Key takeaways of the call

The impact of COVID19 on globally integrated Indian automotive sector has been swift and significant. Initialdisruptions from the Chinese, supply parts to the Indian OEMs quickly pivoted into largescale manufacturing disruption with nationwide lockdown resulting in loss of turnover during the period of the lockdown.

Operational revenue for Q4FY20 was down by 18% to Rs2236.8 crore with mobility business sector declined by 23.7% and business beyond mobility solutions also declined by 18.2%. The domestic sales for Q4FY20 declined by 23.1%.

Lower material cost as% of sales was mainly contributed by cost reduction measures with suppliers, favourable product mix and optimization of freight rates as also higher service income during the quarter.

The other income mainly consisting of income from marketable securities and interest have decreased by Rs22.2 crore mainly due to higher profit on sale of investments in Q4 of 2019 to fund the buyback and also the reduced MTM gain, which is partly offset by the higher interest earnings on fixed deposits.

The continuing slowdown in the Indian economy has been aggravated by the COVID-19 situation, which has brought the auto sector to a grinding halt in the last quarter. Expect to see some revival in the overall economic scenario, with special economic package of Rs20 lakh Crores, but the impact in the auto sector will be very slow because there is any specific/direct stimulus given for auto industry. With the graded lifting of the lockdown, the industry recovery is also expected to be slow. This will be constrained by supply and demand bottlenecks and reduced access to labour corridors due to travel restrictions.In the long term, COVID-19 situation will cause deep-rooted changes in consumer behaviour and how businesses are organized.

Under this challenging market environment the shortterm focus of the company would be to trying and ensuring that it get an optimal result for the year 2021. However, its long-term focus for India remains positive. The company will remain invested in its techagnostic approach, investing and continuing to invest in a new age topics like electrification, mobility solutions.

EO of about Rs 720 crore for FY20 is on account of transformation charges – Rs 600 crore plus towards 3R Programme (Restructuring, Redeployment & Reskilling) and balance amount is towards impairment, transition cost towards BS VI from BSIV (the company will get most of the money from customers) and some towards BSIV inventory. Though the company has taken the bulk of it already in FY20, some transformation charges are expected this year as well and the company will provide as and when it required.

The recent peak of the automotive industry was 2018. The volume forecast for 2020-21 (peak volume in brackets) for passenger cars is 2 million (4.07 million cars in FY18), HCV is 2 lakh (against 5 lakh in FY18); LCVs is 2.5-3 lakh (against 7 lakh in FY18); tractors is 4.5-5 lakh (against 9 lakh in FY18); two wheelers 12-13 million (against 25 million), sub 1 million (against 1.25 million in 2018).

So if it takes between three to four years for the industry to get back to the 2018 levels pre-COVID, post-COVID another one-and-a-half years should be added. So now it takes between 4 years minimum to 6 years for the industry to come back. However in Bosch the comeback will be earlier because it have had a good acquisition BS-VI, inputs into the content per vehicle is improving.

BS-VI solutions of the company is affordable and the pricing gap is not much between BS-IV and BS-VI. When the industry recovers will see a higher content per vehicle from Bosch.

Power tools business in non-automotive is a part of Bosch Limited and in power tools the company has opened a factory four years ago at Chennai in Oragadam, which has been declared for three years the best power tool factory amongst 21 power tool factories across the world and in the fourth year it is number two and the delta between number one and number two is 0.1. Now the content on power tool manufacturing for the biggest product i.e. BE is going up towards 70% and average going up to 55% and this was massively lower earlier.

ICE is still the dominant technology for a long time and now post COVID, ICE will be 80% plus and maybe much more than 80% even in 2030.

Diesel as any other ICE has a good future ahead. The pricing that the initial offerings on diesel on BS-VI are variable, the delta cap is quite amazingly low.

Plant of the company have opened up and most of them are working on single shift as there is a curfew between 7 p.m. and 7 a.m. Moreover demand is also quite low. So expect to operate that way in both May and June, but the company will ramp up along with ramp up in OEMs' plantand many of them are slowly starting. However, the supplier base of the company is also distributed all over India both in the north, west and the south and many of these suppliers are also in red zones, are in containment zone and if one part is missing then the whole component cannot be supplied. Many of suppliers of the company is also dependent on migrant labour so there is also challenge on that front.

Regarding Chinese imports, China has already ramped up quite well. In between there were some bottlenecks on logistics, but over a period of time that is also being sorted out.