Bosch To Focus On Non Auto Segments

It seems that most of the companies in Indian markets are looking for diversification. With the kind of uncertainty faced in the past two years, it was obvious that the companies had adopted strategy and the new name to join the league is Bosch. According to news reports, the Indian subsidiary of world's biggest supplier of car parts, Bosch, believes that its future growth story in the country will be scripted from the rising growth in its non-auto technology business.

If investors could recollect we had carried an analysis of Bharat Forge where we had recommended a buy on the counter with its non auto segment witnessing a good amount of growth. With automobile companies witnessing a good amount of slowdown, the strategy had helped the company grow on the topline and bottomline front.  We feel similar benefits would accumulate even for Bosch. 

If we take a look at the current business segments of the company, worldwide its automobile technology segment accounts for 66% of the Bosch's sales and the rest (34%) comprises of consumer goods and industrial sectors.  In India the automotive segment accounts for 87 % and rest is for non auto. However it seems that the slowing demand from automobile sector and increasing focus in non-auto sector is making the company get into new business verticals.

If we take a look at the financial performance of the company it clearly suggests that the slowdown in the automobile segment has affected its performance. The slowdown in auto-sector hurt its financial results as for the CY13 (December ending) in the automobile segment the topline stood at Rs 7696.57 crore as against Rs 7726.38 crore. Even the net profit for CY13 had declined to Rs 884.68 crore against Rs 958.17 crore in CY12.  It was the exports that helped the company put in some better numbers on the sales front. 

Sighting the difficulties the management stated that, “Growth in non-auto sector is one of the things that will drive the future of Bosch Ltd”. The company has now created a new business division, Energy and Building Solutions and is planning to garner good amount of slice of the Rs 1500 crore energy efficiency market.

One of the reasons for the poor performance at the bottomline levels was rupee depreciation and a rise in the cost of materials during the fourth quarter. The management has stated that the INR depreciated significantly against the USD in the quarter.  

Going ahead we are of the opinion that the diversification would help the company to reduce its dependency on the auto sector. Here the management has stated that, “If you look at the potential, we can increase the non-automotive business much more and this is what we want to do. But this does not mean we are going slower on the automotive business, both are going in parallel. But we have higher growth potential in the non-automotive business”. The management however did not provide any specific targets as to what ratio the company wants to maintain going ahead.

Apart from that the automobile sector in the US has started to witness good amount of traction. So the strategy is likely to help the company put in a better performance in the coming quarters.