BackRecovery in auto market may take at least six more months
Recovery in auto market may take at least six more months
PremiumGrowth engine: Viswanathan says Bosch is leaning more on innovations as it copes with the downturn. India Today
Bangalore: Think of Bosch Ltd, earlier Motor Industries Co. Ltd, or Mico, and the first image your mind is likely to conjure up is that of a spark plug. But the auto components maker, a 71% subsidiary of Germany’s Bosch Group GmbH, has a strong presence in segments as diverse as diesel fuel injection equipment, auto electricals such as alternators, packaging machines and security technology products. In fact, the firm gets a quarter of its annual revenues in India from its non-auto businesses, including software, says managing director V.K. Viswanathan.
The subsidiary has been set up with an initial investment of Rs60 crore, and will produce 100,000 electronic control units this year from the facility in Naganathapura, on the outskirts of Bangalore. The subsidiary will see an additional investment of Rs68 crore by 2010 and will ultimately have capacity to produce 2.5 million electronic control units a year for the domestic market.
As the auto industry copes with a global slowdown—“I think we are at least a couple of quarters away before the overall auto market recovers"—the company is leaning more on innovations that have started “contributing significantly to our top line", Viswanathan said in an interview. Bosch is also on course to completing its Rs1,000 crore investment plan in India. Edited excerpts:
Has demand started reviving in the auto sector?
The Indian auto sector got hit by the global slowdown from October 2008. Since then, in the subsequent months, the slowdown got accentuated. However, from February onwards, there have been slight signs of revival, specially in the passenger car market. The heavy commercial vehicle segment continues to face severe headwinds both due to lack and high cost of credit as well as lack of demand from customers due to low industrial activity. The extent of decline in the heavy commercial vehicle segment is by 50-60% compared with the same period of the previous year, and this decline has only been slightly mitigated by the improving situation in the passenger car market.
Also See Figuring Bosch (Graphics)
Bosch has been no exception to the impact, which has been there on all players. There is a noticeable, discernible, but hesitant recovery. It is difficult to say, but I think we are at least a couple of quarters away before the overall auto market recovers.
Generally, the aftersales market is counter-cyclical to original equipment sales. Has that helped?
Yes, it is true that during downturns fleet operators look to flog their vehicles longer and, thus, sales of spare parts tend to go up. For us, it is today close to 21-23% of our turnover (of at least Rs5,000 crore a year) and has gone up by a couple of percentage points in the current environment.
In 2007, you had outlined a Rs1,000 crore investment road map over three years. Given the current environment, are you still going ahead with it?
Large parts of the investment which had to be done have already been done. In 2008 alone, we invested around Rs425 crore, and in 2007 we invested about Rs295 crore. Bosch looks to India as a medium- to long-term growth market and, therefore, our investment plans don’t change dramatically overnight. There might be small adjustments. In 2009 also we are investing Rs250-300 crore as outlined under that plan.
There was talk in 2007 that over the next three years, 30% of your revenue would come from innovative, new products. Have you achieved that?
I am not sure about that third of revenues (from new products), but clearly the contribution of new technologies like common rail systems, advanced single cylinder based systems, compact alternators or our start-stop (micro hybrid) technologies have started contributing significantly to our top line. The work we have done, say on the injection systems, starters and alternators for the (Tata) Nano, have also been extremely innovative in delivering very high quality at very competitive prices. We will continue to invest in innovation.
Some of the products we are introducing are breakthrough, first time in India kind of products. We continue to innovate on high fuel-efficiency and low-emissions technology.
Since Bosch has six different firms in India, are there plans to consolidate them into a single entity?
No, there are no such plans. Each of these companies address different needs and have different shareholders. There are merits in having them as separate companies. So they will remain separate entities.
What is the status of Bosch’s buyback offer a couple of months ago?
We had said that we will buy 1,500,000 shares or approximately Rs625 crore worth of shares. We have already brought back 500,000 shares, which have been extinguished.
Bosch internationally gets around 60% of its revenue from the auto market, 12-15% from industrial technologies, and the rest from its consumer business. Is the Indian arm adopting a similar model?
Of the approximately Rs6,500 crore that Bosch group companies did in India, about 25% came from non-auto business including software. Rexroth, which deals with the industrial goods sector through packaging machines, and others contributed sizably.
We also have consumer durables where we sell security systems and power tools. We have grown significantly in the power tool sector, where we have more than a third of the organized sector amounting to Rs300 crore, and we have done very well in the security systems, which includes access control, surveillance systems, public address systems, fire protection and intrusion alarm systems. We are broadly evolving towards the Bosch global model. Packaging machines is an around Rs40 crore business.
Internationally, Bosch has a joint venture with Siemens AG selling microwave ovens, refrigerators and washing machines. Any plans to enter the Indian market in this?
We had earlier licensed to (home appliances maker) IFB and had an unhappy experience. So now, no plans for the present.
What about Blaupunkt?
It is a small business. Last year, we did about Rs40-45 crore. In this business, there has been global restructuring. The after market business of the car multimedia business has been sold, including the Blaupunkt brand, to Aurelius AG. Therefore, that business will get transferred. We will not have a presence in the retail market in a month’s time. We were not even manufacturing, but trading by importing from other Bosch locations. Some of the 25 people employed there will go to the new player (and the) rest will be redeployed internally.
Poornima Mohandas contributed to this story.
Graphics by Sandeep Bhatnagar / Mint
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