Bosch Ltd – Invested (to remain) for life?

Few of my takeaways from Q1 FY25 of Bosch Limited

Bosch Limited appears cautiously optimistic about its business prospects in the near term. While Q1 FY ’24/’25 saw modest growth of 3.8% in revenue, management expects the full year to maintain growth momentum similar to FY ’24. The company is navigating a transitional period marked by technological shifts in the automotive sector, particularly the move from conventional to common rail systems and increasing electrification.

𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐁𝐥𝐮𝐞𝐩𝐫𝐢𝐧𝐭:

Bosch is focusing on several key strategic areas:

1. Localization of advanced components like NOx sensors and common rail systems to improve cost competitiveness.
2. Expanding its presence in the 2-wheeler segment, with new production lines for lambda sensors.
3. Transforming its Power Tools business in India into a regional hub for the SAARC region.
4. Developing hydrogen engine technology as a potential alternative to diesel for long-haul trucks.
5. Enhancing its aftermarket offerings with new products like tyre pressure monitoring systems.

𝐌𝐚𝐫𝐤𝐞𝐭 𝐃𝐲𝐧𝐚𝐦𝐢𝐜𝐬:

1. Shift towards premium and feature-rich vehicles, especially in the 2-wheeler segment.
2. Growing importance of alternate fuel technologies like CNG, flex-fuel, and hydrogen.
3. Increasing electrification across vehicle segments, particularly in 3-wheelers.
4. Rising exports from India due to geopolitical shifts and changing emission norms globally.

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐓𝐚𝐢𝐥𝐰𝐢𝐧𝐝𝐬:

1. Government focus on infrastructure development boosting commercial vehicle demand.
2. Positive consumer sentiment driving passenger vehicle and 2-wheeler sales.
3. Above-normal monsoon forecast improving agricultural outlook and tractor demand.
4. Policy support for electric vehicles and battery manufacturing.

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐇𝐞𝐚𝐝𝐰𝐢𝐧𝐝𝐬:

1. Global economic slowdown and inflationary pressures.
2. Transitional period post-elections, potentially slowing government spending.
3. High inventory levels in certain segments like passenger vehicles.
4. Financing challenges for first-time buyers in the light commercial vehicle segment.

𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫/𝐀𝐧𝐚𝐥𝐲𝐬𝐭 𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬:

Analysts raised questions about margins, localization plans, and the impact of new technologies. Management emphasized their focus on maintaining profitability while strategically localizing components. They stressed the importance of timing localization efforts to coincide with optimal volumes and market readiness.

𝐂𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐯𝐞 𝐋𝐚𝐧𝐝𝐬𝐜𝐚𝐩𝐞:

Bosch highlighted its strong relationships with OEMs and its role as a preferred technology partner. The company’s diverse portfolio across automotive and non-automotive segments provides a competitive edge.

𝐅𝐮𝐭𝐮𝐫𝐞 𝐏𝐫𝐨𝐣𝐞𝐜𝐭𝐢𝐨𝐧𝐬:

Management refrained from providing specific numerical guidance but indicated expectations of moderate growth for FY ’25, in line with FY ’24 performance.

𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐃𝐞𝐩𝐥𝐨𝐲𝐦𝐞𝐧𝐭:

Bosch maintains a flexible approach to capital expenditure, prioritizing investments that contribute to top-line and bottom-line growth. The company is willing to invest in localization efforts when volumes justify the capex.

𝐎𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐢𝐞𝐬 & 𝐑𝐢𝐬𝐤𝐬:

Opportunities:

Expanding market share in emerging technologies like EVs and hydrogen engines.

Risks:

Policy uncertainties and the pace of transition to new technologies.

𝐑𝐞𝐠𝐮𝐥𝐚𝐭𝐨𝐫𝐲 𝐂𝐥𝐢𝐦𝐚𝐭𝐞:

Bosch is adapting to evolving emission norms like BS-VI OBDII stage B and potential TREM V implementation for tractors. The company is also positioning itself to benefit from government initiatives like the PLI scheme.

𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐏𝐮𝐥𝐬𝐞:

Customer sentiment appears positive, with growing demand across most segments. However, there’s a noticeable trend towards premiumization and feature-rich vehicles, which Bosch is well-positioned to cater to.