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Bosch India 2.0

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This July, Bosch Power Tools, the world’s leading power tools manufacturer and a subsidiary of the German automotive engineering and electronics behemoth, Robert Bosch GmbH, chose Bangalore for the global launch of its high pressure washers. It’s cleaning technology is ideal for hospitality, manufacturing, automotive and service sectors. The launch marked the company’s entry into a new product category, which has a 20 per cent share of the Rs 250-crore Indian cleaning market.

It was the first time that the company had chosen India for the global launch of its product.  Earlier, in another first, in February, the global board of Robert Bosch GmbH flew down to India for a meeting. Barring Bosch chairman Franz Fehrebach and head of the automotive division Bernd Bohr, most of the other board members were first-time visitors.
These developments underscored the importance of India as not just a key market, but also as an important global outpost of the multinational. In 2011, Bosch’s businesses in the country crossed the $2-billion-dollar mark in revenues (Rs 11,389 crore including Rs 2,500 crore from exports), accounting for 3.2 per cent of the Bosch group’s global turnover of $69 billion.  Although the company towers over its domestic automotive peers such as Motherson Sumi (Rs 3,571 crore) in terms of size, it is at best comparable to a second-rung technology company such as the merged Tech Mahindra and Mahindra Satyam (Rs 11,050 crore) or truck maker Ashok Leyland (12,842 crore). Importantly, much of its growth has come in the last decade, even though it has been present in India since 1951 through its earlier avatar of MICO (Motor Industries Company). 
Besides, Bosch’s research and development centre (R&D) in Bangalore, with its 10,000 engineers and a number of patent filings, has become a key innovation hub for the transnational, having recently been entrusted with the global responsibility of providing software support for electronic control units (ECUs). But more about the centre later.
The visit by Bosch’s global brass was significant for another reason. Both chairman Fehrebach and Bohr hinted that Indian operations needed to change gears, saying that they expected to see its share in Bosch’s global revenues go up to 5 per cent by 2015. This would mean revenues of Rs 23,000 crore in four years. 
How is Bosch going achieve that so soon? The past few quarters have been particularly difficult for it due to a depreciating rupee, higher fuel prices, high inflation, high interest rates and an overall negative sentiment. During the second quarter ended June (Bosch India follows the calendar year as its financial year) the company’s topline grew a measly 6.9 per cent to Rs 2,174 crore, mainly on account of a 12.4 per cent fall in exports. 
TECH PIONEER:Bosch’s diesel engine technology is used by most major automakers (Bloomberg)
Newer Lines Of Business
The clue lies hidden at the Bosch headquarters in Bangalore’s Adugodi area. V.K. Vishwanathan, the soft-spoken MD of Bosch India talks animatedly about the solar systems that Bosch has installed as a demonstrator on the off-limits fourth floor of the building for prospective clients. He says that it is from newer lines of business such as solar systems, home appliances such as refrigerators, washing machines and dishwashers, apart from hitherto lesser-known lines of businesses such as packaging machinery, power tools and security solutions, that Bosch expects to achieve its next phase of growth in the country.
Apart from its headquarters in Bangalore, Bosch has installed two more solar demonstrator projects of 40 kWp each at its plants in Jaipur and Coimbatore; while the one in Jaipur is ground-based, the other two are roof-mounted. Sticking to the company’s policy of keeping their products or projects under wraps, Vishwanathan refused to talk further about the projects or their industrial customers. All he would say is that Bosch is putting up its first 1MW plant for an industrial customer in India while ruling out its presence in low-end solar heating/ lighting for the retail market.
The company expects to expand its footprint in the home appliances market in the country, which it had exited after an unhappy association with IFB and re-entered in 2011. “The Bosch-Siemens joint venture, which has been selling refrigerators, dishwashers and washing machines, will have a greater national footprint this year,” says Vishwanathan, adding that the company is putting up a manufacturing facility at Sriperumbudur on the outskirts of Chennai.


But does Bosch really stand a chance in the highly competitive and crowded home appliances market against established players like Samsung, LG, Whirlpool, etc.? Assocham puts the current size of the white goods market at Rs 34,000 crore, of which 70 per cent share is controlled by multinationals; 60 per cent is held by Samsung, Whirlpool and LG together. But Vishwanathan is unfazed. He asserts that unlike earlier, Bosch wishes to be a long-term player in the category this time, as both Bosch and its partner Siemens have deep pockets to fight it out in the Indian market, thanks to their leadership position in Europe. 
Among the existing line of businesses, Bosch expects power tools, packaging and security solutions to grow at a faster pace, because of the current low base as well as the increasing market opportunity. In the Rs 1,700-crore power tools segment, Bosch claims be the market leader with a 30 per cent share, ahead of the likes of Hitachi and Kulkarni Power Tools. It is also looking to tap the high-end market in the category: its recently launched high pressure washers are priced at Rs 40,000 and above. The power tools business continued its strong quarter-on-quarter performance by posting 21.1 per cent growth in the second quarter of 2012.
The packaging industry in the country is a highly fragmented one with no major player apart from Tetra Pak India. Bosch had a head-start in the category, as it has been present in both pharma and food packaging equipment since 1994-95. “From biscuit, atta to confectionary packing machines, we have a presence in all segments. The packaging machinery business does around Rs 65-70 crore business but we are hopeful of more growth in the future,” adds Vishwanathan. Bosch’s latest packaging machinery plant at Verna in Goa, which started operations recently, will double its production capacity in three years.
Bosch’s security solutions division is a leading player in CCTVs, communication and conferencing products as well as fire safety devices. The 2,500 closed circuit cameras on the Delhi Metro as well as the conferencing equipment used by most state assemblies have been supplied by Bosch. This business brings in Rs 120 crore, and is poised for growth as security awareness grows. Despite a sluggish economy, the security solutions division posted a healthy growth of 20.4 per cent in the June quarter.
Automotive As The Core
While the newer lines of business are expected to buoy Bosch’s next phase of growth in the country, its automotive division led by the group flagship and listed Bosch Limited will continue to be its core, says Vishwanathan. In fact, much of the company’s growth has coincided with the boom in the Indian auto sector. In 2011, Bosch Limited totted up revenues of Rs 8,018 crore.
Bosch counts all the major Indian auto, commercial vehicles and tractor companies as its customers. It played a key role in developing the electronic diesel control (EDC) system which made diesel engines with common rail technology as efficient as petrol engines. “Renault was the first to use Bosch’s EDC system globally, almost 13 years ago in its trucks. Now they are part of most diesel cars in the world,” says an executive from the Renault Nissan Alliance in Chennai. Today, every major original equipment manufacturer (OEM), from Audi to BMW, works with Bosch on its diesel technology.
 (BW Pic By Bornali B.)
Last year, Bosch not only grew its topline by 23 per cent, but also its bottom line by about 20 per cent, thanks largely to increased localisation and reduced exports. “The key is that they controlled costs when the automobile market slowed down last year,” says Vishal Srivastava, deputy manager at CARE Ratings in Mumbai. According to him, Bosch also improved its engineering processes by outsourcing parts development, which also drove rapid localisation.
India’s highest selling diesel cars, the Maruti Suzuki Swift and Dzire which sell 180,000 vehicles a year on an average, are almost 95 per cent localised, while Tata Indica Vista is completely localised. Analysts say that had it not been for the strike at the Maruti Suzuki plant at Manesar, the auto industry’s sales for financial year 2011-12 would have been higher. And, so would have been Bosch’s revenues. 
According to SMC Investments and Advisors, the Indian automotive sector is growing at a compound annual growth rate (CAGR) of 18.8 per cent in volume terms. The industry saw a substantial rise in turnover as well: $39.9 billion in FY11 compared to $30.1 billion in FY10. The turnover is expected to grow at a CAGR of 11 per cent. This and the growing ‘dieselisation’ of the market is expected to boost Bosch’s gains.
“Its near-monopoly in safety and critical auto parts also gives it the power to pass on costs to its clients,” says D.K. Aggarwal, CMD of SMC Investments. Last year, the impact of rising input cost was offset by savings in employee costs as a result of outsourcing, which will only increase with greater localisation. Besides, being a debt-free company also helped it perform better despite higher interest costs, rising prices of key raw materials such as steel, aluminium, copper, plastic and rubber, and will continue to be an advantage for the company.
The aftermarket business — sales of spares — has been the third biggest contributor to Bosch’s Indian revenues (see chart). Vishwanathan says that this segment has continuously contributed a little over 20 per cent to Bosch’s revenues. This business usually perks up whenever there is a slowdown in the OEM auto sales due to market conditions such as high interest rates and inflation. Bosch, which boasts of one of the largest service networks in technical unit repair (fuel injection and automotive electrical systems) and car service space in the country, recently entered the two-wheeler segment with its latest workshop concept called Express Bike Service. It plans to scale up this service rapidly.
Product innovation is going to be a major driver of growth for Bosch in India. The six-year-old Bangalore-based Robert Bosch Engineering India (RBEI), the software and engineering arm, has come to be regarded as a global research and development centre by Bosch’s German bosses. Compared to its 10,000 engineers, its competition Valeo has about 200 engineers, Continental has around 400 and Wabco 150 engineers in Chennai. 
RBEI has filed close to 75 patents till date including the one for the engine firing system in the Tata Nano, and is now building systems for connected cars. “What we have achieved in six years was a conscious target, to build an innovation centre,” says Vijay Ratnaparke, managing director of RBEI. He says RBEI will now be focusing on making the car more intelligent and connect with other cars. The centre is currently working on an ABS system for bikes and mobile connectivity for cars, which will treat each car as a platform or a node on the network. RBEI, which has customers in all corners of the globe, accounted for nearly Rs 1,400 crore in exports out of the total Rs 2,500 crore last year.
In 2011, the Bosch group invested Rs 800 crore in India, including Rs 600 crore by the flagship Bosch Ltd. During 2012-13, the group intends to infuse an additional Rs 2,200 crore for capacity augmentation, diversification and new technology development, with a focus on fuel economy and safety technologies. This investment will be used to build a new electrical drives plant in Chennai, expand capacity at the Nashik plant for both conventional and common rail injectors, at the Bangalore plant which has almost all lines of business, build a new hangar at the Jaipur facility, as well as for expansion of research in starters, generators and automotive electronics.
“We will also be investing Rs 300 crore in setting up phase two of our engineering and software business campus in Coimbatore, besides expanding the electrical drives business which manufactures window lift motors and wipers in Chennai, as well as the hydraulic business (Rexroth), which will move to Sanand in Gujarat from Ahmedabad,” says Vishwanathan, adding that Bosch always plans for the long haul and a quarter or two’s fluctuation in the marketplace will not alter that.
Bosch certainly needs to make all the right investments if it is to keep its date with Rs 23,000 crore in revenues by 2015.
(This story was published in Businessworld Issue Dated 17-09-2012)