Bosch Ltd (BOSCHLTD) Q4 FY23 Earnings Concall Transcript

Bosch Ltd (NSE:BOSCHLTD) Q4 FY23 Earnings Concall dated May. 11, 2023.

Corporate Participants:

Soumitra Bhattacharya — Managing Director

Guruprasad Mudlapur — Joint Managing Director & Chief Technology Officer

Karin Gilges — Executive Vice President, Finance & Administration and Chief Financial Officer

Analysts:

Annamalai Jayaraj — B&K Securities — Analyst

Pramod Kumar — UBS — Analyst

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Hitesh Goel — Kotak Institutional Equities — Analyst

Viraj Kacharia — Securities Investment Management — Analyst

Priya Ranjan — HDFC Mutual Fund — Analyst

Unidentified Participant — — Analyst

Presentation:

Annamalai Jayaraj — B&K Securities — Analyst

Ladies and gentlemen, good day and welcome to Bosch Limited 4Q FY ’23 Post-Result Conference Call, hosted by B&K Securities. I also take this opportunity to welcome the senior management team of Bosch Limited. We have with us today Mr. Soumitra Bhattacharya, Managing Director; Mr. Guruprasad Mudlapur, Joint Managing Director; and Ms. Karin Gilges, Chief Financial Officer. At this point, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the management presentation and opening remarks.

Over to you, sir.

Soumitra Bhattacharya — Managing Director

Thank you very much, and good afternoon to you — all of you, and thank you for taking part in the call today. Today, I would like to brief you on the macroeconomic policy, followed by the automotive market update, and then, of course, we’ll walk you through our financials, and finally, we’ll end with the highlights for the quarter which affects our business.

The global economy continues to have a slowdown, and while the central banks continue to raise their interest rates to tame the inflation, IMF is now forecasting a global economy growth at about 2.8% for the year 2023 from 3.4% in 2022, and advanced economies will grow only by about 1.3% in 2023. And if you compare this to 2022, that was 2.7%. In this background, the Indian economy is in a relatively sweet spot and is doing well and is expected to grow anywhere between 5.9% to 6.5%. Of course, this is anyone’s guess. We will see how the year unfolds. More importantly, till now inflation relatively is under control, and this is I think one of the main focus areas that the RBI has been doing, and to keep also the financial sector resilient.

India has moved to become the world’s third largest automotive producer. Of course, you must remember this number of third largest is also linked with mix, which we cannot compare with others. Overall, the automotive industry has seen a increase of 22%. This is without two-wheelers, and in the automotive production during the fiscal year ’22-’23, as compared to the fiscal year ’21-’22, and an additional growth of 14% year-on-year in the current quarter without two-wheeler as compared to the quarter four of fiscal year 2022.

In quarter four fiscal year ’23, the commercial vehicles in the market grew by 6% year-on-year with medium and heavy commercial vehicles outperforming, they grew by plus 16% year-on-year. And this has been led by a strong end-user industry demand and pre-buying to beat the price hike ahead of the emission norm change.

Now, tractors have done very well, colleagues. Tractor industry grew by plus 35% year-on-year in fourth quarter, ending the fiscal year ’23 with an all-time high. By the way, greater than 1 million. Passenger car segment saw double-digit growth in fourth quarter. It was led by the SUV segment, that means the mix is very important. OEMs continue to hold a strong order book in SUV segment, which should help in cushioning the segment for some time to come.

Two-wheeler, unfortunately, was a story which had two different sides of the coin. The domestic demand has witnessed sequential recovery and exports has seen a pretty declining trend, unfortunately. Three-wheelers continue to recover in the domestic markets while they are not — they are nowhere near the peaks of ’18-’19 and exports still remain weak.

Let’s look at how the Company has performed in the automotive market. As you can refer from this slide, Bosch domestic automotive sales, OE sales, have been better than the automotive market production. On tractors, Bosch has — the growth is driven by higher pre-buy in inverting by OEMs for the CPCB 4. Plus, application on pass cars and commercial vehicles, Bosch growth was primarily driven by market share gains, in case of some key customers where Bosch has a higher content per vehicle. Additionally, there has been an increase in content due to EGT, or exhaust gas treatment components, for onboard diagnostic applications in pass cars and light commercial vehicles.

Let’s look at how the Company has performed in January-March ’23 quarter compared to the January-March ’22 quarter amidst all the above-mentioned factors. Mobility Solutions business have grown by approximately 24% in quarter four FY ’23 as compared to quarter four FY ’22. There has been a growth of approximately 28% in production and sales of powertrain, which is driven mainly by automotive sector and increasing share of content per vehicle, mainly in EGT. Automotive Aftermarket has grown by approximately 15% quarter-on-quarter, mainly due to increased market demand, and of course, I had mentioned to you our Zing+ strategy, where our aftermarket continues to do well on that strategy.

Our two-wheeler business sales have also increased by approximately 18% quarter-on-quarter due to good improvement on the semiconductor supplies, which, as you know, was not doing too well earlier.

Beyond Mobility business sales now, this has grown by approximately 8% in quarter four FY ’23 as compared to quarter four FY ’22. Consumer Goods business comprising of power tools, has increased by approximately 2%. Building Technologies grew by — on a low base by more than 40% on account of higher project execution.

The overall revenue from operations from January to March 2023 stood at INR40,634 million, which is an increase of approximately 23% as compared to the corresponding period of the previous year, mainly driven by growth of product sales of approximately 21%. Mobility Solutions sales grew by approximately 24%, while sales from business Beyond Mobility Solutions increased by approximately 8%.

Income from services, mainly comprising of R&D services provided to our OEMs, as well as our parent Bosch and Germany, while the billing for R&D services are at a healthy rate, income recognized in the books, based on customer SOP dates, was at INR1,308 million.

Other operating income, which includes mainly income from lease rentals, miscellaneous income, export incentives, in the current quarter increase is mainly on account of rental income, owing to the additional income from the leasing of our smart campus, which is Spark.NXT campus, as compared to the January-March quarter ’22, and the receipt of incentive from the mega project scheme of the Government of Maharashtra pertaining to our Nashik Plant.

Our material cost as a percentage of total revenue from operations stood at 64% in January-March ’23 as compared to 64.6% in January-March ’22. However, the material cost as a percentage of net sales, that is excluding the income from services and other operating income, is at 67.3% in January-March ’23 as compared to 67% in January-March ’22. The marginal increase in the metal cost percentage is mainly on account of increase in raw material prices, including prices of electronic components.

Our employee cost for January-March was at INR3,281 million as compared to INR2,505 million in January-March ’22. As a percentage of revenue from operations, the employee costs stood at 8% approximately in January-March ’23 as compared to 7.6% in January-March ’22. January-March ’22 had a credit on account of reversal of provisions on actuarial valuation of employee retiral benefits. So this actually means that we had an additional benefit in that view.

Other expenses stood at INR6,134 million. This is about 15% of the total revenue end January-March ’23, as compared to INR4,803 million. This is about 14.5% of total revenue in January-March ’22. The current quarter has seen certain one-time impacts. These are due to exchange rate, due to depreciation of INR, increase in spending related to our new business areas, higher spending on professional and other charges related to service income. Depreciation for the quarter is at INR1,206 million, 3% of the total revenue as compared to INR892 million, which is 2.7% of the total revenue in January-March ’22. Increase in depreciation in current quarter is majorly on account of additions to plant and machinery and buildings.

With this, operating profit stood at INR4,018 million in January-March ’23, as compared to INR3,516 million in January-March ’22, which is an increase of 14.3%. The other income primarily comprises of interest on fixed deposits and change in market value of mutual funds, debt-based, the other income has increased from INR872 million in January-March ’22 to INR1,359 million in January-March ’23, mainly on account of higher mark-to-market gains on mutual funds, as well as higher FD interest and therefore, income.

Now, coming to PBT and PAT. For the quarter ended January-March 2023, our company posted a profit before tax, or PBT of INR5,331 million as compared to INR4,315 million in January-March ’22. As a percentage of total revenue from operations, profit before tax stood at 13.1% of total revenue in the current quarter. Profit after tax for the quarter ended March ’23 stood at INR3,990 million, which is 9.8% of the total revenue from operations. Profit after tax or PAT in January-March 2022 was INR3,506 million, which is 10.6% of the total revenue from operations.

The BS VI Stage 2 norms have been implemented across India on 1st April, 2023, with an aim to make on-road vehicles cleaner and contributing towards the improved urban air quality. The key highlights of the BS VI Stage 2 norms were the introduction of real driving emissions for passenger cars, in-service conformity for commercial vehicles, and stringent onboard diagnostic, OBD, requirements. Bosch has worked very closely with OEMs and legislative authorities over the past years, and contributed immensely in the smooth launch of the BS VI Stage 2 compliant vehicles. Our system solution approach during the release of BS VI Stage 1 had already ensured emission and performance robustness in not only standard test cycles, but also in real driving conditions. Thereby, paving the way for a quick and efficient adoption for Stage 2.

Bosch Limited also introduced a new cutting-edge testing solution, like the mobile chassis dynamometer and the cold chamber testing to validate the vehicle performance in extended environmental conditions and ensure system robustness. Our OBD solutions and calibration services have also played a crucial role in enabling the OEMs to meet legislative requirements. Bosch has successfully delivered approximately 80 programs across different vehicle segments and will continue to work closely with stakeholders to improve the system performance and prepare for future legislation.

Moving on to our ESG performance, it gives me immense pleasure and satisfaction to report that Bosch Limited has been rated the number one amongst all auto component companies by Sustainalytics (Global ESG Ratings Agency). Our risk score is only 8.3. As you know, the lower the better. At Bosch, we pursued sustainability long before it was made into a talk of the social agenda. As a result, in 2020, we became the first global industrial enterprise to make our own operations carbon-neutral. Last year, as a part of the Annual Report, we summarized the focus areas of our sustainability management with a vision that describes six dimensions.

Now, I would like to thank each and every one of you for your contribution and patient listening. And before we address your queries, that is me and my colleagues, I would like to also make a last personal statement to all of you. So, as you know, I retire from the services of the company on 30th June, 2023. My successor already announced, Guruprasad Mudlapur, will be addressing the next meeting. Of course, he along with our CFO will continue to address these meetings. The team at Bosch and the transition at Bosch has been done in a very well-planned manner. The team is an excellent team and they will not only keep the Company as it has remained relevant, not just for our customers, but for the government, the society, the stakeholders at large with the Bosch ethics and values, but I’m sure that they will take it to the next level, including not only strengthening our core and reviving the core, but also addressing the very important part of the future core, or the new business areas where our parent has all the strengths, and they will utilize to regionalize, to have our strong umbilical cord functioning, and you will get the same transparency and, of course, at an even higher level.

So with that, I bring my colleagues into play for all the questions and answers that you have. And I want to tell you that it’s been a pleasure for me to talk to you all these years.

Questions and Answers:

Annamalai Jayaraj — B&K Securities — Analyst

Thank you, sir. We will now begin the question-and-answer session. Ladies and gentlemen, at present you are all in the listen-only mode. For participants who wish to ask a question, I request you to please raise your virtual hand. As the moderator, I shall be able to see your raised virtual hand and I’ll invite your questions in turn. Alternatively, participants can also type in their questions in the chat box. Please address your question to all the panelist. We will now wait for a moment as the question queue assembles. Yeah, the first question is from Pramod Kumar. Please unmute your line and ask your question.

Pramod Kumar — UBS — Analyst

Sir, wish you a great time ahead, as you kind of spend more time on the personal front and congratulations on a great transition and leadership so far. Sir, my first question is on the semiconductor situation. The Indian companies have been complaining about very, what do you say, volatile supply chain situation on the semi side for the last few months as well. So looking forward from your vantage point, especially from Germany where you are today, how does the supply situation looking from your perspective, sir, for Indian OEMs, as you look forward into FY ’24?

Soumitra Bhattacharya — Managing Director

Thank you, Pramod. This is a very important point and we have been constantly addressing it. Look, Pramod, we have to look at it on a worldwide basis and not on an Indian context. The semiconductor situation on the FY ’22-’23 had huge challenges across the world and therefore, also India. Relatively, compared to the past, there are better stability, but we are worldwide not out of the woods. And therefore, India is also not out of the woods. Even in the last few months, there have been temporary issues because, A, the supply chain is extremely complex. B, the supply chain is across the world. And C, you may have heard that some of them had some quality issues, some of them had some structural issues, and even one particular semiconductor had a fire, which was a coating supplier. So I’m just giving you some examples.

So, in summary, A, the supply situation relative to a very turbulent FY ’22-’23 and FY ’21-’22 is relatively better, but individual suppliers, either fire or supply chain issues or structural issues or quality issues cannot be ruled out, which then affect different parts of the world, including India. So I’m not even talking now about the war that’s happening, or China, Taiwan, those are bigger items, but in summary more stable. Semiconductor can never be addressed from the India approach only, it’s a worldwide matter, and our global task force in Bosch do an excellent professional job and thereby India, like many other countries, also gets its shares, and thereby, our customers get their share, but we are totally dependent on the situation on the individual semiconductor, and those companies have back-end and front-end plants all over the world.

Pramod Kumar — UBS — Analyst

Fair enough, sir. Sir, second question is on the revenue outlook or the growth outlook what you shared, because if I look at FY ’23, your underlying customer segments, be it tractors, be it commercial vehicle, be it passenger cars, had a phenomenal volume growth and revenue growth for your key customers were like north of 30%, and we had a below — a growth rate which is below them, most of our key customers. In that context, when everyone is talking about industry growths — kind of segment growth slowing down, be it in commercial vehicle, be it in cars and even three-wheelers and other categories and tractors particularly, why are we guiding for a healthy double-digit growth outlook when underlying segments growth may not be more than 5%, 6%? So what is the disconnect between FY ’23 performance versus, say, what you’re guiding for FY ’24?

Soumitra Bhattacharya — Managing Director

So, Pramod, first of all, for FY ’24, we don’t give a guidance. Now, let’s talk about FY ’23. Now, for FY ’23, you have to be very specific, you have to now say pass cars. The pass cars in FY ’23 production was 4.576 million. This was against a peak of 4.070 million in ’18-’19. Now, within pass cars, you have to look at the mix. The mix has changed in favorable of SUVs. So whether you look at pass cars, whether you look at heavy commercial vehicles, where the peak was 4,80,000, and FY ’22-’23 was 3,97,000, we have improved on the content per vehicle, whether — greatly in heavy commercial vehicles, in medium commercial vehicles and also in pass cars. Of course, tractors, we play a pretty good role and that tractors went to 1 million, which crossed even the higher peak of 9,70,000 or the peak of ’18-19 of 9,00,000.

So content per vehicle for Bosch has gone up, market has grown. You have to always look at it as a mix, otherwise it will be a generalized question. And lastly, for ’24 now, while we will not give a guidance for the Company, we can say that we will have a healthy growth also for FY ’23-’24. And we [Technical Issues] the market to grow on the already high level of FY ’23.

Pramod Kumar — UBS — Analyst

Sir, apologies, but in the press release I think you’ve made comments that you expect total revenues from sales to grow around 15%. I was referring to that.

Soumitra Bhattacharya — Managing Director

Yes, yes. Look, that is something that last year we also said and we outperformed that. So I told you, a healthy growth of 15% we expect, but I’m not going to say whether it’s going to go towards 20% or 22%, whatever. So if you remember last year also we said that we are expecting to be at 15%-plus and let’s see how the market performs. At the end of the day, all under normal circumstances, suppose there is a circumstance, which of COVID happens, and the war happens in this part of the country or this side of the world, then you never know, these are all under normal circumstances we expect India to grow well, based on [Indecipherable]. So this has a lot of riders to it.

Pramod Kumar — UBS — Analyst

Yeah, yeah, that’s what I was trying to understand, because the growth for your key customer segments is going to moderate materially and we are talking about significant outperformance. That was the context. But yeah, I think you’ve explained it well. Thanks a lot. I’ll get back in the queue, sir. Thank you.

Soumitra Bhattacharya — Managing Director

Thank you, Pramod. Mr. Jayaraj, you’re on mute.

Annamalai Jayaraj — B&K Securities — Analyst

Sorry. Yeah. So next question is from Jinesh. You can go ahead with your questions.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Yeah. Thanks, Jayaraj. Congratulations to you, sir. Wish you all the best for the next stage of your life. My question pertains — first, clarification on the staff cost. We have seen a substantial increase vis-a-vis previous quarters, not just on Y-o-Y, but also on Q-o-Q basis. Is there any one-off in this quarter or this is more of a sustainable run rate?

Soumitra Bhattacharya — Managing Director

Look, first of all, Sridhar — sorry, Jinesh, our employee cost, as you know, if you look at three years or four years ago, where we had even touched 14%, we have made a major sustainable downward change. And this has happened through our three-R programs. And this was over three years. So you have to keep first in mind where we were, and that was about 13% to 14%, and where we are. So that context is very important.

The second point, on this context, there will always be some minor changes. This will be due to year-end increments, annual salary amounts which we had paid, which of course get utilized over the year, and things like that. So I would say, our employee cost as a percentage of revenue from operations will always remain now at optimal and healthy level. We are focusing on the quality of the part, not the percentage, in terms of upskilling our people, in terms of taking care of relevant competencies, whether it is blue collar, whether it is our leadership, or whether it is our managerial staff.

So in summary, I would say, please, Jinesh, look at two things. One, where were we as a company for the past so many years, and now where are we, and we are about anywhere between 4 to 6 percentage points lower. Second, there will be some minor changes always. And third, let’s look at beyond the number, is the company progressive, to look at GPTW where we have scored for the third time in the top quartile, is the company looking at training, competence, and we are doing it.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Got it. Got it.

Soumitra Bhattacharya — Managing Director

[Technical Issues] will continue to be there, whether it is accurals, whether it is actuarial valuations, whether it is these increments and all that. So don’t get bothered about it.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Sure. Sure. And the second clarification on the traded goods on our RM cost. So that has also seen an increase materially vis-a-vis third quarter and this especially in context since we started our localization processor plant in 3Q. So in that context, does this increase — is it something to do with the OBD transition where the sensors and electronical parts would have seen increased sourcing from our sister concerns?

Soumitra Bhattacharya — Managing Director

Traded and manufactured will always have these small changes, because as you move up the ladder, which I have explained multiple times, on both revived core and new core, Bosch has always followed a policy of first trading. And when you have a higher mix, as well as content per vehicle, then we will always have a chance also for traded a few percentage points becoming higher. As we go along, those traded goods then get localized over time. So yes, you are indirectly right, when you look at the mix, I told you about whether it is our OBD, I told you about the emission norm changes BS VI Stage 2, like earlier when we changed from BS IV to BS VI, the same thing happened. So I would say, please look at traded goods as two parts. One, mix changes will have an impact on traded goods for some time. Then we kick in localization based on volume, and then again some other traded goods will come in based on again legislation, and this will be an ongoing process. So we will continue to localize, we will continue to have traded goods, depending on emission norm changes and depending on a localization program. But one thing I can assure you, Bosch India as a Group and Bosch Limited as a company will continue to focus very clearly on localization at the right optimal times.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Got it. And lastly, in the press release we have talked about content increase driven by exhaust gas treatment. So is this also driven by the OBD rule change? Logically, it doesn’t — should not be the case. And is this over and above content of SCR, can you clarify on that as well?

Soumitra Bhattacharya — Managing Director

I’ve told you about the BS VI Stage 2, also told you about the OBD and also, this is linked to the EGT components. And if you look at the total mix and mainly coming from the powertrain, yes, our content per vehicle has significantly moved up. The first set of content that moved up was from BS IV to BS VI Stage 1, then from BS VI Stage 1 to BS VI Stage 2, and later content per vehicle will also have a change when we have the TREM IV to TREM V.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Okay. And this EGT would be made in-house, unlike SCR which was sourced from third-party vendors. Is that correct understanding?

Soumitra Bhattacharya — Managing Director

No, Jinesh, we take from the best party and from the best source and we decide what we do in-house and what we do from third-party or our partners. So we always — we don’t get into overall scheme of just trying to localize for localization. And we will continue, and this policy is applicable for EGT, where EGT has multiple components and there are different levels of expertise, whether it’s coating, whether it is different other components that — where Bosch primarily would not go to, but continue to work with partners.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Got it. Great, sir. Thanks, and all the best.

Annamalai Jayaraj — B&K Securities — Analyst

Thanks. Jinesh. Next question is from Hitesh Goyal. Please unmute your line and ask your question.

Hitesh Goel — Kotak Institutional Equities — Analyst

[Technical Issues] future endeavors. Sir, my question is on this — your — we can understand that content per vehicle will increase basically in FY ’24 because of this new norms which are coming through, right? Post that, do you see any major change which can increase in terms of emissions, which can lead to increase in content per vehicle, except for the tractor with the change that you have highlighted?

Soumitra Bhattacharya — Managing Director

Hitesth, this is a very generic question, don’t get me wrong. Content per vehicle increases based on what is happening on the mix, and the mix is then linked to change in the roadmap, legislation roadmap. So you have to be a little specific. For example, there was a change in two-wheeler from carburettor to injection, or there is a change in FIE for TREM IV to TREM V, or there was a change in our mix from BS IV to BS VI, BS VI to Stage 1 to Stage 2. So we use those changes and in the emission and legislation roadmap, there are some eight lines parallelly running. The eight lines can also become 10 or 12. So you have to really look at each line, whether it is CPCB for plugs, whether it is TREM IV to TREM V, whether it is BS VI to Stage 1 to Stage 2, and whether it is for the two-wheeler and so on, so forth.

So — and there Bosch works at each stage on — because for us, our parent has already gone through this. In summary, India was 17 years behind Europe about eight years ago. Today, we are approximately five years behind Europe. So, luckily, our parent has gone through most of it. And we use our parent’s expertise, then we regionalize the approach and we start working well before the launch. So that’s how. And in summary, yes, content per vehicle has gone up, but not suddenly, it has happened over a very clear unfolding game plan. This is for PS.

What you’re not seeing is many of our sister plants, who support Bosch Limited, take our ECU manufacturing unit where my colleague Guruprasad Mudlapur who is going to succeed me was the MD. There also there are changes for the entire ECU, and those new ECUs come and fit into different vehicles, different applications. So Bosch in India is Bosch Limited, plus supported by many of our sister legal entities. So it has to be a little more specific. But overall, yes, content per vehicle has gone up and we focus on this route, not just when you see it, but well before and — but Guru, would you like to add [Speech Overlap]

Guruprasad Mudlapur — Joint Managing Director & Chief Technology Officer

Yeah. Maybe just as a general rule, I think you covered it all Soumitra, as we move towards more advanced technologies and regulations, be it in the form of emissions, safety or connectivity or other forms, content per vehicle or the complexity of technology goes up substantially and the electronics content has also gone up substantially over the last few years. And it has always been our endeavor to have the most latest technology on offer for these technologies and regulations and we’ve done that globally. We are doing that also in India. So sometimes you see this with a lag. While we may have been talking to the OEMs or to the government and offering technologies, maybe three, four years in advance. And what you see as results, come maybe three years later. So in that sense, it’s a constant endeavor of Bosch to keep on increasing our content per vehicle to a substantial level as we move forward. And electronics is one good example, from cars which had just one ECU or two-wheelers which had no electronics at all, today we are at levels where we have multiple ECUs and multiple — we have multiple ECUs and multiple electronic control units for different functions in different vehicle categories.

Hitesh Goel — Kotak Institutional Equities — Analyst

Great sir. Thank you very much for a detail answer.

Annamalai Jayaraj — B&K Securities — Analyst

Thanks, Hitesh. Next caller is Viraj. I have unmuted your line. You can ask the questions.

Viraj Kacharia — Securities Investment Management — Analyst

[Technical Issues] nice interacting with you. Just a couple of queries I had on the business side. First is, I get the sense that your content is increasing with each regulation, but if one were to just understand our volume performance and especially our market share in different end segments, say, CV, MHCV, tractors, PV, and where I’m coming from is, if I look in the past there was a phase where we had lost business, say, with some of the customers in CV or there’s a change because of mix — fuel mix in [Indecipherable] also impacting us. So if one were to just understand the market share positioning across different segments and our different fuel mixes, say, in ’23 versus what it was say in ’18 or ’19, what would that be? That will probably give a sense in terms of how our acquisition strategy has played out in terms of market share. So that is first question.

Soumitra Bhattacharya — Managing Director

So, Viraj, I’ll give you a very clear answer, we do not discuss market shares, that’s a guidance question. You know that we were very relevant players in tractors, in MHCV, HCV and in pass cars, and we continue to remain. We have got good acquisitions in two-wheelers, not only in the fuel injection system, but we have also in the brakes, which is a separate legal entity but works very closely. We have also in the connectivity and so on, so forth. So I’ll just give you an example. We had the highest-ever acquisition last year. So that should tell you something. Now, if you ask me segment-wise, directly or indirectly market share, we are not going to give that, neither for tractors, nor for others, but yes, the highest-ever acquisition for year ’22-’23 can give you an indication, including for Bosch Limited, including for powertrain that we are on a good way. I trust you are okay with that.

Viraj Kacharia — Securities Investment Management — Analyst

Okay. Second question is — lastly in terms of value addition. And if I look at our sales performance, especially in the mobility, we have the highest-ever sales. And what we are saying that next year result further grow, but if I look at on the value addition, especially at the gross level, we have around the lowest-ever gross margin performance in decades now. So I understand there is a change in regulation and hence we shift to traded, but if look at a unit level and each of the end markets which we cater to, each of these markets have either crossed the last peak or we are pretty much close to the last peak in some cases. So in that sense, with the major regulation change now over, especially when it comes to, say, CV or PV, that’s behind us, how should one understand the value added or the contribution margin for us? And this is little perplexing because when I look at the shareholder approvals also, we have also asked for a further increase in sourcing from parent, from other group entities in India. So in that sense, how should one really understand the value addition we will do at Bosch Limited, and in that sense, the gross margin in this business for us?

Soumitra Bhattacharya — Managing Director

So I will make a couple of opening sentences and maybe hand over to our CFO, but I’ll just give you some very important overall statements which you may want to connect the dots. Number one, when you look at margins, you should look at it at two levels. Number one, are we playing the game to ensure that we have a long-term acquisition plan in relation to the changing legislation environment. I think there you can clearly see, based on our very high acquisition, based on content per vehicle and based on our growth, we are and will continue to remain a very strong and relevant player, including with the changing times. So that’s one, I’d like to leave behind as a thought for connecting the dots, without giving guidance.

The second one is your result of your margins on EBIT or EBITDA. Our EBITDA is better than our EBIT, because we have a pretty increasing depreciation, because we are continuing to invest for the future. Now EBITDA, when you look at a double-digit EBITDA, I would say it’s not a bad performance. Now, you are comparing this number with a number which was predominantly diesel for the last 30 years. And I’m sure you’re comparing some of the numbers with five years, eight years ago. So let’s put it this way, it’s apples and oranges.

The third part is based on the transition where diesel, as you know, about six years ago, diesel was at 48% of market share, today diesel has a 20% of market share. So we continue to do our double-digit, in spite of the change which has happened. The third part is, we nurture also new businesses. So we put in money for new businesses, we are putting in money to ensure that we are nurturing the future. We have put in money for our Project House Electrification and hydrogen. You will not see the results right now, but what all of you are concerned is are we preparing for the future. And since, yes, we are preparing for the future.

You remember many of you asked me a question, how long will we have the three-R program and how long are we going to put in big tickets on the P&L. And we had put aside INR1,500 crores, and you can see the result today. So you have to trust this management for doing the right steps at the right time, not looking at quarterly results only, but looking at staying relevant and staying profitable. But over and above this, my colleague.

Karin Gilges — Executive Vice President, Finance & Administration and Chief Financial Officer

Yeah. First of all, thank you very much for the question. And yes, Soumitra gave you already a couple or most of the perspectives. I would like to add, also what was said beforehand, which is very, very important. When is a good time for localization? So with the changing content in the vehicle and of course, as Soumitra also explained already, we start with the traded goods to come then into localization and this we are also driving forward, of course, and this is also perhaps an additional perspective to what Soumitra already told you.

Viraj Kacharia — Securities Investment Management — Analyst

Okay, just last question. Parent in the recent press release or annual shareholder meeting, they talked about revamping the mobility data and they are looking at seven different segments, including a software — dedicated software segment, and then also an electronic — electrical drive unit. So in that sense, for Bosch Limited, if you can provide some perspective how does it impact us and what additional opportunities or not may come by in the listed entity?

Soumitra Bhattacharya — Managing Director

So I’ll give a sentence or two and then hand over to my colleague, and he is most suitable to answer in detail because he has actually worked in these areas. So let me tell you one thing, Viraj, that Bosch Limited has an advantage of also having these big ticket sister companies around us in India, including this very big ticket company, not just from turnover and people, but also from importance and strategic importance, located out of India, which is called Bosch Global Software Private Limited Company. Now this company caters 93% of its turnover for catering to Bosch worldwide, but also India. We have a very strong umbilical cord between Bosch Limited and what we call in short form BGSW and where we do a lot of work together which helps India. And, of course, they do R&D and work for the Bosch Global World end-to-end also.

So with that, on matter software, which is going to be very relevant and prevalent for mobility in the future as a tech stack, I hand over for Guru to give a brief answer on that.

Guruprasad Mudlapur — Joint Managing Director & Chief Technology Officer

Yeah. Thank you, Soumitra. I think the context for your question is basically we need to understand from what is happening in the mobility world today and what’s happening with some of our OEMs, especially the more advanced OEMs, how are they looking at technical architectures or e-architectures in vehicles moving forward. So what is evolving now very strongly is a very clear domain focus, be it domain as in energy or mobility domain as in electrification or radars or connectivity or infotainment. So these are becoming more standardized and we start to get requests from OEMs, purely based on domain architectures. And this also increases quite a lot the complexity on electronics. And so, electronics as a horizontal, cuts across multiple domains and the domain controllers manage many of these domains. And on top sits quite a huge layer of software. So many people have called cars mobile phones on wheels for a good reason, because the mobility world starts to emulate many of the things that the mobile phone world did some years ago.

So when the mobility architectures are evolving in that direction, it’s also important for us to internally reorganize ourselves, not necessarily in the context of companies and entities, but in terms of how we do business towards the external world, and how we face the external world much better, because now there is a request to provide an L3 LDAR solution and that cuts across, for example, steering systems, that cuts across electronics control units, it cuts across braking. So many of these things get together and the Tier 1 ability to put together solutions like this makes a lot of difference.

And this is the evolution that our parent talked about in the previous press conference. And within India, we are also now starting to look at how relevant is this for the Indian market and when is it appropriate to reorient ourselves in this direction, and we are working on restructuring ourselves, in line with what the Indian OEMs may require as we move forward, some of whom we are very closely talking to on these concepts. And, of course, the global OEMs who talk to us at a global level are simply transplanting their structures also in India. So this is the background for you and the work is in progress, and as we move forward in the coming year, we will keep you updated on it.

Viraj Kacharia — Securities Investment Management — Analyst

Sure. Mr. Bhattacharya, wish you good luck in your future endeavors. Thank you very much for answering the questions.

Soumitra Bhattacharya — Managing Director

Thank you very much. Take care.

Annamalai Jayaraj — B&K Securities — Analyst

Thanks, Viraj. Next is from Priya Ranjan. Please unmute your line and ask your question.

Priya Ranjan — HDFC Mutual Fund — Analyst

Yes. Thank you and wish you good luck Mr. Soumitra. And just couple of questions. One is on the GDI, which I think is one of the area where probably the growth can be potentially higher as we move towards the more emission norm and compact engine, etc. So how do we see our opportunity size in that?

And second is on the future emission norm, I think the OBD2b will also be coming probably in 2025 April or FY ’26. So our acquisition will be much higher in OBD2b for the passenger car and trucks, like in the OBD2 and RD2 etc.

Soumitra Bhattacharya — Managing Director

Guru, would you want?

Guruprasad Mudlapur — Joint Managing Director & Chief Technology Officer

Yeah. You sort of gave the answer within the question itself. So I would only concur with what you said. Yes, GDI is an important technology, already pretty standard in the advanced world, coming over the last couple of years in some segments in India in the passenger cars. And we see — we will see more GDI coming in multiple other segments of pass cars as we move forward. So we certainly see this. And also with the dominance of diesel coming down, there will be much more GDI happening in India.

OBD2, of course, you answered it yourself, it’s certainly something that we’re very, very active on. Where we are closely watching is the constant shift of goalposts. Soumitra already talked about it, and that’s not really so conducive for investments right now. And yeah, so connecting back to some of the earlier questions on why the fluctuation happens in our — the way traded goods comes in and localization happens, I think the answer is like this. The way goalposts keep shifting does not really help our quick investments and this is something we’re very closely watching on how to manage and work with the OEMs to get this going.

Priya Ranjan — HDFC Mutual Fund — Analyst

Sure. And one more question on the dividend policy. Now this year, you’ve probably given 100%. So is it the new norm which we are expecting in future or I mean, any thoughts on the dividend policy?

Soumitra Bhattacharya — Managing Director

Yeah. Look, it’s a very good question. We have shared very clearly why we have done it. This is an exception. We have had 100 years, which is also an exception and we’ve had also very good year, and it’s not going to be the norm, but it’s going to be an exception, while ensuring that we give always a healthy payout, meeting also expectations of minority shareholders and our parent’s, but a one-time, yes.

Priya Ranjan — HDFC Mutual Fund — Analyst

Sure. And just on — you have called out certain one-offs in the other expenditure etc, so if you can just help me understand what is the kind of nature of those one-offs, as well as the quantum for the last quarter.

Karin Gilges — Executive Vice President, Finance & Administration and Chief Financial Officer

Yeah. So in the last quarter, in the other expenses, we had certain one-time expenses like depreciation in the INR where we have an exchange rate impact. Then as mentioned before, very important spendings in the new business areas, which is all the time the investment in the future for us where we have to start besides our core business. And then also some spendings in professional and other charges related to the service income. So you see the impact in the other expenses part. You see, as a counterpart, then also in the other income. So these are the main three one-time impacts we saw in this quarter.

Priya Ranjan — HDFC Mutual Fund — Analyst

So any call out for the basis point impact overall?

Karin Gilges — Executive Vice President, Finance & Administration and Chief Financial Officer

Pardon me?

Priya Ranjan — HDFC Mutual Fund — Analyst

Any call out for basis point impact, or I mean the quantum of impact?

Karin Gilges — Executive Vice President, Finance & Administration and Chief Financial Officer

Now, these are one-time impacts. Of course, if we invest in new business areas, then we will see a fluctuation in this other expenses also on a quarterly base. It depends, of course, all the time how investments, for example, in these areas are going onwards.

Priya Ranjan — HDFC Mutual Fund — Analyst

Understood. And my last question is on — I mean, two, three years back we have created a subsidiary under the Bosch Limited for the e-mobility, and I think we have not invested enough in that subsidiary. So, kind of, when can we expect the substantial investment in that subsidiary for the plant, etc, so that I mean the business can start — generate enough growth, etc?

Soumitra Bhattacharya — Managing Director

Yeah. So we’ve done good work on the Project House electro-mobility and hydrogen, as I mentioned. And we will link it to that company as and when we need to do things and we are evaluating the options.

Priya Ranjan — HDFC Mutual Fund — Analyst

Clear. Okay. Got it. Thank you. Thank you. All the best, Soumitra.

Soumitra Bhattacharya — Managing Director

Thank you very much. Annamalai Jayaraj, we are at the, I think, [Speech Overlap] cut-off time.

Annamalai Jayaraj — B&K Securities — Analyst

Yeah. Only one caller can we take, sir?

Soumitra Bhattacharya — Managing Director

Okay. Sure. Always for you.

Annamalai Jayaraj — B&K Securities — Analyst

Yeah. Thanks, sir. So, thanks Priya Ranjan. The final call is from Aman [Phonetic]. I will unmute your line.

Unidentified Participant — — Analyst

I have question on the product side of Bosch. So you guys have an EFI product, whereas one of your competitors has an e-carburettor product. So I’m just trying to understand as to what the OEMs are preferring. Do they prefer to go with the EFI or do they prefer to go with the e-carburettor?

Soumitra Bhattacharya — Managing Director

We have always stated that we strongly believe not on the e-carburettor. We would not like to comment on what others would state or do, we are talking completely based on technical situation, including what the future is, and we have stuck to it and we would not like to make comments for it.

Unidentified Participant — — Analyst

Okay. Thank you.

Soumitra Bhattacharya — Managing Director

Thank you very much, Aman. With that, I think we can close.

Annamalai Jayaraj — B&K Securities — Analyst

Yeah. Sir, we thank Mr. Soumitra Bhattacharya for participating in all our investor conferences and patiently answering all our questions. Wish him all the best for his future, whatever he wants to do. And we welcome Mr. Guruprasad Mudlapur for future calls.

Guruprasad Mudlapur — Joint Managing Director & Chief Technology Officer

Thank you.

Soumitra Bhattacharya — Managing Director

Thank you very much.

Annamalai Jayaraj — B&K Securities — Analyst

Thanks. On behalf of B&K Securities, we thank all the participants for joining the call and special thanks to Bosch Management for taking time out for the call, and giving us the opportunity to host the call. Have a good day.

Guruprasad Mudlapur — Joint Managing Director & Chief Technology Officer

Thank you.

Karin Gilges — Executive Vice President, Finance & Administration and Chief Financial Officer

Thank you. Bye-bye.