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Jun 08, 2023

Bosch : Q1 FY2023

"Bosch Limited 1Q FY23-24 Post Results Conference Call" August 01, 2023 MANAGEMENT: MR. GURUPRASAD MUDLAPUR - MANAGING DIRECTOR & CHIEF TECHNOLOGY OFFICER, BOSCH LIMITED MR. N. SANDEEP - JOINT

"Bosch Limited 1Q FY23-24 Post Results Conference

Call"

August 01, 2023

MANAGEMENT: MR. GURUPRASAD MUDLAPUR - MANAGING

DIRECTOR & CHIEF TECHNOLOGY OFFICER, BOSCH

LIMITED

MR. N. SANDEEP - JOINT MANAGING DIRECTOR,

BOSCH LIMITED

MS. KARIN GILGES - CHIEF FINANCIAL OFFICER,

BOSCH LIMITED

MODERATOR: MR. ANNAMALAI JAYARAJ - B&K SECURITIES

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Bosch Limited

August 01, 2023

Annamalai Jayaraj: Ladies and gentlemen, good day and welcome to Bosch Limited 1Q FY23-24Post-Results Conference Call hosted by B&K Securities.

We also congratulate and welcome the Bosch Limited new leadership team to the investor call. We have with us today the new Managing Director and Chief Technology Officer - Mr. Guruprasad Mudlapur, a new Joint Managing Director - Mr. N. Sandeep 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 to ask questions after the management presentation and opening remarks. Over to you, sir.

Guruprasad Mudlapur: Good afternoon, everyone, and thank you for being part of this call.

Today, I'll start with the brief on the macroeconomic policy followed by an automotive market update and then I'll walk you through our financials. Finally, I'll end with the highlights of the quarter affecting our business.

As per the recent IMF report, the global economy is expected to grow at 3% in 2023, up from 3.5% in 2022 and the advanced economies to grow by 1.5% in 2023 from 2.7% in 2022. Amongst this backdrop, the Indian economy is doing well and is expected to grow by 6.1% in FY23-24. More importantly, our inflation remains controlled and the financial sector is resilient.

Overall, the automotive industry displayed a mixed performance, with certain segments showing resilience and while others faced hurdles due to the pre-buying effects and exports decline. Passenger vehicle segments saw growth driven by the SUV category supported by strong order books from OEMs. However, the commercial vehicle segment saw moderation, while the medium and heavy commercial vehicle segment showed better performance, LCVs experienced a decline of 2%. Three-wheeler segment continued to recover in the domestic market, while exports remain sluggish. The tractor segment declined by 9% year-on-year due to a high base of FY23 coupled with inventory moderation in Q1 FY24. Two-wheeler demand recovery sustained during the marriage season; however, export market remains a concern with sluggish demand.

Let's now look at the automotive outlook for 2023. From the loss of COVID, Indian automotive industry bounces back and reached new peak in the year 2022. From this high base, we expect the market to grow in 2023 compared to 22. This shows the robustness of the Indian auto industry and the economy despite global headwinds and reduction in exports. Let's look at how the company performed in April to June 23 quarter compared to April-June 2022 amidst the above- mentioned factors.

Sector-wise sales, start with the mobility solutions sector, the mobility solution sales have grown by 13.6% in Q1 FY24 as compared to Q1 FY23. 12.5% growth in product sales of Powertrain solutions is driven mainly due to the growth in overall automotive sector and increase in share of content per vehicle, mainly in exhaust gas treatment. Automotive aftermarket has grown by 12.7% quarter-on-quarter mainly due to increase in export of spark plugs and higher market

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Bosch Limited

August 01, 2023

consumption of lubricants. Two-wheeler business sales have also increased by 42.8% quarter- on-quarter due to improvement in semiconductor supplies as compared to previous quarter. The Beyond Mobility Solutions sales have grown by 21.5% in Q1 FY24 as compared to Q1 FY23. Consumer goods business comprising of power tools segment has increased by 17.9% quarter- on-quarter mainly due to increased sales of blue tools due to higher demand. The building technologies area grew by 13.6% at 36.9%, mainly on account of higher number of orders for installation of security systems.

Profitability statement: the overall revenue from operations for April, June 2023 stood at Rs. 41,584 million, which is an increase of 17.3% as compared to the corresponding period of previous years, mainly driven by growth in product sales by 14.5%. The Mobility Solutions area sales grew by 13.6%, while sales from business Beyond Mobility Solutions increased by 21.5%. Income from services, mainly comprising of engineering and application services provided to OEMs and Bosch Germany. Service income for the quarter is towards completion of BS-6 stage

Material cost as a percentage of total revenue from operations is at 64.5% in April, June 2023 as compared to 64.6% in April, June 2022. However, material cost as a percentage of net sales, that's excluding income from services and other operating income is at 68.7% in April, June 2023 as compared to 67.2% in April, June 2022. The increase is mainly on account of higher share of traded goods in the current quarter as compared to the same quarter of the previous year. Impact on account of price increase given to import suppliers on account of higher energy costs. The employee costs for April, June 2023 is Rs. 3,094 million as compared to Rs. 2,702 million for April, June 2022. As a percentage of revenue from operations, the employee cost is better as compared to the same quarter of the previous year. Other expenses stood at Rs. 6,977 million, which is 16.8% of the total revenue in April, June 2023 as compared to Rs. 5,334 million which is 15% of the total revenue in April, June 2022. Current quarter has seen certain one-time impacts in other expenses.

Increased spending on new businesses; higher spending on customer projects for engineering and application services, which is in line with higher income from our services. Depreciation for the current quarter is at Rs. 921,000,000, which is 2.2% of the total revenue as compared to Rs. 648,000,000 which was 1.8% of the total revenue in April, June 2022. Increase in depreciation in current quarter is majorly on account of major additions to plant and machinery and buildings during financial year 22-23. With this, the operating profit stood at Rs. 3,728 million in April, June 2023 as compared to Rs. 3,847 million in April, June 22, a decrease of 2.3%. Other income primarily comprises of interest on fixed deposits and change in market value of mutual funds. The other income has increased from Rs. 566,000,000 in April, June 22 to Rs. 1,875 million in April, June 2023, mainly on account of higher mark-to-market gain on mutual funds, higher FD interest income and dividend received from investments in equity shares.

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Bosch Limited

August 01, 2023

For the quarter ended April, June 2023, your company posted a profit before tax of Rs. 5,325 million as compared to Rs. 4,377 million in April, June 2022. As a percentage of total revenue from operations, profit before tax stood at 12.8% of total revenue in the current quarter. Profit after tax for the quarter ended June 23 stood at Rs. 4,090 million which is 9.8% of total revenue from operations. Profit after tax in April, June 2022 was Rs. 3,342 million which was 9.4% of the total revenue from operations.

Thank you all for your contribution and for listening patiently through the call. We will now address your queries. Thank you and Annamalai, questions please.

Annamalai Jayaraj: Thank you, sir. We shall now begin the question-and-answer session. The first question is from Pramod Amte. Please unmute and ask your question.

Pramod Amte: So, two questions. First one, you have explained in detail in the annual report and also I'll be getting the call about spark plug export opportunity. Can you just delve is this a trend that you have one of the low-cost production base and longstanding in this business and it's opening up an opportunity and which all areas in the ICE components you feel such opportunity and emerge for Bosch India for exporting to the global markets in the next 1 to 2 years?

Guruprasad Mudlapur: Thank you, Pramod. Yes, indeed you are right. The timing is right for us. Also, there have been some shifts of our production out of Russia. So a lot of spark plugs which were earlier made in our Russian location have moved out and they have been relocated into India. And that helps us produce more out of India and specifically with regard to spark plugs. There is a possibility that this phenomenon will extend to other areas. We are in discussions right now. We are looking at all possible opportunities and right now, I would not like to comment on any specific area that we may extend this to.

Pramod Amte: And the second question is with regard to the electric vehicle space. We are seeing new MNCs making inroads into India like recently Schaeffler winning the big order in eAxle. My question related to that is Bosch has a similar product lines globally and enjoys amazing customer relationship in India for many of the clients, so wanted to know where is the gap in terms of when you see to win such orders versus others already having it in the bag and how you plan to cover those gaps in the next 1 to 2 years to make inroads into EV orders?

Guruprasad Mudlapur: I'll let my colleague, JMD, Sandeep answer this.

N. Sandeep:I think on the eAxle portfolio, we as Bosch, have quite a widespread portfolio globally, especially coming out of our operations in China. Now, the market in India is in a formative phase and we are basically trying to align best the portfolio what we have globally to the requirements regionally in India. And this is going to take time and we are making progress in the field of electronics and software. But coming back specific to your question about eAxle, we are in the process of aligning the portfolio. I don't see a gap, but this would take time before we are able to bring together the specifications of the global platforms and the local requirements.

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Bosch Limited

August 01, 2023

Annamalai Jayaraj: Thanks, Pramod. The next question is from Jinesh Gandhi. Please unmute and ask your question.

Jinesh Gandhi:Just continuing on eAxle, just to clarify, would eAxle opportunity coming in the listed entity given it's not per se powertrain related or would it be part of the unlisted entities?

N. Sandeep:Well, we are at the moment first focusing on, like I mentioned, very generic level the requirements engineering which includes multiple domains. So we are yet to get to this point about where would the technology lie? So our focus primarily is to mobility level, focus on requirements engineering.

Jinesh Gandhi:The second question pertains to a broader direction of margins from where we are today. So we have seen our margin stabilizing in 11% to 12% range on sustained basis. Now, given many of the headwinds which we faced over last few years are going away plus we are seeing ramp up in our BS-6 localization solution. So how should one think about margins from where we are today?

Karin Gilges:So I would go first and then my colleagues can add. So if you are looking at the margins in the ICE business for manufactured goods in India in the limited for the Indian market. Then we are seeing actually that we have for the self-manufactured goods quite good margins on the market, but we also have to see that in the overall operating margin of the 9%, we have currently a high part of traded goods, goods which we are importing from other Bosch Groups mainly or from other countries and then trade it here in the market and therefore it is a mix. What we currently see is we have an increase in the content, especially in the exhaust gas treatment, but also an increase in the demands in the market of the common rail systems and where we have compared to the conventional products we have, we have up to now not reached the level of localization if you compare it to an conventional product like the air pump. So what we are doing looking forward, we are investing and going ahead with the localization. I told you last time for example the injector for the commercial vehicles where we started in October last year with the testing and assembly and now we are currently ramping up the production of the trial parts here in India. So this is overall, where we have different transfers in the next 2 to 3, 4 years, but we have to drive the localization and before we see the real stabilization, let's say also in the margins.

Jinesh Gandhi: And this increase in traded goods is effectively the structural change in the business, right? I mean EGT or SCR, those things will where content has increased materially post BS-6, this will remain as it is, I mean many of these things we won't like to make it in-house. Is that the correct understanding?

Karin Gilges:That is correct understanding. It will not reverse anymore and therefore because we have now a good view on the market and see the volumes we need and now we are going for localization and start also in the exhaust gas treatment, the localization of different products.

Jinesh Gandhi: Yes, and that could be localized by our supplier partner, not at Bosch level?

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Bosch Limited published this content on 02 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 August 2023 07:22:00 UTC.