Bosch Ltd (BOSCHLTD) Q3 FY22 Earnings Concall Transcript

Bosch Ltd (NSE:BOSCHLTD) Q3 FY22 Earnings Concall dated Feb. 09, 2022

Corporate Participants:

Annamalai Jayaraj — Research Division – Director and Deputy Head of Research

Soumitra Bhattacharya — Managing Director, Regional President

Guruprasad Mudlapur — Director

Analysts:

Pramod Kumar — UBS — Analyst

Pramod Amthe — Incred Capital — Analyst

Ravi Purohit — Securities Investment Management — Analyst

Unidentified Participant — — Analyst

Laxmi Narayan — ICICI Prudential AMC — Analyst

Krishna Kumar — Lyon Hill Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Bosch Limited Q3 FY ’22 Post Results Conference Call hosted by Batlivala and Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.

Annamalai Jayaraj — Research Division – Director and Deputy Head of Research

Thank you. Welcome to Bosch Limited 3Q FY ’21/’22 post results conference call. From Bosch management, we have with us today Mr. Soumitra Bhattacharya, Managing Director; and Mr. Guruprasad Mudlapur, Chief Technical Officer. Mr. Soumitra Bhattacharya will be making a presentation to be followed by a question-and-answer session. To view the presentation, request you to click the link — see meeting link given in the invite. The presentation will also be loaded in the company’s website.

Over to you, Mr. Bhattacharya. Over to you, sir.

Soumitra Bhattacharya — Managing Director, Regional President

Thank you very much, Mr. Annamalai Jayaraj. A very good afternoon to all the colleagues, and thank you for being a part of this call. I do sincerely hope that all of you attending this call are keeping safe and healthy in these turbulent times. So I will start with a brief on the macroeconomic policy followed by an automotive market update, and then I will walk you through our financials. And finally, I’ll end with the highlights for the quarter affecting our business. Next slide, please. The GDP growth for FY ’22 is expected at 9%, and the economic survey pegs the FY ’23 growth at 8.5%. Trust by the central government towards enhancing capital expenditure in the recent budget really bodes well for the medium-term growth rate, but in a not inflationary manner. Finally, the budget numbers are credible and our recent experience shows that the government has not had a problem in achieving budgeted revenues. I would, on a personal side, like to state that this government has actually made a very good budget, including the revenues we believe are pretty conservative, as you can see with the taxes, especially the indirect tax collections, which are very good. The announcement of battery swapping policy with interoperability amongst players is also a positive move, and it helps to minimize the time required to refill, which can be overcome by the swapping framework. Additional trust towards energy efficiency on large commercial buildings is also welcome, move for transition to a carbon-neutral economy.

I would like to remind all the colleagues that Bosch Limited and Bosch Group in India became carbon neutral on Scope one and two already in 2020. Overall, automotive market production in the current quarter declined by 12%, with the exception of 2-wheeler, mainly due to semiconductor and chip shortage globally. Also, the festive season was not very strong, and of course, there’s a high base impact. Going forward, with the elevated fuel prices that we have, higher commodity prices which are continuing, these are the major concerns for the automotive industry. Heavy commercial segment on a low base, which increased by 28% on account of government’s push for infrastructure, especially on road infrastructure, better freight rates, price hike announcement and also a low base has helped the overall segment in a positive double-digit growth. The recovery is expected to be continuing in the coming months as well, while all of us know, heavy commercial vehicles will take many years to reach its peak of ’18/’19. Passenger car segment declined by 12% with semiconductor shortage continuing to play the sports code, passenger car production despite its huge bookings. The lower production levels have led to high unusual high waiting periods for many best-selling models with waiting periods being as high as anywhere between six to nine months. Tractor productions, which, of course, had reached a very, very high volume and across the peak of ’18, ’19, already in ’21, remained weak by about 20% year-on-year on the base of high base erratic monsoons and weak [Indecipherable]. LCV segment degrew by 12% year-on-year due to the base in cut.

However, the segment has been reporting healthy recovery trends supported by healthy demand from agriculture allied areas, increasing last mile transport requirements, especially on e-commerce as well as gradual recovery in the macroeconomic environment. Two-wheeler segment degrew by 23% year-on-year due to multiple factors like more rural sentiment, sluggish festival season, high inventory levels at dealership, work from home in urban medias coupled with latest threat of Omicron virus, while the domestic demand remains volatile, the steady 2-wheeler exports continue to support the industry volumes. Among the other markets, 3-wheeler segment increased by 1%, of course, on a very low base. Let’s have a look at how the company performed in the October-December ’21 quarter compared to October-December 2020 in all these mentioned factors. Revenue from operations for October, December ’21 stood at INR31,091 million, which is an increase of 2.6% as compared to the corresponding period of previous year due to the gradual improvement in the business environment from pandemic hit period. Product sales of mobility business sector increased by 2.6%, while the business beyond mobility which is the consumer goods and building and energy technology increased by 11.2%, led by strong growth in building technology and machine building business.

Within the Bosch business of mobility, major increase was seen in automotive aftermarket business due to increased demand of diesel products, smart plug, rotating machines and higher fulfillment of export orders resulting from removal of supply bottlenecks. Next slide, please. The material cost as a percentage of total revenue from operations has increased from around 58% in December — October-December 2020 to around 61% approximately in October-December ’21. Increase is on account of spike in raw material prices, mainly steel and aluminum, which have had a steep increase of 38% and 46%, respectively, over the previous year as also transfer price adjustments done on imported trade goods during the quarter. And this, in order to meet the overall benchmark profitability on traded goods. As you may be aware that the company has carried out a restructuring program in 2020/’21 to restructure its workforce which has resulted in the reduction in the accruals for retiree benefits, which has been written back in the previous financial year. On a like-for-like basis, personnel costs for the current quarter compared to the previous quarter has improved from 10.4% of total revenue to 9.4% of the current quarter.

This improvement is mainly on account of the reduction in salary and wages of employees, who have been separated during the restructuring program. Other expenses stood at INR5,700 million, approximately 18.3% of total revenue in October-December ’21 as compared to INR6,712 million, 22.2% of total revenue in October-December 2020. This decrease is mainly on account of base effect driven by increased spend in October-December 2020 due to gradually opening up of the economy post lockdown in the previous year. Additionally, October-December 2021 has had onetime impacts of provision for warranty and additional spending on new growth areas, which is our project house mobility solutions and project house mobility electrification. Depreciation for the quarter is at 2.7% of total revenue as compared to 3.2% revenue in October-December 2020, mainly on account of lower additions in the current quarter as compared to October-December 2020. Operating profit stood at INR2,722 million in October-December ’21 as compared to INR2,612 million in October-December 2020, an increase of 4.2%.

The company has a policy of investing its surplus funds after providing funds for investment in business growth opportunities with risk-free financial instruments like bank FPs and liquid and short-term mutual funds. The increase in the market value of the short term and liquid mutual funds is recognized in the P&L statement as other income. The increase in the market value of mutual funds in October-December 21, was less compared to the increase in the market value in the corresponding quarter of the previous year. This has resulted in other income being less by INR310 million in October-December ’21 versus October-December 2020. PBT and PAT for the quarter ended December ’21, your company posted a profit before tax of INR3,358 million as compared to INR3,657 million in October-December 2020. These were before exceptional items. As a percentage of total revenue from operations, profit before tax stood at 10.8% of total revenue in the current quarter. Profit after tax for the quarter ended December ’21 stood at INR2,349 million. This is 7.6% of the total revenue from operations. Profit after tax in October-December 2020 was INR1,858 after considering exceptional items.

Bosch Limited has acquired a minority stake up nearly next slide — has acquired a minority stake of nearly 26% in Autozilla Solutions Private Limited to participate in the digital B2B marketplace for the independent aftermarket in India. This is a part of the initiative to establish digital ecosystem around vehicle workshops. Major dealers in India leading to supply chain and quality issues comprise spark identification workshop availability and lead times, the databases of local distributors, our experience base and not very accurate due to nonavailability of OEM data and missing standard catalogs. This can be [Indecipherable] to Autozilla’s core capabilities such as data aggregation, sanitization and [Indecipherable]. Autozilla will primarily support Bosch’s distributors and retailers to [Indecipherable] faster. With Bosch products being listed on the platform, it improves the awareness with each of the Bosch products. Autozilla will develop application programming interfaces, or API, for connections to Bosch’s applications like workshop management software, distributors, ERP, loyalty programs, which will ensure a seamless ordering process between our primary and secondary customers.

The total investment by Bosch Limited is around USD1.8 million or EUR1.5 million. The investment is subject to all statutory approvals. Next slide, please. We at Bosch estimate that 2030, practically every third new vehicle will be an EV, which is expected to be — that like electromobility will lead the change followed by the 4-wheeler business. CV business electrification is expected to be development of new cells. Bosch is a global leader in the electrification system with more than one million systems already on the road. Bosch offers a wide range of electrification solutions. And we will continue to support OE across all segments, 2-wheelers, 3-wheeler, pass car, CV and off-highway applications. Bosch has more than a decade of experience in the field and is well-positioned in the major markets of growth. Bosch offers diversified and innovative solutions in the area of electromobility. Whether it is pre-integrated solutions, individual components, smart software or innovative servicing solutions, Bosch offers manufacturers all the need that they need to succeed in e-mobility. Bosch calls on the wealth of experience and expertise from all the areas of the company to ensure that it’s the best partner for electrification.

Major growth drivers could come from the business areas of e-axles or electric axles, e-motors, or electric motors, power electronics business’ and 48-volt hybrid factories. In the hydrogen fuel cell for the mobility area, Bosch globally as a comprehensive fuel stack, fuel cell stack and the other component portfolio. Bosch has also developed the local competency in electric powertrain solutions to offer seamless integration and application support for our customer for the electric vehicle program. Next slide, please. The market in India is supposed to ramp up in electrification for mobility business. If you look at passenger car segment, including low commercial with light commercial vehicles by 2030, we estimate that around 18% of the share of battery electric vehicles mainly driven by the cost of ownership and availability of charging infrastructure. The percent adoption will also be driven by deep focus on new technologies, user experience by the Indian policy. Next slide. As Bosch has stepped already into the 100th year in India, all the colleagues in the con call must realize became, we, as Bosch, came to India in 1922 in Kolkata. And therefore, 2022 marks 100 years of Bosch in India. We had realized that it is an ardent curiosity that sparked our thinking.

That is what made every invention possible and innovation possible. From making electric devices to heavy tools to security solutions to mobility items, it all started with the spark of the human minds coming together, be it the green revolution, the software revolution, liberalization of the [Indecipherable] revolution. It has been an honor for us to partner in India in its progress. For instance, in 2020, we enabled our OEMs to seamlessly migrate from BS IV to BS VI Further, in 2020, Bosch India achieved carbon neutrality in Scope one and 2, which I mentioned earlier, at all its 37 locations across Bosch India in 2021. Bosch received the great Place to Work certification. Colleagues in the con call, I’m happy to announce that Bosch has been — Bosch Limited has been recertified as a great place to work, and I’m even happier to announce that with the current recertification in this call, we go into the top quadrant of the best cultures within Great Place to Work. Today, we have set our eyes for tomorrow. While we build technology that transforms lives, we believe sustainable ideas is other way forward as we take the next step in our extraordinary journey, we look forward to the next part, the little spark that can make the next 100 years brighter for all of us. On behalf of the whole Bosch Limited team, I would like to thank you for your contribution and for listening patiently through our call and as we meet next in the Bosch India center here this year, and I look forward to meeting you also and we will now address your queries, and thank you for your question and answers, please. Over to you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Pramod Kumar from UBS. Please go ahead.

Pramod Kumar — UBS — Analyst

Thanks a lot for the opportunity. I have two questions, one related to the financials for this quarter. Just wanted to understand what resulted in a sharp decline in the consumer goods segment sequentially because there [Indecipherable] meaningfully. So if you can just provide some color on that?

Soumitra Bhattacharya — Managing Director, Regional President

So thank you very much, Pramod, for your question. Pramod, I’ve always been mentioning to all of you that we look at our overall results and not only from quarter-to-quarter. So let’s have a look on both. So first, let me answer to you the consumer goods. The consumer goods is represented in Bosch Limited by Power Tools. In Power Tools, Bosch Limited is a market leader with greater than 30% market share. And also the power tools business has had a phenomenal growth so far with more than plus 30% growth. In the last quarter, which was October to December, the Power Tools division very clearly focused on optimizing inventory, ensuring that the dealers were filled with the right inventory including the whole supply chain. And if you look at the full calendar year, you see a plus 30% growth and therefore, seeing a small blip on quarter 2, the previous quarter, may not give you the right representation. Well I would also like to say our Power Tools business not only has done very well, but our manufacturing unit and Power Tools, Pramod, continues to produce huge quantity. If I’m not wrong, calendar year itself, we produced 1.8 million units from our factory. So in summary, I would say they are on a good track. And more importantly, on a very good strategy that they are implementing.

Pramod Kumar — UBS — Analyst

On the profitability of the category, there’s a loss while Y-o-Y, there is a small dip in the revenues, but the profitability has gone from INR350 crores or INR3.4 billion to a negative EUR2.7 billion. Any particular reason for that? Is there a significant pressure on input costs or traded goods being higher there? Or if you can help us understand on that?

Soumitra Bhattacharya — Managing Director, Regional President

Pramod, which loss are you referring to? I couldn’t get you. Your voice is breaking a little bit.

Pramod Kumar — UBS — Analyst

Sorry, the segment results for consumer goods, we have a negative INR2.7 billion trend for this quarter. Y-o-Y, it was a positive INR3.4 billion and the revenues have just slipped a bit on a Y-o-Y basis. So what is causing this sharp swing in profitability to losses?

Soumitra Bhattacharya — Managing Director, Regional President

Pramod, in Power Tools, the business, both on top line and bottom line are doing reasonably well. I don’t see that as a concern, honestly. And I’m not able to give you anything specific on that. I can tell you the overall profitability, both for the worldwide chain as well as for India, are good and the market share and the turnover is pretty good. So I don’t see that as a major concern.

Pramod Kumar — UBS — Analyst

Fair enough, sir. Sir, second question on the 5-year investment plan by Bosch India as a group. And within that, there’s a mention of INR1,000 crores for localization of advanced automotive technologies. If you can just help us understand what kind of component here we are talking about? Does it include traditional components or it’s largely towards EVs and those kind of technologies? And also of this INR2,000 crores, what will be the investment Bosch Limited is expected to make, sir?

Soumitra Bhattacharya — Managing Director, Regional President

So what we have announced already, Pramod, you are aware, and I can only stay with that because you know our Global Chairman has vested as well as our Global Chairman for mobility solutions. So a, Bosch Group in India, which includes naturally the flagship, has invested around INR9,000 crores over the last 10 years, decade, and b, for the next five years, we will invest INR2,000 crores, and that’s not the end of our capex, but it’s a subset. And this INR2,000 crores is broken out on INR1,000 crores for localization of advanced automotive technologies, which are also linked to PLI. And therefore, it’s not current technology. And of course, also under the INR1,000 crores that we are also expanding our digital platforms like the mobility — marketplace in the mobility cloud platform, which was also announced, Pramod, by Dr. Markus Heyn.

Pramod Kumar — UBS — Analyst

Fair enough. I understand the limitations.

Soumitra Bhattacharya — Managing Director, Regional President

And I’m not giving the breakup here, Pramod.

Pramod Kumar — UBS — Analyst

Yes, yes, I understand the limitations. Fair enough. Thanks a lot. I wish you all the best. Thank you.

Operator

Thank you. The next question is from the line of Pramod Amthe from Incred Capital. Please go ahead.

Pramod Amthe — Incred Capital — Analyst

Yes, thanks. Continuing the same question on these investments. I wanted to know what will be your localization after this program five years down the line or the purchase goods, how that will shrink compared to now, one. Second, it was also — PLI was also implying towards promoting exports. So hence, are there any medium-term targets you are taking up for exports as a proportion of sales mix by doing investments?

Soumitra Bhattacharya — Managing Director, Regional President

So Shanmugam, I’ve said this answer before, and I’ll repeat the same thing. You see our target is primarily towards domestic market. And yet, we want to go towards a healthy double-digit export over the years, and we have a very clear export strategy, which will be unfolded starting with ’22. But it’s never going to be 25%, 30%. So it’s going to be for Bosch Limited, a healthy and not high single digit, but a healthy double digit, number one. We will continue to export to different parts of the world because as Bosch globally believes in local for local, and we have a huge Indian market. The second part is our localization plans are completely linked to both on one side acquisition, and we have pretty good acquisitions in our powertrain as well as on future business possibilities of localization, whether in Power Tools, both in Aftermarket, whether in powertrain. So there’s a very detailed localization plan for every quarter for every year and pursue based on not only our current technologies, which needs localization, but also on future technologies. But you know we don’t give guidance, and I’m not going to break that up now into either quarters or years.

Pramod Amthe — Incred Capital — Analyst

Sure. And second one is with regard to the quarter. So even though the aftermarket seems to have come back to limelight with a 30% growth Q-o-Q, what’s the nine month growth there, one? Second, do you see structurally now the aftermarket is back to a double-digit growth path? Any thoughts on that?

Soumitra Bhattacharya — Managing Director, Regional President

So aftermarket has done pretty well, just like power tools, and I told you that aftermarket, the critical part of aftermarket, it is actually completely revamped its strategy. So it’s not a quarter-to-quarter that you need to look at. Aftermarket is a plus 30% growth on a low-base, yes. It has crossed its pre-pandemic levels and its peak levels. It has gained market share. And most importantly, aftermarket has a very clear strategy to digitalize. I gave you that example on Autozilla, therefore, to have very high levels of transparency in the whole supply chain, including getting Bosch parts. It has also developed a very high securitization of receivables and most importantly, aftermarket, as I’ve mentioned in my press release, from the present Bosch Car service of 400 within the next few years, it wants to go to 1,000 Bosch car services. So it’s a bit holistic strategy. It is not only on parts. It is on service. And it is also on digital.

Pramod Amthe — Incred Capital — Analyst

Sure. Thanks and all the best.

Operator

Thank you. The next question is from the line of Ravi Purohit from Securities Investment Management. Please go ahead.

Ravi Purohit — Securities Investment Management — Analyst

Hi. Thanks for taking my question. Sir, I was not clear about when we’ve mentioned this INR2,000 crore capex, are we talking from Bosch Limited, the listed company doing this INR2,000 crore capex because in the call, there is always confusion. And we are never clear on the management’s answers whether the management is answering on the behalf of Bosch Limited or it is representing Bosch Group as a whole. So it will help as investors because we are investors of Bosch Limited. We are not really investors in the other Bosch Group companies, right. So it will just kind of become very, very clear for us to understand whether all of these investments are going through a real estate company or some of them are going through the other unassociated companies.

Soumitra Bhattacharya — Managing Director, Regional President

Thank you, Ravi, for the question.

Ravi Purohit — Securities Investment Management — Analyst

Yeah.

Soumitra Bhattacharya — Managing Director, Regional President

So I have to tell you from your question, what you stated is, partly correct and partly perhaps needs a little bit of a revision. So you’re absolutely right that as members in the con call, you are absolutely focused towards the flagship company called Bosch Limited. However, please remember, when we talk about Bosch Group in India, many of the other companies outside the listed companies, what we call a sister companies whether it is Robert Bosch Shashi, or Robert Bosch Automotive Electronics, they feed their services and products many times through this company. For example, all the ECUs from Robert Bosch Electronics, comes in through Bosch Limited, when we provide the powertrain solutions as a system. So you must understand, when we invest in those companies also, Bosch Limited has both a direct as well as indirect benefit. Having said that, ballpark of the number that we talked on total investments over a period of 10 years, you can say 50% — around 50% the capex of Bosch Limited ballpark and sometimes even more.

And so the INR9,000 crores that we talked every year, we are investing in Bosch India, INR900 crores, approximately INR1,000 crores. And then about 50%, sometimes 60% goes through Bosch Limited. Secondly, we have now announced not a comprehensive capex policy. We have given two buckets of capex. So this may exclude some other capex that we will bring in. We just focused saying in our Bosch 100 years, we want to tell you that we are investing in advanced technologies, and that amounts to INR1,000 crores, greatly driven by Bosch Limited but also by Bosch Automotive Electronics and Bosch Shashi because we made it very clear, it’s not group in India. And another INR1,000 crores which is driven for the digital mobility platform. And we also made an announcement on the mobility cloud platform in the marketplace launch on third of the month by a Bosch global member, and this mobility cloud platform, I told you, is located inside Bosch Limited. So I hope I’m clear enough.

Ravi Purohit — Securities Investment Management — Analyst

Okay.

Soumitra Bhattacharya — Managing Director, Regional President

So I hope, I am clear that.

Ravi Purohit — Securities Investment Management — Analyst

Yes, that was very useful. Thank you so much. My second and last question is regarding the subsidiary that we had created after the government of India had announced lower tax regime, and we have formed this 100% subsidiary of Bosch Limited. So any progress there, is that the company is going to apply for the PLI? Or have we applied for PLI? Or what are the areas that we are looking at in the PLI? So if you could just share a little deeper insight into how you look at PLI as an opportunity for us, both from a domestic market point of view, export point of view, localization or global sourcing or manufacturing of BS-VI in India for the global markets now that diesel is kind of reducing in global market? So if you could just share some deeper insight for us as long-term shareholders, it would be really appreciated. Thank you.

Soumitra Bhattacharya — Managing Director, Regional President

So I want to tell you first on the PLI part. Independently from Bosch side, we would like to really congratulate the Government of India and specifically Ministry of Heavy Industries and the Secretary, Mr. Arun Goel, and his team for an excellent initiative, yeah, just the way Government of India has done the overall PLI scheme, but also for both OEMs, but also automotive component. We also want to state that the Government of India through the PLI is stocking of advanced automotive technology. And honestly, this is a leap frog, just like BS-IV to BS-VI. So these are all positive things. Bosch India has always played a very close [Foreign Speech] in a completely tech agnostic manner to work with the Government of India on what is right for India and what is good for India. We have also, therefore, independently applied for the PLI and we are setting aside for the next five to six years, around INR1,000 crores on advanced technologies. A majority of this will come from the public-listed company, but also quite a bit will come from the other two companies that I referred. In summary, we believe that the PLI scheme is good. In the five years, we also believe that it’s going to be a challenge, not just for Bosch, but for everyone in the industry because the 50% value addition meeting from year one itself is going to be a challenge. And I think [Technical Issues]

Operator

Ladies and gentlemen, the line for the management has got disconnected. Request you all, to please stay online, while we reconnect them. Thank you. Ladies and gentlemen, thank you for patiently waiting, the line for the management is reconnected. Thank you, and over to you sir.

Soumitra Bhattacharya — Managing Director, Regional President

You have to tell me at what point I — you couldn’t hear me, Ravi.

Ravi Purohit — Securities Investment Management — Analyst

Hi. I think you were kind of concluding your remarks on PLI and that you have kept aside on advanced technology INR1,000 crores and that this Bosch will also be kind of participating in.

Soumitra Bhattacharya — Managing Director, Regional President

Yeah. Thank you. You heard everything then, Ravi. Thank you.

Ravi Purohit — Securities Investment Management — Analyst

Okay. So just — I think we missed one part. I think on that subsidiary, which has been — which was formed at investors. Any update on that subsidiary? Are we kind of doing some capex to that subsidiary? Is it going to be used for localization or for exports or sourcing or if you could just share some?

Soumitra Bhattacharya — Managing Director, Regional President

Thank you. The Robert Bosch India manufacturing Private Limited 100% subsidiary of Bosch Limited is — will clearly be accused also for advanced technologies.

Ravi Purohit — Securities Investment Management — Analyst

Okay, okay. Thank you. I’ll get back in a queue now.

Operator

Thank you. The next question is from the line of Anand. Please go ahead.

Yes sir. Thanks for taking my question. So with [Indecipherable] the corner, do you see OEMs considering GDI as an option amidst rising focus on EVs and hybrids? And what’s our take on the GDI’s outlook over the medium term?

Soumitra Bhattacharya — Managing Director, Regional President

Look, this point has been discussed enough. There is an industry view, there is a government view. And of course, influences like COVID or supply chain issues can also have an impact. I think we should really look at the 2030 timeframe, and I stated upfront that with the e-mobility plus case, which is a positive case for India, we can look at approximately one-third of new pass cars getting into the EV space.

Sorry, I mean any comments on the GDI part? How is it from — because from April 2022, we have second one coming in. Is it being actively considered as an option by any of OEs?

Soumitra Bhattacharya — Managing Director, Regional President

If we look at GDI in relation to — if it makes sense for us because you’ve asked us this question, including localization, we are in the GDI space very strongly worldwide. Right now, we have not put up any lines here, but this will also require very clear, a situation of it being financially viable, yes. So yes, it does occupy a space very strongly. Bosch has a very strong space in that. But right now, I’ve mentioned that before also we have not considered anything right now because any single line on GDI you need very, very high volumes.

Okay. Makes sense. And just on the outlook — Hello, sorry–

Soumitra Bhattacharya — Managing Director, Regional President

Ravi, can you hear me?

Unidentified Participant — — Analyst

This is Anand, I’m audible, right?

Soumitra Bhattacharya — Managing Director, Regional President

You’re audible. I think I’ve answered your question, sorry.

Yes, just the second question, last question. I just want to know what’s your outlook on the Energy & Building Solutions segment, what is the space looking like? And what are the opportunities we have in the segment? And probably over the long term, can you see the non-auto mix improving significantly? Or what’s our target on that side of the business?

Soumitra Bhattacharya — Managing Director, Regional President

Yes, I think, again, you hinted at it. We are looking at, first of all, retaining good continued position in the mobility area, both for Bosch Limited as well as for the Bosch Group in India. To give you an example, this quarter, the India part of it in terms of mobility, other than 2-wheelers, degrew by about 11% or 12% here, around 12%. And for us, we degrew by 6%. So we want to be end of the curve on that area. So either grow faster or degrow lesser, either on a quarter-to-quarter or a year. I already told you on Power Tools, we had, of course, albeit low base plus 30%. And we want in the next five to six years also to double our turnover there. And Power Tools is a very good example where we are further localizing, where we are bringing engineering into India and there’s a whole supply chain we are looking at. In Energy Solutions & Services, it’s a niche market.

It’s a very fragmented market. We have made a very good place for ourselves, but it’s early days. So we are making a long-term plan. We want to remain embedded in this area to bring the Bosch global technology and our Indian expertise. So you will see, as the — I can’t say quarters as the years go by, how we grow it. We believe that we can play in this niche segment a good role. Lastly, across Bosch India on non-mobility, we want to grow faster than the market, whether it is in Power Tools, whether it is in Bosch, Siemens home appliances, BSH, which sells under Bosch or Siemens home brand. So everywhere, many of the places we play a niche game, including BSH, but they’re doing well, including our drives and controls. So yes, we are giving a lot of focus beyond mobility. And we are also looking constantly at either start-up connections, like we’ve shared with you time to time, including investment in start-up, and we are open to also investing with partners.

All the best. I’ll fall back in the queue.

Operator

Thank you. The next question is from the line of Laxmi Narayan from ICICI Prudential AMC. Please go ahead.

Laxmi Narayan — ICICI Prudential AMC — Analyst

A couple of questions. What’s the business mix between mobility and beyond mobility?

Soumitra Bhattacharya — Managing Director, Regional President

So mobility is around 80%.

Laxmi Narayan — ICICI Prudential AMC — Analyst

And if — how much of mobility is actually auto?

Soumitra Bhattacharya — Managing Director, Regional President

Mobility is primarily broken up into all the five segments that you know. I mean it is pass car, it is two-wheeler, it is three-wheeler, it is tractors, it is heavy commercial vehicles, it is light commercial vehicles. All these constitute mobility and also now that our mobility cloud platform has been launched officially. Of course, we were doing work behind the scenes. We will continue to start also our revenue process there, that’s inside Bosch Limited.

Laxmi Narayan — ICICI Prudential AMC — Analyst

Got it. And if you just look at your — the gross margin, we were operating at a higher level than over the last one year because of higher mix of Made in India material, right? The gross margins have come down and you also hinted some time back that there is a path to higher localization. So what is the gradient of gross margin expansion? Over how many years do you think you can catch up to the earlier one? Or should we actually take this as the current normal?

Soumitra Bhattacharya — Managing Director, Regional President

Look, our operating margin has a couple of elements. You must remember that in the last couple of years, including this year, we are investing a lot also into our mobility solutions and services and also our electrification house. So you see that as a net at the end of the day, yes? So whether you see it in the operating EBIT or you see it in the EBIT margin, so we are investing in the future where sometimes you have to put in money in the P&L, which will create a high impact and value for the future. So let me give you an example of the launch of the Mobility Cloud platform and the mobility marketplace. Now this business we started four years ago. And we’ve brought it to a good shape where today it is up and running for transactions to happen and both with medium-sized business, large business, startups and it’s cloud-agnostic and people can enter, we have our own solutions. And also we allow others to enter and work. And so any of these things require a little time. And Bosch Limited has never looked at valuation, but it creates value inside the company.

Laxmi Narayan — ICICI Prudential AMC — Analyst

Got it. Got it. I mean, the other question is that if you look at three years or five years out, right, can we catch up with the earlier margins, right. So these are all in the early stages of investments and then results will show later, but what is the band of margins you’d like to come at a gross margin or an operating and two years, maybe three years later.

Soumitra Bhattacharya — Managing Director, Regional President

Yes. I mean don’t get me wrong. You’re asking me a clear guidance question. And I think I’ve mentioned before that we don’t give guidance. So if you ask me, what are you doing to future proof the company, I can give you an answer, but I will not convert that into a guidance question. So I shared with you that at the right time, we have announced now the mobility cloud platform and also the mobility marketplace. And you will see revenues from that. Same way, we will share at the appropriate time on electrification or on hydrogen, but I will not convert that now into a guidance question.

Laxmi Narayan — ICICI Prudential AMC — Analyst

Sir, my question is essentially on localization, right? Because of the faster progress to BS-VI, we started instead of localization; we started procuring material from outside that is also seen in the balance sheet, right? What is — and when will the localization plan…

Soumitra Bhattacharya — Managing Director, Regional President

Very strong acquisition, which has already happened and more coming in. And for the advanced technologies, we also planned the localization through the PLI scheme, etc. But — and these are all — these components or systems are under the Make in India program, whether it is related to improved versions of the common rail or our pumps or the components related to it. But — and of all on exhaust gas treatment. But we don’t give you a guidance on the bandwidth of the profitability that you are asking, specifically.

Laxmi Narayan — ICICI Prudential AMC — Analyst

Got it. Just one last question from my side is that if I look at the incentives which we are getting from government in terms of exports or any other incentives, if it is around INR100 crores or something in [Indecipherable] which came down to like INR nine crores, INR10 crores, are we still getting some incentives and [Technical Issues]

Operator

Sorry to interrupt you. Sir, the audio is breaking from your line, please check.

Soumitra Bhattacharya — Managing Director, Regional President

Yes, I got the question. Answer is yes, we do get incentives from the government. We don’t rely on incentives to run our business model, but we do get. Answer is also, yes, that we also focus on our operating EBIT, which we’ll continue to besides having other income. Answer is yes, we will continue to get also services income for the services for R&D and application that we deliver to our clients. So on all these answers, answer is yes. Unfortunately, due to the reduction in rates, we had a pretty strong cash balance. And due to the interest rate drop that — and we keep — park them in very secure and safe and AA and AAA instruments. That rate has dropped. We believe, over time, again, the same rate interest rates will also firm up — and finally, I’d say we use a healthy capex mix. We have…

Operator

[Technical Issues] Please go ahead.

Soumitra Bhattacharya — Managing Director, Regional President

Yes. Thank you for keeping us on hold. So I hope I gave the answer. I mean I don’t want to repeat again, maybe the last question.

Operator

Sir, we will take one last question. Ladies and gentlemen, due to time constraint, we will take one last question from the line of Krishna Kumar from Lyon Hill Capital. Please go ahead.

Krishna Kumar — Lyon Hill Capital — Analyst

Yes. Good afternoon sir. Thanks for the insights on the electrification and mobility. Sir, when you talk about the changing environment in the electric vehicle space, there seems to be at least a couple of dozens of players and also many vendors who want to be in that space on motors and controllers and other one DC/BC charges, etc. We at Bosch have been on the automotive industry, used to, a scenario where you had probably three, four kind of OEMs in every segment and also suppliers who are probably more — or lesser in number. So how are you kind of organizing yourself within the company to handle this kind of varied client deal and also competition that’s coming from start-ups and other players, basically? It seems to be a very different ball game on the electric vehicle space in India. Your thoughts would be highly appreciated.

Soumitra Bhattacharya — Managing Director, Regional President

So I request our CTO. And by the way, he’s also been appointed GMD today from — by the Board. You can congratulate him our CTO and GMD, Mr. Guruprasad Mudlapur, to answer that, and he also heads the electrification project.

Guruprasad Mudlapur — Director

Yes. Thank you, Soumitra. So I think your question was how are we going to make a mark in electrification in the context of what you described. I think that context is very well understood by us. We are already the global leader in electrification acquisitions. Our order book today is over 20 billion. And it’s not because we have done something yesterday. It’s because since 2010, we saw this coming. And we’ve invested very, very steadily in electrification. Virtually, over EUR500 million year-on-year as product development, R&D, research advanced technologies, including semiconductors, which are very relevant for electrification, like silicon carbide and so on. So we have a very, very wide portfolio. We have a very wide portfolio, which covers from 2-wheelers, extends all the way up to commercial vehicles. We have a complete portfolio on fuel cell electric vehicles. We have a portfolio on hydrogen conversion of combustion engines.

So in terms of portfolio, in terms of high-speed technology, I believe we are global number one as a tier 1. That doesn’t mean that we are not going to be competing against a lot of players. We have a lot of competition, and we recognize that. So trying our best to stay ahead of the curve through sustained investments and technology advancements in all areas, including working pretty closely with multiple OEMs with whom we have good relationships, but of course, like you alluded, electrification is also stretching beyond OEMs into new mobility solutions providers, for example, an Ola in India or other companies worldwide, which are not traditional OEMs, but they now start to do different things than electrification. So we are also in relationships with many of them. We work very closely with them to define what could be the car of the future, what could be the vehicle of the future, how can we participate in providing technology to them. We work with them very closely on key architectures. We give them system engineering guidance and we help them design the overall solution. So we are working very closely in partnership with every single player that’s out there in the market, be it an OEM, be it an MSP, be it a start-up, we have very good relationships with startups. Our CEO talked about investments in start-ups, we’ve been doing also in the Indian context. These are all done with the name of progressing or enabling electromobility to come strongly in India. Want to add anything?

Krishna Kumar — Lyon Hill Capital — Analyst

Just adding to the point you made, sir. When we look at a lot of the players in India, while it’s too early to say, but the profitability seems to be a lot under pressure even at this point in time with less competition. So does it mean that the solution products and suppliers also would probably have to look or be okay with lower profit margins in the long run as EVs take over? Is that the right direction to look at in terms of profitability of the industry, on the supplier side?

Guruprasad Mudlapur — Director

I would say this is really very early days. We shouldn’t assess this because electromobility in that context is really at an infancy in India. OEMs are finding their fleet. They have their first few thousand cars sold. Two-wheeler makers are selling their first few hundred or maybe 100,000 vehicles or 50,000 vehicles in the market. Everybody is coming to grips on how things should pan out. The input costs are still very high. And hence, you see pressures on margins. But this need not necessarily be the steady state as we move forward. And this is something we are also watching. We are — we’ve gone through these cycles globally. In fact, many advanced countries have come out of these cycles. China, for example, is out of the cycle, and they are in a steady state with two million vehicles also already on the market. So these are things which will play out over a couple of years. And I think we should hold our guns for a year or more before we start to assess what would be the real margin impact here.

Operator

Thank you. Ladies and gentlemen, we will take that as a last question. I now hand the conference over to the management for closing comments.

We thank all the participants. We thank Bosch management for taking time out for the call. Thanks.

Soumitra Bhattacharya — Managing Director, Regional President

Thank you very much. Thank you.

Bye-bye.

Operator

[Operator Closing Remarks]

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