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Edited Transcript of BOSCHLTD.NSE earnings conference call or presentation 6-Nov-19 11:30am GMT

Q2 2020 Bosch Ltd Earnings Call

Bangalore Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Bosch Ltd earnings conference call or presentation Wednesday, November 6, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jan-Oliver Röhrl

Bosch Limited - CTO, EVP of Powertrain Solutions, Member of Management Board & Executive Director

* S. C. Srinivasan

Bosch Limited - CFO & Executive Director

* Soumitra Bhattacharya

Bosch Limited - Joint MD, Regional President of Bosch Group India & Director

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Conference Call Participants

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* Annamalai Jayaraj

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Director & Deputy Head of Research

* Chirag Shah

Edelweiss Securities Ltd., Research Division - Research Analyst

* Nikunj Doshi

Bay Capital Partners Ltd - Managing Partner and Director

* Nishant Vass

ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst

* Nishit Jalan

Axis Capital Limited, Research Division - Executive Director of Auto

* Pramod Amthe

CIMB Research - Head of India Research

* Priya Ranjan

Antique Stockbroking Ltd., Research Division - Research Analyst

* Ronak Sarda

Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary

* Shyam Sundar Sriram

Sundaram Asset Management Company Ltd. - Research Analyst

* Siddhartha Bera

Nomura Securities Co. Ltd., Research Division - Associate

* Sonal Gupta

UBS Investment Bank, Research Division - Director and Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Bosch Limited Q2 FY '20 Post Results Conference Call, hosted by Batlivala & Karani Securities India Private Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities India Private Limited. Thank you, and over to you.

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Annamalai Jayaraj, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Director & Deputy Head of Research [2]

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Thanks, Steven. Good evening, everyone. On behalf of B&K Securities, welcome to 2Q FY '19-'20 post results conference call of Bosch Limited. We have with us today Mr. Soumitra Bhattacharya, Managing Director; Mr. Jan Oliver Roehrl, Executive Director and Chief Technical Officer; Mr. S.C. Srinivasan, CFO and Whole Time Director.

I will now hand over the call to Mr. Soumitra Bhattacharya for his opening remarks to be followed by question-and-answer session. Over to you, sir.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [3]

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Thank you, Mr. Jayaraj. Thank you, Steven, and a big thank you to B&K Securities. A very good evening to all the participants in the con call, and thank you for being a part of this call. I would like to start with a brief about the macroeconomic and policy highlights for the quarter affecting our business. The global economy has continued to lose traction in both advanced and emerging market economies weakening further, backed down by escalating trade tensions as well as rising geopolitical uncertainties. RBI has lowered its GDP growth forecast for financial year '20 by a substantial 80 bps from 6.9% in its August '19 policy to 6.1%, citing persistent weak demand conditions, muted industrial outlook, weak export growth owing to slowing global growth.

The government has responded to the weakness in the growth momentum with various measures, including the recent lowering of the corporate tax rate. While the recent measures announced by the government are likely to revise sentiment and spur private investment activity, albeit with a lag, the continuing consumption slowdown warrants intensified efforts to restore the growth momentum.

Now coming to the automotive industry, affordability issues, liquidity crunch, weak consumer sentiment and regulatory changes are continuing to weigh demand during the quarter. Retail demand deteriorated and worsened significantly in the last quarter, with commercial vehicle sales down by 35%. Slowdown initially started with business stroke SME buyers and now even salary class has started to postpone purchasing in a major way. This, coupled with weaker sentiment and confusion around the BS-VI launches has led to a sharper decline in pass car sales over the last 2 to 3 months.

In our view, the Government of India intervention is required for this sector by implementing policies for safer roads and better environment. Example, implementation of scrappage policy can be a very effective way to curb pollution as also be an additional booster for the sector. I must say that scrappage policy comes with the rider that must come with X number of years. For example, colleagues, if it's 20 years, it will have no impact. If it's 12 to 15 years, it will have some impact.

During the quarter, overall automotive market production decreased by 19.2%. The HCV segment declined by 58.1%. Demand is mainly impacted by the NBFC liquidity crisis, implementation of the axle load norms dropped in freight demand. Passenger car segment declined by 19.6%, again, due to affordability issues, liquidity crunch, weak consumer sentiment and regulatory confusion is continuing to pull down the demand.

Tractors showed a decline of 11.5% due to lower demand from farmers, damage to standing crops from floods in several states, which has resulted in reduction of agricultural GDP.

LCV segment declined by 25.1% due to weak rural and urban consumption and stringent lending norms. Among the other market segments, three-wheeler segment reduced by 5.9%.

Amidst all of this automotive performance, we now look into the performance of our company, Bosch Limited for the quarter. Total revenue from operations is INR 23 million -- INR 23,127 million, which is a reduction of 26.9% as compared to the corresponding period of the previous year. Mobility business sector declined by approximately 31%, owing to various factors affecting the auto sector mentioned earlier. With the overall downturn, business beyond mobility solutions also showed a reduction of 9.5%.

The domestic sales for this quarter declined by approximately 30%. Thereof, mobility solutions by 33.4%, whereas business beyond mobility solutions decreased by 8.3%. Export sales show a minor increase of 2.3%, majorly resulting from mobility business sector, which shows an increase of 6.2%.

Within mobility solutions, powertrain systems show a decline of 38.5%. (inaudible) business shown -- shows a growth of 31%, but on a relatively lower base during this period. For the 6-month period ended September 2019, revenue from operations decreased by 20.2%. The mobility business sector declined by 21.6%, business beyond mobility solution declined by 11.6%.

Material cost as a percentage of revenue from operations has decreased to 55.4% in July-September 2019 as compared to 56.7% in July-September 2018. The decrease is mainly contributed by various cost reduction measures as well as ForEx recovery. A similar trend is seen for the 6 months period ending September 2019, which witnessed decline from 55.5% to 54.9%.

Employee cost has marginally declined to INR 3,349 million for July-September 2019 from INR 3,355 million in July-September 2018. The reduction is mainly contributed by productivity and reduction in production incentives to offset the impact of inflation and general downturn in the industry. For the 6 months period ending September 2019, the employee cost stood at INR 6,873 million as compared to INR 6,816 million for the same period in 2018, showing a marginal increase of 0.8%, mainly due to annual salary increment, majorly compensated by productivity measures.

Depreciation has declined by 12.2% in July-September 2019 as against July-September 2018 due to reduction in investments in the current quarter. For 6 months period ending September 2019, there has been a decline of 16.1% due to the same season.

Other expenses for the quarter, July to September 2019, is INR 3,596 million as compared to INR 4,385 million for July-September 2018. This is a decline of 18%, which is in line with total revenue decrease and other budgetary control measures initiated by the company. For the 6-month period ended September 2019, other expenses have decreased by 15.4%, majorly on account of lower turnover and cost-reduction measures.

Operating profit stood at INR 2,544 million for July-September 2019 as compared to INR 5,029 million for July to September 2018, mainly resulting from lower turnover. For the 6-month period ended September 2019, operating profit has also decreased by approximately 36%.

Other income has increased to INR 1,669 million in the quarter July to September from INR 1,395 million in July to September 2018 because of higher M2M gain on marketable securities. For the 6 months period ending September 2019, other income has increased to INR 2,638 million from INR 2,542 million for April to September 2018.

The company is undergoing a major transformation in regarding to structural and cyclical changes and emerging opportunities in the electromobility and mobility solutions segment. To cope with this paradigm shift, the company has initiated restructuring within the organization by introducing early voluntary retirement, that means EVR schemes. Management adjustments will be done in ethical and socially acceptable manner with focused approach towards reskilling and redeployment of potential talent. An additional provision of INR 1,302 million has been created towards these various transformational projects and has been shown as an exceptional item for the quarter ended September 2019.

For the quarter, July-September 2019, the company posted a profit before tax of INR 4,213 million before exceptional items as compared to INR 6,424 million in July-September 2018, which is a decline of approximately 34%. As a percentage of revenue from operations, PBT stood at 18.2% in July-September 2019 as compared to 20.3% in July-September 2018.

Profit before tax after exceptional items stood at INR 2,911 million, which is 12.6% of revenue from operations. With the recent amendments to the corporate tax rate, the company has adopted the concessional rate of 22% of tax, actually plus applicable surcharge and cess. Though the company is able to see considerable reduction in its current tax for the quarter, but due to this, the company had to consider a onetime transitional impact of INR 1,448 million arising out of revaluation of its net deferred tax asset. Profit after tax without onetime effect of deferred tax asset, that means net, stands at INR 2,478 million. And including this, it comes down to INR 1,029 million.

For the 6 months period ended September 2019, profit before tax before exceptional items has decreased by 28% and stood at 18.3% of revenue from operations against 20.3% during the previous year. Profit before tax after exceptional items stood at INR 7,158 million, which is a decrease of 44% as compared to April-September 2018. Profit after tax, without onetime effect of deferred tax asset, again, net, stands at INR 5,293 million, with effect of it is INR 3,845 million.

Further to the approval of the shareholders, the company has transferred way of sales packaging division to the stand-alone subsidiary of Bosch Group. The sales is executed specific from October 1, 2019. Accordingly, the results of Packaging division are shown under discontinuing operations and hence do not form part of the company performance for the quarter mentioned above.

With our commitment to bring new cutting-edge technologies to the Indian market, we are proud to participate with the OEMs for electrification, especially in the two-wheeler and three-wheeler segments. As seen in the recent Bajaj Chetak e-scooter launch, we, as Bosch Limited, have contributed substantially in providing critical electromobility and connectivity solutions to the OEMs. This marks Bosch's entry into the mainstream of the electromobility space and paves the way for future projects in the EV space.

Finally, about the outlook. In the last few months, there's a severe slowdown seen in the automotive market. There have been production cuts and block closures at all major OEMs. In the festive season, with new launches and major discounts to ease out the excess inventory, a small spike in the retail sales has been visible and seen, but this does not indicate a quick recovery in the overall scenario.

Colleagues, I would like to give you an example. Just yesterday, the results came out that Diwali -- after the Diwali sales, the October sales have been compared to last year like-to-like, only minus 2%. Please understand that this has to be read that this minus 2% has been done with very high levels of discount.

Furthermore, with definitive deadline in the place of BS-VI implementation, the OEMs will be looking forward to exhausting their complete inventory and not carrying forward inventory or obsolete technology. Thus, FY 2019, 2020, which started off with uncertainty due to general election and ends with BS-IV to BS-VI change looks to be off a negative growth in our view.

Considering these factors, we have a critical outlook for FY 2019, 2020. However, in the long term, we remain positive about the growth potential of the Indian mobility market and position ourselves as an integrated solution provider for the mobility of the future and continue to invest in future technologies like electromobility.

Before I end, I would just like to make a short point clear in relation to profit after tax. We have defined that Bosch Limited has registered a 14.8% on profit after tax from continuing operations. By design, when we say 14.8%, we have excluded 2 elements of the exceptional item. The first being our EVR, and we are doing the EVR as an ethical carrying company where we are doing any changes with a socially acceptable manner. And the second, which we have already talked about the deferred tax asset, which is a onetime because we've chosen to take the 22% route, which will improve our cash flow for the future, but taking this hit.

So with this, I come to an end to the management summary, and thank you for your patient listening, and look forward to your questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Pramod Amthe from CGS-CIMB.

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Pramod Amthe, CIMB Research - Head of India Research [2]

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Two questions. One, with regard to the quarterly results, there seems to be a substantial increase in stocks of almost around INR 200-odd crores, which is 8% of sales. Can you give more color, what is the reason to build up such a large increase in stock in the quarter?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [3]

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I think, Pramod, you're referring to BS-IV inventory.

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Pramod Amthe, CIMB Research - Head of India Research [4]

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I'm looking at the line item in the expenses. After the raw materials, there is a change in stocks.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [5]

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Yes. So you need to have the BS-IV inventory to ensure that all the customers are serviced, Pramod, and we are in dialogue with our customers for, a, not only supplying them the relevant BS-IV inventory required, but also for the offtake based on their -- of their commitments.

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Pramod Amthe, CIMB Research - Head of India Research [6]

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Okay. And you hope to reverse that as the March year ending comes in, as the offtake the same?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [7]

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Yes, Pramod, this will -- this -- what you're asking is going to be applicable for the entire industry because all of us know that there's a digital shift between BS-IV to BS-VI.

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Pramod Amthe, CIMB Research - Head of India Research [8]

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Okay. And the second one is with regard to this Packaging business separation. We have seen in last couple of years, some of the divisions being separated to sell off. I wanted to get on a policy basis, is there any direction in terms coming from the parent or from you that what businesses you want to keep and what's the threshold to hive off any of the businesses and the reason for the same, so that some direction in terms of nonautomotive business, what proportion it can be 3 years down the line, if such continue -- these investments continue to happen from your end?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [9]

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So Pramod, let me give you a clear answer first from the global side. Just like we had a discontinuance of our starter and generator business, which constituted 1,000 -- 10% of the turnover, but 1% of the profit, and it was a global decision. Similar to the starter and generator, this is a global decision across the world by Bosch, our parent. And luckily for us, Packaging constituted a very small percentage of the turnover and what was at a breakeven margin with no impact on profitability. So we are just following a Bosch global practice, which is an extremely well thought of, deeply reflective on whether it makes sense to continue, and we have made 100% sale to Bosch Company outside Bosch Limited. And later by the end of the year, it will get transferred to the new seller.

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Operator [10]

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The next question is from the line of Siddhartha Bera from Nomura Securities.

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Siddhartha Bera, Nomura Securities Co. Ltd., Research Division - Associate [11]

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So my first question is on this BS-VI cost increase. I just wanted to check, for example, what will be the cost increase for an LCV or a three-wheeler post BS-VI? And whether this will be a shift from LCV to three-wheeler if the cost increase is lower? If you can highlight something on this.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [12]

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Siddhartha, we do not give the defined cost increases, but I can give you a generic answer on the matter. We have clearly seen that diesel is a very valid proposition even after BS-IV to BS-VI, and including -- we, from Bosch, believe, including for pass cars, and you will see that with utility vehicles and higher displacement CC diesel pass cars, and we believe the cutoff point is about 1.5 liter. We believe diesel will continue to play a very strong role in HCV, LCV, while slowly on the LCV front, electrification will slowly creep in. So short point, we are great believers as Bosch in summary of all technologies. We are technology neutral, agnostic, while we believe our parent as well as India has continued to focus on IC and made it optimal and including reaching at road condition level, at RT level, meeting levels far below the emission standard statutorily regulated.

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Siddhartha Bera, Nomura Securities Co. Ltd., Research Division - Associate [13]

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Okay. Got it. So basically, what I was trying to get at is that SUV share, if you see, diesel will be quite high, probably close to 75% to 80% in that segment. So ideally, after this, do you expect that, that share will largely be maintained? Or we might see some drop in that?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [14]

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Siddhartha, as you rightly said, SUVs, multi-utility vehicles, we have a situation where Bosch has been a very strong player. The positive news is the Indian market and the Indian consumer is more and more liking SUVs, the Indian SUVs, yes, you can't compare with global SUVs. So we believe that's a good opportunity. While we accept the diesel in the compact car with small displacements, that is a challenge because compact car has a pretty low base in terms of base price, and therefore, the delta hits hard on the BS-VI with EGD.

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Siddhartha Bera, Nomura Securities Co. Ltd., Research Division - Associate [15]

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Got it, sir. Sir, my last question is on the electric side. You indicated that you are supplying some of the components to Bajaj electric scooter. So if you can just broadly indicate what are these components, and if possible, what will be the value of these components, if you can.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [16]

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Siddhartha, I appreciate your question, and thank you for complementing Bosch. I had mentioned to you earlier that Bosch is at the SOP level, both at two-wheeler and three-wheeler electrification. And this is one case in point where we have to respect our OEMs. And since Bajaj has launched the Chetak, we are now able to declare that we have holistically participated in the e-scooter Bajaj Chetak. Having said that, we are pretty strong also in the three-wheeler, and we hope in the future, we can make the same declaration. We cannot indicate, Siddhartha, values and indications. We have never done it. And also for the future, we will not do it.

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Siddhartha Bera, Nomura Securities Co. Ltd., Research Division - Associate [17]

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Okay. But the component or which part also you won't be able to share?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [18]

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We don't indicate, Siddhartha. Over time, you will get to see it because it will get split. But as I mentioned, the word holistic is pretty important.

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Operator [19]

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The next question is from the line of Sonal Gupta from UBS Securities.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [20]

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Just a couple of things. One was on -- again, continuing with the diesel question. You said that 1.5 is the sort of cut-off where diesel probably starts making sense and above. So -- but like -- I mean, I'm just alluding, I mean not really specific to the company, but like Audi stated that they may not also have any diesel starting on April 1. They may look at it later on. And they -- and we are seeing like even for other people as what some of the other OEMs are saying that even at 1.5 liter level, you could see a 50-50 sort of a split between diesel and petrol. So I mean, how much of your business is at risk on the -- really on the passenger diesel side because of the change, really speaking? I mean, could you give us some sense on that?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [21]

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So I'll try to give you a brief replay, Sonal, because it's a pretty complex and deep question. The first aspect is on diesel and pass car and combination, the market will determine. We, as Bosch, are absolutely -- including Bosch Global and India, a neutral, agnostic technology players. We are in diesel. We are in gasoline. And don't forget, Bosch, our parent, is very strong in electromobility, besides, of course, we have CNG. So that's the first thing that you have to remember.

Second, we believe when the facts are looked at, what I indicated, that holds good. However, I cannot comment on sentiment and perceptions. So somebody is -- we are going to play as strongly in gasoline. I told you already, we acquired a lot of market share, though we enter gasoline later. And while in diesel, please remember that pass car is an important component, but we have components like HCV, LCV, tractors, three-wheelers and other areas, including off-highway, where we are pretty strong. So we do see a hit in compact cars, but we do see also opportunities as well.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [22]

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Sure. And just another question on the electromobility side, like, on the two-wheeler, three-wheeler side. I mean, it's -- I mean, we understand that you're -- on the electromobility, you'll be providing comprehensive solutions on two-wheelers and three-wheelers. But at the same time, I mean, given the high volume as well as -- I mean, the price points in the segment and potentially the price point that you're competing against potentially in -- I mean, like on the ICE side, what I'm trying to say is that -- I mean, we would likely see a lot of competition from other players, I mean, like on the motors and all those things. I mean, this could really be getting commoditized. So I mean, just to get a sense, I mean, like, which are the components where you think that -- I mean, there's sort of an IP edge that Bosch can provide, which is generally not available in the market? Are there any such components that you can talk about?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [23]

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So Sonal, I'd like to just demystify the question that you've mentioned. The first point will be there will be multiple players in the market, but we believe that in Bosch, we provide holistic solutions versus selling components. So that could be a differentiator. Second, we have always respected competition, whether large or small, whether organized sector or nonorganized. And third, our objective will be, like we have done in the past, to localize and give affordable, innovative holistic solutions, which example, we have done for Bajaj Chetak. So that's our approach. And this, you will see over time, it won't happen just tomorrow or day after tomorrow.

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Operator [24]

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The next question is from the line of Priya Ranjan from Antique Stockbroking.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [25]

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One is on the two-wheeler opportunity which will be getting created in next year with the BS-VI, with the EFI engines, et cetera. So can you throw some light on that? And the second part is on the -- what percentage of -- I mean, petrol engine in the pass car, you are saying that probably you might have a better opportunity because of the adoption of GDI engine. I mean, any sense on market?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [26]

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So I will just give a brief answer on this and request our Chief Technical Officer to give the details. We have had a very good growth on our gasoline business, both on two-wheeler, as we see it in terms of acquisition now which will get converted to sales, as well as on the four-wheeler. And this has already got, for the four-wheeler, translated into our P&L. And we expect the same for the two-wheeler also. Of course, subject to how the market grows or degrows. The share of the pie is good. As compared to what the pie will happen, nobody knows, how large the pie will be. GDI, I request our CTO to please give the answer. I think he's told it multiple times, but he can again answer.

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Jan-Oliver Röhrl, Bosch Limited - CTO, EVP of Powertrain Solutions, Member of Management Board & Executive Director [27]

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Yes. Look, the good thing about Bosch, as a company, be it from the parent or here in India from Bosch Limited, is that we are specifically to the ICE, but finally to the whole powertrain, be it now hybrid, be it a fully electrified vehicle system supplier. And the GDI plays an important role, whether it's now on the pressure level of 250 bar or 350 bar. And in the BS-VI acquisition phase from 2017 onwards, we were not only successful in acquiring business related to diesel, of course, but also related to GDI.

And finally, it's the decision of the OEM, how he wants to market that specific engine, in what type of a vehicle and then the decision of the consumer, what he is choosing for, because, let's say, everything that is adding complexity compared to a PFI, and GDI is part of that, has to pay back, be it now via fun to drive. That is one element. So the torque that you will appreciate also in the utility vehicle and on the effort that -- or the money you have to spend in the gasoline station. So it's a consumer's choice. And the good part is that we can respond to these selections that the consumer is likely to take with BS-VI in a holistic manner.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [28]

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Yes. And another one is on the -- I mean, Bosch is also participating in the turbocharger business, I think, globally. So I mean, any sense on that to bring it into India and expand that market as well?

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Jan-Oliver Röhrl, Bosch Limited - CTO, EVP of Powertrain Solutions, Member of Management Board & Executive Director [29]

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So actually, yes, we had a joint venture for turbochargers for diesel, gasoline and finally, also on the way for commercial vehicle, but on a global scale, we left that business. The good part of that is that the whole system knowledge about this is, of course, still available, and that pays completely out when we discuss with our customers' system layout from the AirPods and, of course, in the AirPods the turbocharger plays a vital role, be it for diesel or a gasoline engine on the combustion side, on the fuel injection equipment that is coming along with that and on the after-treatment system side. So we still benefit from this joint venture, but we do not have these components anymore.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [30]

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Okay. And just on the diesel side. I mean, there are 2 parts. I mean, one is probably in 50 CC -- 50 HP and above, we will have -- in the tractor segment, we will -- going forward -- I mean, next year, we will be having CRDi engine, most probably. So how do we see the opportunity there? And second part is on the normal diesel engine, I mean, say, in pass car, say, 1.5 liter and above, which we are discussing. I mean, what kind of LNT, SCR, EGR route? I mean, what is the optimal solution for the BS-VI?

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Jan-Oliver Röhrl, Bosch Limited - CTO, EVP of Powertrain Solutions, Member of Management Board & Executive Director [31]

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Okay. This is the first question related to the off-highway business and there are specifically to the tractor market, and you were referring now to the 1st of October 2020, when the transform will be introduced. And here, the common rail will play a role in the power range beyond 37 kW. And also here, let's say, the Indian OEMs, they are already on their way because they have started to explore export markets for themselves. And we were able to partner with them on the common rail side also as we partner with them on the conventional side. So the predominant power slab -- power range from 19 to 30 kW with streamflow will still remain completely with conventional business -- of its conventional through injection equipment. So this is on the off-highway part. Your question of the passenger car side. There is not a single way leading to Rome, but there are many ways leading to Rome. So whether it's an LNT combined with an STPF, whether it's an LNT with DPF and SCR -- active SCR system, later on whether it's only an active SCR system. This depends pretty much now on the overall system configuration, whether we are in a passenger car segment or in the light duty segment.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [32]

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Sonal (sic) [Priya], thank you for your question. I just want to add one common point for all of you. Whether it is diesel, gasoline, CNG, hybrid electrification, pure EV; whether it is services, solutions on mobility; whether it is for two-wheeler, three-wheeler or four-wheeler, entire portfolio stays in Bosch Limited. I just want you to know this and including off-highway as our CTO reminded me. So please remember, we have brought in this entire portfolio of electromobility under any form and manner for today and the future as well as the entire platform of mobility solutions and services into Bosch Limited. We had an option to do a separate legal entity or to put in any other legal entity. By design, we have brought it as a part of Bosch Limited.

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Operator [33]

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The next question is from the line of Ronak Sarda from Systematix.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [34]

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A couple of questions on the financial side. Can you please highlight what the export growth for the quarter? And on the spare side, on the B2B business side, what's the growth?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [35]

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So we have indicated it, but I'll request our CFO, Srini Srinivasan to tell you.

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S. C. Srinivasan, Bosch Limited - CFO & Executive Director [36]

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See...

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [37]

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Export growth, which we had 6.2%.

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S. C. Srinivasan, Bosch Limited - CFO & Executive Director [38]

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See I mean, the export opportunities, if you look at it, is always there. And in the past, we have always seen an opportunity for markets and especially when -- with the shift from BS-IV to BS-VI happening, there will be markets where it will continue to take BS-IV equipments, and our focus will continue to remain. Our team has been formed to look -- to explore to other markets, especially Africa and others. So yes, over -- I mean, over the last 1 or 2 years, overall export trajectory has been a bit low, but that is an area of our focus, and we expect that to improve as well.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [39]

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Okay. And on the B2C business side?

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S. C. Srinivasan, Bosch Limited - CFO & Executive Director [40]

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I mean, we are traditionally a B2B player. I mean, we are not a B2C player. But if you look at many of the new emerging businesses that we are talking about, I mean, including aftermarket, both on the solutions side and services side, the innovations and the opportunity will come out of the issues and the problems that are there in the C space, but we continue to remain a B2B player, and that's where we partner with many of the OEMs and new emerging customers as well to create the opportunity around B2B2C.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [41]

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Okay. Sure. And sir, on the restructuring last quarter, you highlighted that the INR 82 crores provision was more anticipatory. I mean, looking at the changes you are doing. Including the current quarter provision, is that the final number? Or is it still under evaluation and we expect something more to come or some [add] back happening here?

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S. C. Srinivasan, Bosch Limited - CFO & Executive Director [42]

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So again, with all the changes that are happening around us, BS-IV, BS-VI, electromobility and other, as our -- as Mr. Bhattacharya just said, we are technology agnostic. We have capability across all technology segments. And hence, we continue to evaluate in terms of our surplus capacity that are there. To what extent it will happen is something which we have continued to evaluate. There will be some level of restructuring and redeployment as well. And that's why there will be provisions in the future as well for us to go through this phase of transformation. I mean, transformation is not only around restructuring. We are also looking at cost optimization like zero-based budgeting, zero-based organization. Those projects are already in place to ensure that, yes, from a profitability perspective as the shift happens, we continue to be able to cut down and become cost competitive -- maintain our cost competitiveness.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [43]

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So Ronak, just to make a summary, it's very important for you to understand, Bosch is a very ethical fair company, including being extremely proactive in looking at structural changes. We started this transformation already 2 quarters before. And this transformation is not just about payouts. It's about a holistic transformation, including reskilling, including redeployment and including looking at our whole organization structure. So this is something that we want to use this very tough period for the market to come out stronger in the short to mid run. It will not happen tomorrow, but it will take a year or 2, but we'll come out far stronger.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [44]

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Okay. But sir, is it safe to assume that like at least 50% or more would be related to fixed asset impairment because of the shifts happening? Or is it much more diversified or broad based in that sense?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [45]

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Can you repeat your question in which area?

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [46]

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Is it more to retail segment?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [47]

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Oh, on the retail.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [48]

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Yes, yes.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [49]

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Yes, it's across the board. It's -- as I said -- we said that it's also EVR. It's also taking care. It's not necessarily impairment, but it's also taking care of transformation projects and other areas like ZBB, ZBO. So it's a combination of everything, including EVR.

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Operator [50]

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The next question is from the line of Nishit Jalan from Axis Capital.

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Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [51]

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Sir, firstly, I think in your opening remarks, you were talking about October sales down 2% despite higher discounts. I just missed that part. Can you elaborate on that?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [52]

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No, Nishit, the point I referred to was I quoted the public domain information, which has come out yesterday and today. It says that October sales in the market, especially for pass cars and the Diwali-related sales have been minus 2% as compared to the like-to-like previous period. So I'm just quoting public domain information. I only added saying you must remember where till September, there was a very deep and steep decline in the growth, the October sales does not reflect the reality including for the next, most likely a couple of quarters because there's been very deep discounts given. So that's all I said.

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Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [53]

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Correct, correct. And sir, just one question -- another question. Like you were highlighting in your opening remarks as well that affordability has become an issue, which is impacting automobile sales in India. And obviously, with BS-VI, cost increases will be even significant now, at least, on the diesel side and on the two-wheeler side. So just wanted to check on that, there will be a lot of pressure from the OEMs for you to kind of give them discounts or lower pricing. I just wanted to check on that, whether BS-VI production all can be margin dilutive for you? Or do you have any kind of range in terms of profitability either at EBITDA level or EBIT level that you want to work with for sure?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [54]

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Thanks for the question, but we don't give guidance, so I want to be direct and abrupt of it. Having said that, I'd just say, any of these numbers are going to affect the entire value chain and it will be determined by customer. Last, I would like to say, please remember, 4 years ago, where people were willing to buy cars, mainly between INR 5 lakhs to INR 8 lakhs, today, people are willing to buy between INR 11 lakhs and INR 15 lakhs, the same people. So we believe the Indian economy will continue to evolve. Objective has to be that we'd have to do optimal cost, optimal quality and deliveries are given. And positive part is Bosch has a lot of technology and Bosch has a lot of experience in India to provide affordable solutions.

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Nishit Jalan, Axis Capital Limited, Research Division - Executive Director of Auto [55]

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Sir, just one request, would you be able to share your revenue breakdown by our different automotive segment, say, tractor, CVs and PVs, it will help us better understand your company and to look at it going forward.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [56]

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We do not give these breakdowns. I can tell you that we are very strong in tractors. We are very strong in CV and LCV, and we have got a very good segment also within the pass cars. We are also pretty strong in all offsite, yes.

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Operator [57]

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The next question is from the line of Nikunj Doshi from Bay Capital.

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Nikunj Doshi, Bay Capital Partners Ltd - Managing Partner and Director [58]

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I just wanted to know if -- when industry moves from BS-IV to BS-VI, as a company, what will be your -- I mean content per vehicle, you'll be supplying it, will it increase, decrease? Can you use some idea?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [59]

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Nikunj, sorry to disappoint you again. We have never given content per vehicle.

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Nikunj Doshi, Bay Capital Partners Ltd - Managing Partner and Director [60]

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But not that broad-based, will it increase or decrease?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [61]

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Obviously, I can give you an answer that for BS-VI -- and all of us know BS-VI technology is BS-IV plus EGT and some changes, we have had a very good acquisition calendar. And that you will get to see during the financial year 2021. So that we have stated earlier very clearly, and we have also stated that we are partnering with most of the OEMs from conception right up to SOP.

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Nikunj Doshi, Bay Capital Partners Ltd - Managing Partner and Director [62]

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Okay. And what will be your take on FY '21 outlook for the industry?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [63]

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Nikunj, this is more a personal opinion. Like '19, '20, 2021 will also be a determining year for India because we are just transitioning to BS-VI. It seems that India, we have lost 3.5 to 4 years by the time we come back to the peak levels of 2018.

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Operator [64]

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The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [65]

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Sir, in the prior calls, we had mentioned that we have close to 30% market share in gasoline in the passenger vehicle segment. With both the BS-VI or even now what the transition is happening, have we crossed that market share level in gasoline for passenger vehicles?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [66]

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Thanks, Shyam. You've got a pretty good memory. I must complement you. Having said that, yes, we are improving, but we don't give further -- every quarter percentages. But we are improving and having started a little later compared to diesel, we are doing well.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [67]

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Okay. So that level is still improving?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [68]

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Yes.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [69]

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Okay, okay. Sir, just one broad question. In the gasoline passenger vehicle content in per gasoline passenger vehicle, is it right to assume it will be lower than diesel passenger vehicle, much lower? Is that a fair assumption?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [70]

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Shyam, diesel and gasoline are different. I mean, if you just look at the components. So it is self-explanatory. We are not going to indicate what and how much, but diesel and gasoline clearly are different.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [71]

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Fair point, sir. Fair point. Sir, and given that already -- given the two-wheeler OEMs have started to launch these BS-VI models on the one hand and we are hearing more launches will come through. Have you started localizing many of these parts that will -- a serial production for many of these BS-VI parts?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [72]

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Yes, Shyam, and also no. We do it in a very designed way. We initially trade, later we localize. So we'll go through the process, exactly what we did for transitioning from purely conventional parts to common rail line. So we'll do it in the similar way.

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Operator [73]

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The next question is from the line of Chirag Shah from Edelweiss.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [74]

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Sir my first question is with respect to your comment that we may have lost 3 to 4 years to reach and it may take 3 to 4 years to reach the 2018 peak. Is it pertaining to any specific segment? Or it's -- you see these issues across subsegments of the automobile industry?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [75]

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Chirag, just to clarify, it's not that Bosch to reach 3.5 to 4 years, it's our guestimate for industry. Yes, just to classify. So having said that, naturally, different segments will have a different take. Yes, you don't have -- you have the sharpest drop in HCV, so that will take also the longest. If you have a 35% to 40% drop in HCV with excess capacity overnight with 30% to 35%, then that will take the highest. We also have a very sharp drop in -- example in LCV. It is a sharp drop in pass car, but not as high as HCV. So somebody, it's a segmental drop. But overall, if you look at, with all the 6 elements of HCV, LCV, pass car, tractors, three-wheelers, two-wheelers and finally, off-highway, it's going to take about 3.5 up to 4 years to come back to the peak because first year already is a degrowth. Next year, we guestimate it's going to be equal to or maybe a degrowth and the next couple of years after that will take to come back. So fastest, maybe 3 years, reality may be between 3.5 to 4 years.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [76]

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And which categories you are more hopeful to recover faster, like two-wheelers or three-wheelers or anything which you think would require much faster?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [77]

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Chiraj, I'm personally not -- I don't think anyone in the industry is able to say that. Yes, tomorrow, if you have a policy, it will become a game changer. Just take an example, if you have a policy change, like the world has on scrappage with 12 to 15 years, with very clear norms to see that they don't go back again, you will see a change. So policy changes will support and help. Sentimental changes will support and help. The Indian economy changes will support and help, NBFC and banks matter recovery will help. But I can't say that because it can be a spike. It can be a regulatory change. So there are multiple factors around it. We have said, subject to standard conditions remaining and slowly sentiment coming back, this is our guesstimate.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [78]

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Okay. Sir, second question was with respect to this transition to BS-VI, especially on the diesel side. How -- what are the indications you're getting? How the transition will happen? So when would you start the production? And how much time it will take for you to ramp it up to the desired level?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [79]

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I hand over to our CTO, who will explain in detail.

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Jan-Oliver Röhrl, Bosch Limited - CTO, EVP of Powertrain Solutions, Member of Management Board & Executive Director [80]

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So of course, let's say, it's a very tight -- very, very tight raise until the 1st of April 2020, and the whole industry is gearing up. And we are having more and more regulator access, of course, with all the OEMs that have locked in with us, be it for FIE and also the after-treatment system side. So I don't think that the government is changing their mind in introduction. So the 1st of April is a very firm date, and I don't think this to be changed. And the first, let's say, certifications, some locations if already been done, you are aware of that. All the OEMs behind that, they have been published in the newspapers. We are doing what we call the PPAP, the parts production approval process, with the OEMs, and then we will start production. So the first serious products we think to fill the pipeline starting in mid -- end of January next year.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [81]

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Okay. And how much time generally it takes to ramp up on new technology?

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Jan-Oliver Röhrl, Bosch Limited - CTO, EVP of Powertrain Solutions, Member of Management Board & Executive Director [82]

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Look, this is a very general question for which you ask a specific answer now. And I cannot give you that. But let's say, it's a mixed pack. We have carryover components, as our MD had just mentioned, Mr. Bhattacharya, that we are, let's say, obliged to not only fulfill emission norms and going beyond the norms, but also we have to be competitive and offer solutions that the customers are willing to take and also final customers. We were looking as much as possible to choose out of our existing product portfolio to have carryover components, specifically on the FIE side. So here, we'll gear up far quicker. Whereas for the after-treatment system side, this is a far bigger challenge. And again, this challenge is not specific to Bosch, but for the whole industry.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [83]

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Why I'm asking this because when we transition from BS-III to BS-IV, while -- especially on the truck side because it was more relevant at that time for trucks, there demand was very strong but there were supply issues or supply constraints, which came across from various players because the ramp-up took us slightly longer time than expected at that point of time. And this seems to be a far trickier technology than BS-III to BS-IV transition.

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Jan-Oliver Röhrl, Bosch Limited - CTO, EVP of Powertrain Solutions, Member of Management Board & Executive Director [84]

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You have a very good memory from BS-III to BS-IV. It was specifically tough for the trucks. And it was even tougher because, let's say, some other market players, they could not follow the pace and had to jump in at a very short notice or in a very short notice. I don't think that this is going to happen again. The industry knows very well that the 1st of April is a very firm date and is getting prepared for that. And my feeling is that we will not see a single OEM supplier shiver.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [85]

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This is really helpful. And one last question, if I can squeeze in.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [86]

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Chirag, I think you could allow the last question from some other colleague because we are running out of time. Don't get me wrong.

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Operator [87]

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The next question is from the line of Nishant Vass from ICICI Securities.

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Nishant Vass, ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst [88]

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Nishant here. Sir, primarily, my question is more from a restructuring perspective and employee cost line items. So when I look at your managed -- the head count number over, say, last 5 years, you've done a creditable job in terms of head count management. That is nearly a 2,000 people head count reduction from FY '15 onwards. Now you're obviously talking about further restructuring. So where do you think from a head count perspective, we would -- you would be looking at a company over, say, next 3-year cycle because we've seen nearly 25% revenue growth since FY '15 and head count -- absolute head count is down by 17%. So could you throw some light on that?

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [89]

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Thanks, Nishant. We are as focused for the future, but I'll request our CFO, Mr. Srinivasan to reply.

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S. C. Srinivasan, Bosch Limited - CFO & Executive Director [90]

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So the head count or the numbers, which we are looking at is more to looking at organization structures, spans and layers, looking at where automation, bundling, centralization is possible. There are various levers that we are adopting. And this is as far as white collar or M&S is concerned. As far as blue collar is concerned, again, in the specific value streams, looking at opportunities where, one, due to the volume shifts that are happening, that are excess, that are generated and also as a result of automation that we are doing Industry 4.0 and others, there are certain activities, which will get -- which can be automated or certain quality or inspection can also get automated. And these are ones that are generated surplus. While I can't give you a specific number, I think that there are -- all I can say is that there are various levers that are getting adopted. So there we looked at what should be the organization design for the future. Having said that, this is not only about just number reduction, but maybe to make our organization much more agile, much more speedy, much more empowered organization.

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Nishant Vass, ICICI Securities Limited, Research Division - Auto and Auto Ancillary Analyst [91]

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So if I can just ask a connecting question. Is it you highlighting the M&S reduction. So if I see as for your annual report last year, there's nearly 40% reduction in M&S has happened. So you think there is more scope for reduction on this head count?

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S. C. Srinivasan, Bosch Limited - CFO & Executive Director [92]

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So I mean, part of the M&S would have happened over a large period of time. But yes, that is also an area because we believe that, yes, there is large opportunity for automation, large opportunity for automation to happen, reduce spans and layers, all of what I said. So there is opportunity there as well.

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Soumitra Bhattacharya, Bosch Limited - Joint MD, Regional President of Bosch Group India & Director [93]

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Thank you, Nishant, and thank you. I think we should close the conference with this. Thank you colleagues for having joined in.

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Operator [94]

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Due to time constraint, that was the last question. I now hand the conference over to Mr. Annamalai Jayaraj for closing comments.

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Annamalai Jayaraj, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Director & Deputy Head of Research [95]

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Thank you, everyone. On behalf of being facilitators, we think Bosch management for taking time out to discuss the 2Q FY '19-'20 quarterly results. We also thank Bosch management for providing us the opportunity to hold the call. Have a good day.

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Operator [96]

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Thank you.