Bosch Ltd: Powering Ahead with Innovation and Growth in Q3FY24

Sector Outlook – Positive

Bosch Ltd. reported net sales of Rs. 4,205 crores in Q3FY24, showing a growth of 14.9% YoY and 1.8% QoQ, driven by growth across most segments but slightly missing market expectations. 

The mobility solutions business, contributing 83% of revenue, increased by 16.8% YoY and 2.1% QoQ to Rs. 3,505 crores, primarily due to higher demand for passenger vehicles (PVs) & heavy commercial vehicles (HCVs), where Bosch’s content per vehicle is higher. 

The non-mobility business also saw strong growth of 32.5% YoY but declined 7% QoQ to Rs. 452 crores, driven by increased demand for blue tools and accessories through online channels and a higher number of orders for security systems installation. 

Despite lower gross margins, EBITDA grew by 43.3% YoY and 17.7% QoQ to Rs. 578.4 crores, with an improved margin of 13.8% due to lower expenses and higher other income. Adjusted PAT for the quarter was Rs. 473.4 crores, up 48.4% YoY and 17.7% QoQ, with a PAT margin of 11.3%.

Concall Highlights

Outlook for FY25 

The IMF predicts that global growth will be 3.1% in 2024, with India expected to grow even faster at 6.5% due to strong domestic demand. Bosch expects the growth in the automotive segment to slow down because last year had a high base, and upcoming general elections and challenges in developed economies, worsened by the Red Sea crisis, will add to the moderation.

Localisation Efforts 

Bosch has made big efforts in localising its operations by assembling and setting up its first fuel cell power module to assess the demand for fuel cells in the Indian market. In Q3FY24, the percentage of traded goods decreased from 55% to 51% compared to the previous year, showing the company’s focus on localization.

Other Expenses 

The company’s other expenses decreased by Rs. 47 crores due to the sale of its ‘project house mobility solutions’ business in Q2FY24, along with lower warranty expenses compared to the previous year. However, the increased income from services could potentially raise these expenses. Bosch also charges technical fees to its clients, which increased sequentially, indicating its focus on localization. The company aims to keep other expenses as a percentage of sales at 14.5% in normal business conditions.

Tractor TREM V Guidelines 

Tractor OEMs anticipate the issuance of TREM V guidelines in CY 26 with Bosch prepared to supply to OEMs promptly

Electrification 

Bosch expects significant growth in electric scooters in India and has started providing hub motors to manufacturers, while also localising production lines to qualify for benefits under the PLI scheme. Despite electric vehicles generally having lower profit margins worldwide, Bosch is taking a careful approach to ensure profitability aligns with customer demands. Although Bosch has qualified for the PLI scheme in India, disbursements under the scheme have not started yet.

Hydrogen Trucks 

Bosch sees hydrogen trucks as a feasible option for manufacturers to adopt, but it requires changes to current internal combustion engine (ICE) platforms and strict safety measures due to hydrogen’s corrosive properties. Despite these challenges, pilot vehicles are expected to be ready within the next year, with distribution challenges also being taken into account.

Valuation and Outlook

Bosch Ltd remains committed to leading in key technologies, focusing on innovation and solutions. Their strategy includes being a technology-neutral partner, working with customers, governments, and stakeholders, and investing in skills and solutions for the Indian market. 

In non-automotive areas, Bosch introduces in-demand products and expands its market presence both offline and online. The growth of electric two-wheelers and three-wheelers offers opportunities, and Bosch plans significant investments to localize advanced automotive technologies and expand digital platforms. 

However, the outlook is cautious regarding electric vehicles (EVs) due to competition. While Bosch aims to outperform the auto industry’s growth, achieving margins above 15% is uncertain, especially without established leadership in EV components. Localization efforts are expected to improve margins, but reaching the 15% margin target in the next 2-3 years could be challenging.