Home >Money >Rising input costs erode Bosch’s profit
Graphic: Yogesh Kumar/Mint

There’s reason for this optimism. In a statement early this year, Bernd Bohr, chairman of the parent company’s automotive group, had highlighted experts’ prediction that “the world passenger car fleet will double in 2035 with a vast majority of new cars hitting the roads in India and China".

There’s also ample scope for technological upgrades in Asian and emerging markets. Bosch’s strategy is to cash in on this. The company sees an opportunity in low-cost, quality engine systems in small-car segments such as the Tata Nano, where volumes are expected to rise. The firm also hopes to invest in improving fuel efficiency. Global research on components for hybrid vehicle will also be extended to India.

Research is directed at producing most of the components locally. While Bosch’s regional focus is to enhance revenue from potential markets, local production will save costs. After all, despite high volumes giving the benefit of operating leverage, rising input costs is an issue. In fact, over a five-year period, operating profit margins have consistently come down, which, according to analysts, is a function of rising costs and pricing pressures on vendors.

The silver lining is that while revenue has grown at a compounded annual growth rate of around 13% between 2005 to 2009, earnings per share (EPS) has grown at 200%. Only during 2009, given the recovery from recession, Bosch’s EPS dropped by around 6% to Rs187. Following the announcement of its annual results on Friday, Bosch’s shares closed marginally lower at Rs4,782 each on the Bombay Stock Exchange.

In fact, the company had in October, completed a buy-back of around 650,000 shares through an open offer at an average price of Rs3,069.30 per share. While such buy-back offers lead to contraction of equity capital, they enhance value for the existing shareholder. All the more so when commitment to business growth is visible.

Write to us at marktomarket@livemint.com

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