apparently in the recent earnings results, we talked about the Chinese EV operations turning profitable, especially for motors at eAxle and all. So for us, when we look at localization, would it largely be for the domestic market? Or is there a thinking to use the base also for the export?

[Soumitra Bhattacharya, executive]

So Viraj, you've asked many questions, so I'll try to give you quick short answers. Look, on the margins, I told you, first of all, we want to turn in healthy margins under -- the world is going through challenging circumstances. So I would link up the margins to your price recovery on battery and electronics. So because of a good order book, you see a very steady and improved growth, number one. Second, on a very challenging year '22 for the world, including India where margins were under pressure due to raw material cost increases, electronic cost increases. We have a very clear focused approach, including contracting with our OEMs and including a project where we see that either they should pass on or they should share in a win-win basis.

And Bosch applies that because you've also seen in OEM, the prices of cars have gone up considerably. More value-added and higher cost cars are being sold and so on and so forth. So we believe that this win-win should be across the industry, and we follow a very systemic process regarding that.

The CapEx, Bosch has never been shy to put CapEx in place for the future, whether it will be hydrogen, electrification, whether on our smart campus, whether on localization. That, we will continue. So in summary, Viraj, I would say, a, the margins that you see in this quarter, which are not too bad, also has a few onetime impact. B, the growth you have seen, which we will sustain and retain and improve further. RMI, ECI, we will continue to focus to recover on a win-win basis for everyone. And CapEx numbers will be put in place. And as we always look at CapEx or what we made, last year, the calendar year '22 actually was a higher CapEx, but we will continue to spend money on plant and machinery and, of course, also in other areas.

[Viraj Kacharia, analyst]

Just 2 questions. On CapEx, in the past, you talked about an annual spend of somewhere around INR 500 to INR 550 crores. So given the kind of initiatives you've talked about, will that lead to a change in that figure and FCS. And then what would that be?

Second is, any update you can give in terms of the order wins we would have, say, for BS-VI Phase 2, [ train ] 4 and on those aspects, I think we are pretty much close to the rollout and launch. So any color you can give there.

[Soumitra Bhattacharya, executive]

Yes. You see, I told you our CapEx spend is the listed company are anywhere between INR 300 crore and up to INR 600 crores. So you can't take a signal figure, yes. For example, if you look at '22, we've had a decent CapEx spend. It is the region of nearly INR 790 crores. So you can sometimes have INR 700 plus, sometimes you can have INR 400. So it varies.

So this CapEx is determined by the need of the organization. So we will not be shy of spending CapEx. Bosch Limited has a very healthy free cash flow. We try to convert our EBITDA to free cash flow. We are driven by not just top line, bottom line but also cash. And we have, as you know, a healthy amount of financial investments and instruments, which we can liquidate at any direct use for either expansions or M&As or also internal growth. So we will continue to use those in an intelligent part.

[Viraj Kacharia, analyst]

On the second part, on the acquisition update.

[Soumitra Bhattacharya, executive]

On the acquisition update, we've had pretty solid acquisition. In fact, if you remember, when we had the previous auto expo, just before the COVID hit us, I talked about a very healthy figure of INR 23,000 crores. And I had also told you after COVID hit us, that same value because the market went down -- had gone down to INR 18,000 crores. And then that again recovered. So that's dependent on how the market recover.

So Bosch Limited has had, a, on BS-IV to BS-VI, very high acquisition. And this you can see with the higher content per vehicle and this you can see with the higher growth in turnover, including in our powertrain. And second, we have recently, in the last year of fiscal year '22, '23, also done very good acquisitions in [ train 4, train 5 ] and in the off-highway. So these changes that are happening in legislation Bosch is well prepared in the outlook based on a good set of acquisitions that we've done.

[Viraj Kacharia, analyst]

Okay. Any perspective in terms of what opportunity that translates into -- I mean, last time we gave a figure of phase 1 for this BS-IV that's in [indiscernible] [ train 4 ] is already in the process. So any perspective you can give how much that translates into it? It will help us understand how we have done relatively in the market?

[Soumitra Bhattacharya, executive]

With that, we don't give you a number like that because you're trying to put that into exact turnover increases. What I gave you was a very clear leading indicator to say that a year ago when we were at INR 2,800 crores on a quarter. And now that we are at INR 3,600 and growing, you can see that growth in our top line. And this is led by powertrains. The second indicator I gave you that our powertrain has a healthy growth prospect, provided India growth and automotive growth in '23, '24. That itself should give you that on a healthy growth year, we are looking at a further growth possibility for the FY '23-'24. So that's one.

The second one, I gave you, very high acquisitions. All our acquisition targets have been met in FY '22-'23, and we had very high acquisitions in FY '29 -- '20. And these were the landmarks for the legislation road map. So I think you can add 2 plus 2 together.

[Viraj Kacharia, analyst]

So if you consider the overall positivity and the enthusiasm, if you look at the overall wins which we had and if you kind of match it with the -- maybe the indicated CapEx which you are spending, it doesn't really kind of correlate. And if I look at the kind of cash [ ambition ],as an entity which we'll keep on doing. The cash levels will just keep on building up every year. So I'm just trying to understand, one, on the CapEx part, again. And then second relation to the usage of the cash, which you'll -- which will add to the existing large balance.

[Soumitra Bhattacharya, executive]

I want to give you an assurance on behalf of the team that we are looking at all possibilities, not only of organic, but also inorganic growth. And as and when we finalize any of the organic big ticket or inorganic growth, you all will be the first to share. So we are very conscious that we have cash. We have just rewarded our shareholders with the interim dividend due to the high liquidity as well as a good performing year on the calendar year '22, where we had reached our record turnover. And we are turning out a decent set of numbers, which we want to further improve on the bottom line.

[Annamalai Jayaraj, analyst]

Next will be Pramod Amthe.

[Pramod Amthe, analyst]

So first question is with regard to your aftermarket business. It's impressive to hear about the business scaling the new UI. Traditionally, we have seen aftermarket business is a very superior profit margin for any of the companies. But if I had to look at your firm in spite of the aftermarket scaling new high. The overall company margins are much, much lower. I wanted to know, has the aftermarket characteristics have changed towards more of services than products? Because products are anyway legacy products on the aftermarket. So why is this margin tailwind not coming through in the aftermarket business?

[Soumitra Bhattacharya, executive]

So Pramod, I've given you feedback that we are happy that our aftermarket has not really turned around, but has become a strong market leader. And we are very happy that the aftermarket has focused on top line, bottom line cash, net working capital, market share as well as Great Place to Work.

Now I would slightly differ on what you said on the aftermarket being traditional. There are many new age areas on where we get a lot of help from our parent on our analytics that we have with the Bosch machines across all models and platforms for vehicles. I mentioned, and I would like to repeat, we are at 500 Bosch car services and where we are focusing hugely on creating USPs, and you will see that. And our true north is 1,000 Bosch car services. We have a huge number of Bosch diesel services. We are starting on 2-wheeler services. The aftermarket has also gone digital.

Now having said that, you have to remember while aftermarket is growing, the overall company is also growing at a pretty good pace. I had given for the first time a guidance of 15%. But now you can see the YTD growth is much above 15%. In fact, it has crossed 20%. So you must remember that when aftermarket does well and if power tools does well and if the powertrain business does well, then aftermarket will be significant, but not the dominant portion of the total turnover, number one.

The number two, in powertrain, when you see, a company must invest on existing business, but also future businesses. And Bosch Limited has not been shy. So I can only tell you while delivering a good set of numbers, and I suppose you would agree in terms of not just turnover but also cash and EBIT, we are also investing money for the future. And you've heard from my colleague, Guruprasad Mudlapur, and from me on both EV and hydrogen.

So please look at not quarter-to-quarter. Please look at a year. Please look at 3 years because you are interested in our doing well. If we are not investing in the future businesses, we cannot turn that into turnover and profits in the future and acquisitions.

[Pramod Amthe, analyst]

Sure. So second one is you alluded to [ train 4, train 5 ] opportunities. What is your assessment of time line for these to come? Because TMA has its own thinking and still there are debates happening about when to implement. Can you give some clarity on that? That's one on the tractors.

Second, as we saw in case of BS-VI, when it happened, we have seen your margins, even though you won amazing amount of business. Either because of competition or localization, the margins are diluted and they have to recover. Do you see a similar thing happening out based on the price quotations, which we are giving to the end customer for the tractor [ amounts ]?

[Soumitra Bhattacharya, executive]

Can you repeat that last part of the sentence, last part?

[Pramod Amthe, analyst]

Sure. I said like we have seen in case of BS-VI wins, where the sales was able to come through. But if I had to look at 3-year margins, they have come down. So now whilst you are giving the quotation to the tractor makers, do you see a risk of further margin dilution from tractors upgrades?

[Soumitra Bhattacharya, executive]

So look, I told you that we've had a very good acquisition on [ train 4 ] conversion to [ train 5 ]. On the matter dates. We have always talked to the government, not about Bosch, always talk to the government for the good of India and ease of doing business to stay with the timelines.

So sometimes there's a change because of 3 months, 6 months, and that's not a problem. So in India, I don't see no changes that [ train 4 ] will go to '26, it will be '24. So maybe you are referring to a few changes on months and all that, that's okay. Acquisition is already in the bag. It's a healthy acquisition and with a decent bottom line. Now I'm not going to indicate what is decent because that would be a guidance and a leading question.

[Annamalai Jayaraj, analyst]

So I will read some questions on the question box or the chat box. So first question is, can you please take the headwinds and tailwinds in the medium term for the business?

[Soumitra Bhattacharya, executive]

Yes, let's start with the tailwinds, and I will request my colleagues also to give a couple of sentences on that. India is on a sweeter spot, Therefore, Indian industry has a sweeter spot chance, and therefore, automotive industry overall. We from Bosch India and Bosch Limited, would like to capture the sweeter spot, and we are part of this market journey because of our very strongly embedded processes, innovation and affordability. We have done it in the past. We are committed to doing it in the future.

Headwinds, we are in a critical situation of election year. If we continue like a growth-driven CapEx-driven budget and if India focuses on the basics, including make in India, made in India, these are doing business, and allowing industry to meet market expectations, I believe that on one hand, we are not insulated against the global situation, what I talked, U.S.A., Europe, China, supply chain, semiconductor crisis which happened. So in summary, those are the headwinds that we can see.

Internal headwinds in India, the government , if you can contain the inflation, if we can continue the improvements, where there's a lot of work down, but for more improvement needs to be done, I think industry will further flourish and create a reliable India also to the outside work. But I would like any other comments from my colleagues.

[Karin Gilges, executive]

Yes, perhaps from my side. We see intends at least a certain point where we have to be careful or take care of it in the supplier situation -- in the whole supply chain all over the world. We are currently in a quite good situation also with the semiconductor. Nevertheless, it's still fragile. And therefore, we carefully consider all these constraints in the supplier base and in the supply chain. And yes, this is where we have taken care of.

[Guruprasad Mudlapur, executive]

I think we should not underestimate the impact of the possible global recession or slower growth than the developed economies coming our way and impacting us to some extent. The auto industry will not be immune to that globally. So that's something that will have a bearing on us.

The semiconductor situation has been dicey all along. While for the consumer electronics sector, we already see a drop in semiconductor demand in the last quarter of last year. which means good supplies there, and you can already see that from the memory prices going down dramatically. It's not being the same in the auto industry. So the auto industry uses semiconductor processes, which are very unique, and that makes it still a very touch-and-go situation with regard to supplies. And as we speak, we are in the midst of one, again, which we thought we would not have in the beginning of this year.

So there are issues like this, including constantly rising energy price. I think it's something that's happened all over the world. We are also going through that. The uncertainty around energy is generally a big headwind overall for the auto sector. But I think we can focus on a very positive state as of today in the Indian context and hope this continues for us to take a positive impact out of it.

[Annamalai Jayaraj, analyst]

Next question is from Priya Ranjan.

[Priya Ranjan, analyst]

Yes. My question is, I mean one is on the raw material side. I think you have said that from 66.8% it has come down to 62.9%, so is it like, say, the 90 basis points you have got the benefit quarter-on-quarter because of product cost. Is it the right understanding?

[Soumitra Bhattacharya, executive]

Yes. Priya Ranjan, since you talked about that, I have to set the numbers in the right context, please. So the question is very valid. -- but I would request you to please refer to what I mentioned. I said that in this quarter of October, December '22, the material cost as a percentage of total revenue from operations is 60%. And when you compare the like-to-like of material cost as a percentage to total revenue from operations, the previous quarter that is October, December of '21, previous year same quarter was 60.8%. However, now this however is very important, material cost as a percentage of net sales. Net sales means, excluding income from services and other operating income, which is the right way to look at it, is 64.9% in October, December '22 as compared to 66.4% in October, December '21.

So Priya Ranjan, the point is, yes. In this quarter, there has been a marginal reduction in the material cost. We are very focused on material cost. However, I said on the right material cost. Localization, I think, localization can also lead to higher either material costs or higher losses. So it's not that just to say rental costs will go down and all profits will happen. Our localization will done and perform profits will happen. So it's the timing of what you do on localization or what steps you take on material cost, and it's the content of Q2.

So in summary, since you gave 2 sets of numbers, which was slightly different, I had to just do that small correction, please, and tell you that we are focused like all other costs on material cost. However, with the clause of what is sensible for us.

[Priya Ranjan, analyst]

So just trying to understand. What it was say, 60.8% said December '21 quarter. What was it in September? 22 quarter, like September?

[Soumitra Bhattacharya, executive]

I have given you the material cost of October, December, which was '22, which was $64.9 million. Like-to-like in July, September of '22, it was 67.3% like-to-like. And like for like in the previous year, I also mentioned to you, the cost was 66.4%. Have you got it?

[Priya Ranjan, analyst]

And just coming back to your other expenses. So you have given 3 numbers. So out of INR 250 million, which is broadly for the new projects for electrification, et cetera, how do also we look at it? Is it like a one-off? Or is it like becoming because for electrification, et cetera...

[Soumitra Bhattacharya, executive]

I told you the royalty is a one-off. Yes. So yes, we have a very strong focus on other expenses, Priya Ranjan. And I already told you that this quarter has been sprinkled with certain items of onetime expenses, which we don't expect every quarter to have.

[Priya Ranjan, analyst]

Understood. And just on overall electric mobility side, I mean there is a [indiscernible] localization, which we understand. And there is another way of localization, which is driven by the government for the benefit of same subsidies our priorities and the government priorities are aligned, so how should we look at it?

[Guruprasad Mudlapur, executive]

I'll take this. See, our priorities are definitely aligned with what our OEMs are expecting in line with frame requirements. So there's no difference of opinion there. But what you need to keep in mind and which is what Mr. Bhattacharya was referring to, is that localization were done too early does not necessarily mean that this is resulting in cost savings. So this may actually mean the overall cost of the product solution goes up. And when done at the right scale and volumes at the right time at the right levels, this certainly has a significant benefit.

Now the PLI benefits offer some level of cancellation of these disadvantages, and we are factoring all that in and taking into account on when and how to localize to what extent, in line with what our customers are asking.

[Annamalai Jayaraj, analyst]

The last question is from Mr. Ravi Purohit. The next question is from [indiscernible]. He has to type the question, I think. Yes, I think he typed the question, sir. I'll just reload the question. Bosch India has localized plenty of ICE technology advances and have been able to offer these advances at an affordable price to Indian OEMs. As we developed the skill to replicate this localization in EV space. Are the specific areas of EV technology that Bosch India would focus apart locally? That's the first question.

[Guruprasad Mudlapur, executive]

Yes. I mean just to give you confidence, Bosch has always relied on manufacturing excellence, whether in India or abroad. We've already localized, and we are maybe the largest Tier 1 supplying electrification components to global OEMs worldwide. We have a market-leading position in several geographies around the world, and we will certainly do everything necessary to bring that situation also into the Indian context. So we have definitely all the competence to make early localization happen also for electrification in the Indian context. So I would like to definitely reassure that.

[Annamalai Jayaraj, analyst]

Okay, sir. So on behalf of B&K Securities, we thank all participants for joining the call. And special thanks to Bosch management for taking out time for the call and giving us the opportunity to host the call. Have a good day.

[Soumitra Bhattacharya, executive]

Thank you very much.

[Guruprasad Mudlapur, executive]

Thank you.

[Karin Gilges, executive]

Thank you.