Mumbai: Auto parts maker Bosch Ltd expects a challenging fiscal second half but is still investing heavily in research and development as well as capacity ramp up across its five manufacturing units in India, a top official said.
The firm, a unit of the German Bosch group, is the largest Indian auto parts maker by market capitalization. It has about Rs3,000 crore as cash on its books as of June, managing director V.K. Viswanathan said.
“The general trend we have been seeing for the last couple of months is that growth rates have come down quite sharply, particularly in the passenger car side. The next two to three months are going to be tough,” he told Reuters in an interview.
Indian car sales, which grew at a breakneck 30% in the fiscal year that ended in April, are now expected to slow to 10 to 12% in FY12, down from an earlier forecast of 16 to 18%, industry group the Society of Indian Automobile Manufacturers (Siam) forecast.
Car sales in Asia’s third largest economy, which in June saw their slowest pace of growth since March 2009, are driven by a burgeoning middle class that relies on bank loans for purchases.
But the Reserve Bank of India (RBI) raised interest rates by a higher-than-expected 50 basis points, its 11th increase since March 2010.
Industry officials have said such aggressive hikes could hurt liquidity and increase cost of funds.
“On the other hand, many OE (original equipment makers) companies have lined up a lot of new launches. And hopefully inflation should settle down. With festival demand in October-November we should see some slight revival leading to normalcy from Jan-Feb onwards,” he said.
The fast growing auto ancillary sector contributes some 2.3% to India’s gross domestic product (GDP) and is expected to clock sales of $30 billion in 2010-11.
The industry’s apex body the Automotive Component Manufacturers Association expects turnover to touch $110 billion by 2020.
Earlier Friday, the company had reported a 33.5% rise in June quarter net profit as lower depreciation costs as well as higher treasury income and cost control measures had offset rising commodity prices and inflationary pressures during the quarter.
Bosch Ltd, which follows the calendar year as its fiscal, is expanding capacity across a range of auto components including diesel and gasoline fuel injection systems, pumps as well as starters and generators.
The firm expects additional capacity to come on ground by early next year, he said. It has lined up a capex of about Rs600 crore this year, part of a Rs1,300 crore outlay over three years to expand.
The Bosch group in India which consists of six legal entities including Bosch Ltd, contributes about 3% of the group’s global revenue. The German group generated annual sales of €47.3 billion in 2010 and has around 350 subsidiaries across the world.
“We are not cutting back either on recruitments or investments, we are going ahead with expansion as planned,” Viswanathan said, adding the expansion will be funded by debt free-Bosch’s internal accruals.
Part of the investments will also go towards boosting research and development activities and the firm typically spends between 15-20% of its annual capital outlay on R&D, Viswanathan said.
Bosch Ltd has around 350 engineers working solely on R&D he said. “We will hire 20-25% more on research and engineering” he said.
Shares in Bosch, valued at about $5 billion, closed down 0.59% at Rs6,993.30 in a Mumbai stock market that closed down 2.2%.