MANAGEMENT DISCUSSION AND ANALYSIS REPORTA. Economic Overview
The world economy is moving from a post-crisis recovery to slower but solid growth thisyear and next, with developing countries contributing almost half of global growth. Theglobal economy is forecasted to expand by 4.8% in 2010 and 4.4% in 2011 (Source: IMF).Output of emerging and developing economies is projected to expand at rates of 7.1% and6.4% in 2010 and 2011, respectively. In advanced economies, however, growth is projectedto be only 2.7% and 2.2% in 2010 and 2011 respectively.
India's macroeconomic performance has also been vigorous, with industrial production ata two-year high. Leading indicators - the production manufacturing index and measures ofbusiness and consumer confidence continue to point up. GDP Growth is projected at 8.7% in2010-11 and 8.5% in 2011-12 (Source: RBI), led increasingly by domestic demand. Robustcorporate profits and favorable external financing will encourage investment.
Inflation at double digit levels, high commodity prices and hardening interest ratesremain key challenges needing focused attention.
B. Industry Structure and Development
Indian Automotive Industry witnessed an overall growth of 34% in 2010, exceeding theexpectations and leaving behind the slowdown witnessed in the last 2 years.
The HCV segment led the growth story by growing strongly at 70% in the year 2010.
The LCV segment and 3-Wheeler segment also grew at a very healthy rate of 44% and 37%respectively.
The table below depicts the extent of growth in 2010 across various sectors inautomotive segment.
| Segments | 2007 | 2008 | 2009 | 2010 |
| %PY | %PY | %PY | %PY |
| HCV | 4 | (15) | (20) | 70 |
| LCV | 20 | (4) | 13 | 44 |
| Cars | 16 | 9 | 18 | 29 |
| UV's | 17 | (3) | 18 | 35 |
| Tractors | (1) | 2 | 10 | 29 |
| 3 Wheelers | (1) | (6) | 12 | 37 |
| Total | 10 | 1 | 13 | 34 |
Auto industry is optimistic of achieving a healthy growth in 2011. Positive sentimentsrunning across several industries due to revival in economic activity, increasingconsumerism, availability of credit and also discounts offered by dealers on account ofstiff market competition is expected to attract more prospective customers, though severeinflationary pressures, firming up of interest rates and likely increase in fuel pricescould act as a dampener.
C. Operational Highlights
The Company witnessed a robust growth of 39.6% Year on Year (YoY) in sales for the year2010. This is the highest growth in sales for the Company in the last decade.
The profit before tax for the year grew by 51.6% YoY. The Company was able to achievean increase of 144 basis points in terms of profit before tax % and stood at 18.1%.
The Automotive Aftermarket business has registered a strong double digit growth for thefifth consecutive year. Automotive Aftermarket business service network has also crossedanother milestone this year with the opening of 500th Bosch Car Service (BCS)in the country.
Diesel system business grew by 51.9%. The growth was driven primarily by robust demandfor medium/heavy commercial vehicle and tractor segment.
The Gasoline system business achieved a growth of 60.9%. The key highlights of thebusiness were development of Engine Management System for 2 Wheelers and Low PricedVehicles.
Bosch Packaging Technology, one of the largest manufacturers of packaging machineryinvested INR 2,500 Lakhs in a new plant in Verna Industrial Estate, Goa.Starter Motor andGenerator business witnessed a growth of 12.2% over previous year. Starter Motor andGenerator business launched its new starter called HX87 for the CV segment.
The Power Tools business registered double digit growth for the eighth consecutive yearwhich includes the major business segments like Power
Tools, Accessories, Spares, Fischer Fixings etc.
The Power Tools business also increased its market share in a competitive environmentand received '4 Diamond Award' for Eight consecutive years of Double Digit growth at theBosch Power Tools World Wide Convention (WoCo) in Germany.
Power Tools business has launched over 100 new innovative products & variants alongwith new Marketing & Channel initiatives and very successfully launched the 'Skil'brand and Lawn & Garden products.
D. Results of operation
1. Sales
The sales for the year 2010 grew at an excellent rate of 39.6% YoY and stood at INR6,63,050 Lakhs as against sales of INR 4,74,977 Lakhs in the previous year 2009.
2. Segment results
The Company predominantly operates in manufacturing and trading of automotive productsand also manufactures non-automotive products (Industrial equipment and consumerproducts). Hence the operations of the Company can be classified as Automotive and othersegments (Primary Segment).
The share of automotive products has increased from 89% in the previous year 2009 to91% for the year 2010, because of robust growth in the automotive market.
The following is the segment wise sales for the year 2010 and the previous year 2009:
2.1 Automotive Products
The automotive segment saw a robust growth in sales by 41.5% and stood at INR 6,00,830Lakhs for the year 2010.
In the automotive segment 86% of the sales were derived from domestic sales. The shareof export sales in the total sales of the segment has gone up to 14% for the year 2010from 13% of previous year 2009.
2.2 Others
The other segment (Consisting - Industrial Technology and Consumer Goods & BuildingTechnology) saw a healthy growth of 23.8% in sales and stood at INR 62,220 Lakhs asagainst INR 50,272 Lakhs of the previous year 2009.
Within the other segment the Industrial Technology business grew by 6% YoY and ConsumerGoods and Building Technology business grew by 26.6% YoY.
The other (Non-automotive) segment is predominantly driven by domestic sales andaccounts for 98% of the total sales of the segment.
Below is the breakup of export and domestic sales (Secondary Segment).
The export sales for the Company grew at a healthy rate of 44.5% YoY and improved itsshare in overall revenue by 0.5% and stood at 12.8% for the year 2010. The domestic salesalso recorded a growth of 38.9%.
3. Other Income
For the year 2010 the income from interest on non-trade investments and deposits inbanks has reduced by 12.4% to INR 11,443 Lakhs from INR 13,055 Lakhs
of previous year 2009. The reduction in interest income is due to lower interest rateswhich prevailed during the year, even though the absolute amount of investment for theyear was higher than that of the previous year 2009.
The other income have also have gone down by 14.8% to INR 28,925 Lakhs. In the previousyear 2009 there was onetime revenue on account of sale of investments due to whichprevious year's revenue was higher.
4. Cost of materials consumed
The percent of cost of material consumed as against sales for the year has gone up by57 basis points to 54.27% as against 53.7% of the previous year 2009. The increase inpercentage of cost of material consumed as against sales is attributable to the increasinginput prices during the year basically in steel and other metals.
5. Personnel cost
Personnel cost as a percent of sales for the year stood at 12.1%, which has come downby 83 basis points in comparison to 12.9% of previous year 2009. Sales per employee haveimproved substantially by 28% from TINR 4,564 in the previous year 2009 to TINR 5,836 forthe current year 2010.
6. Depreciation
The depreciation charge for the year 2010 is lower at INR 25,397 Lakhs as against acharge of INR 30,363 Lakhs of previous year 2009 due to effective control on capitalinvestment during 2009.
7. Profit
The profit after tax for the year 2010 is INR 85,891 Lakhs as compared to a profitafter tax of INR 59,065 Lakhs of the previous year 2009, an impressive increase of 45.4%YoY.
The net profit after tax for the year 2010 was the highest profit of the Company in itshistory.
The effective tax percentage for the year 2010 has gone up slightly compared toprevious year 2009, because in the previous year 2009 there were capital gains taxed at alower tax rates.
8. Earnings per Share (EPS)
The EPS (Basic and Diluted) of the Company for the year 2010 has increased impressivelyby 46.1% to a record INR 274 per share from INR 187 per share in the previous year 2009.
The EPS for the Company has been growing consistently at a healthy rate over the yearsexcept for a small reduction during the slowdown period of 2009.
E. Financial Condition
1. Share Capital
At present we have only one class of share equity share with a face value of INR 10each. Our authorized share capital is INR 3,805 Lakhs divided into 38,051,460 shares ofINR 10 each. Issued, subscribed and fully paid-up capital as at December 31, 2010 was INR3,139 Lakhs.
2. Reserves and Surplus - Profit and Loss account
The balance retained in profit and loss account as at December 31, 2010 is INR 66,688Lakhs which includes retained profit for the year 2010 of INR 33,775 Lakhs after aproposed dividend of INR 40 per share.
3. Shareholders funds
The total shareholder funds increased to INR 4,09,804 Lakhs as at December 31, 2010from INR 3,38,523 Lakhs as of the previous year 2009 end representing a growth of 21.1%,mainly because of retained profits.
4. Fixed Assets - Capital Expenditure
The gross Fixed Assets as at December 31, 2010 was INR 3,02,380 Lakhs as compared toINR 2,87,119 Lakhs of previous year 2009.
We have incurred a Capital Expenditure of INR 30,213 Lakhs during the year 2010, anincrease of 109% YoY. The following graph shows the trend of capital expenditure and thetrend of percentage of capital expenditure to sales.
Though in 2009 due to economic slowdown Company had 3% of its sales invested infacilities, in 2010 the Investment has been scaled up and 4.6% of sales have been investedin various facilities across India.
5. Investments
The surplus funds of the Company which are not required for immediate use are investedmainly in tax effective instruments. The total investment as at December 31, 2010 amountedto INR 1,60,730 Lakhs as against INR 1,41,761 Lakhs for the previous year 2009.
6. Sundry Debtors
Sundry Debtors as at December 31, 2010 amounted to INR 72,097 Lakhs as against INR58,333 Lakhs of previous year 2009. The debtor's turnover ratio has come down to 36 daysas at December 31, 2010 from 49 days of previous year due to effective debtor managementand favourable liquidity positions of customers because of booming economy.
7. Cash and Cash Equivalents
Majority of the cash balance is held in the short term deposits with scheduled banks.The total balance of cash and cash equivalents as at December 31, 2010 was INR 1,32,587Lakhs as compared to INR 1,06,777 Lakhs for the previous year 2009.
8. Net working capital
Net working capital as a percentage of sales of the Company stood at 28.5%, which inthe previous year 2009 was 30.3%. In 2009 Company took 115 days to convert its workingcapital to sales revenue, but in 2010 the Company has improved this position substantiallyand brought down the number of days of working capital to 92 days, the same was possiblebecause of better working capital management and control on inventories.
F. Key Ratios
| Ratio | 2009 | 2010 |
| Return On Capital Employed (%) | 21.6 | 27.5 |
| Debtors Turnover ratio (In Days) * | 49 | 36 |
| Current Ratio | | 2.01 |
| Number of Days In Working Capital (Days) | 115 | 92 |
| No. of Employee (Average) | 10,378 | 11,361 |
| | |
* Average debtors is the simple average of opening and closing balance of sundrydebtors.
G. Human Resource Development
The Company continued its emphasis on employee training and development as in theprevious years. There was a significant increase in the scope of application of variousemployee Development tools relating to potential identification, career planning,assessment centers and magnification of the training landscape. Further initiatives weretaken by way of tie-up with institutes for week-end Masters Campus programs.
Wage settlements were signed with Union at four plants has been a key event in 2010. HRremuneration policies and service conditions for officers were also modified, with theintroduction of variable pay for junior management levels and increase in retirement ageto 60 years. Attrition continues to be well below market levels.
H. Internal Control System
The Company has an effective and reliable internal control system which is complimentedby a Code of Business Conduct binding all its employees to achieve high standards inCorporate Governance. The internal control system is designed to ensure quality andreliability of underlying processes in achieving operational efficiency, reliability offinancial data and safe-guarding of assets. The efficacy of internal checks and controlsystems are validated by self audits, verified during internal audits and reviewed by theAudit Committee. The scope of internal audit is oriented towards mitigating or eliminatingrisks in business processes.
The Audit Committee reviews the internal audit plan, significant audit findings andsustainability of measures for corrective actions. The internal Audit Plan is also aimedat addressing concerns, if any of Statutory Auditors of the Company.
I. Opportunities and Threats
The Company is all set to leverage the demand in the automotive sector specifically,commercial vehicles and tractors. The Low Priced Vehicle (LPV) segment has evolved tobecome one of the most important growth segments both in the passenger car and commercialvehicles sector. Increased demand for safe personal mobility and growing stress on theovercrowded urban roads are key drivers that will boost sales in this segment.
Our non-automotive businesses are also pitched to grow in the backdrop of committedfocus and spending in infrastructure related projects, especially metro rail projects. Therising gap between demand and generation / supply of electricity will continue to createadditional demand for auxiliary power units powered by diesel as well as other sources ofenergy viz. solar.
Tighter monetary policies to control inflation and increasing interest rates couldaffect consumer spending.
J. Risks and Concerns
1. Regulatory risk:
The changes in the tax laws, Government policies and regulatory requirement mightaffect the Company's business.
2. Input Costs and Inflation:
With many economies coming out of recession, prices of inputs are expected to risesignificantly. Whilst the Company continues to pursue cost reduction initiatives, increasein price of input materials could impact the Company's profitability to the extent thatthe same are not absorbed by the market through price increases and/or could have anegative impact on the demand in the domestic market.
The inflation is expected to be higher for the next year, which could further increasethe interest rates which can in-turn affect liquidity and demand for auto products.
3. Currency Risk:
Our operations are subject to risk arising from fluctuations in exchange rates withreference to currencies in which we transact. These risks primarily relate to fluctuationsof Euro and USD to INR, the management will take appropriate decisions to mitigate therisk.
4. Competition:
We are operating in a highly competitive market which may exerts pressure both on thetop line as well as the bottom line of the Company.
5. Other Risks:
There is no credit and liquidity risk foreseen by the Company due to its strongfinancial position.
The following are the few initiatives taken by the management for mitigating the abovementioned risks;
Continuous improvement activities andimplementing lean practices through the Bosch Production System (BPS).
Retain and motivate talent by focused employeedevelopment programs.
Enhance local engineering, development and testingcapabilities to further drive the "develop locally for the local market"concept.
Focus on cost reduction, productivityimprovement and import substitution projects.
K. Outlook
In the automotive market, the prognosis for 2011 does not seem to be as bullish as themarket is expected to grow at a more moderate pace due to higher base effect of 2010. Aslew of new launches will broaden the choices available for customers across all segmentsand this is likely to push the growth trajectory for the year to a higher level thanpredicted. Though the volumes outlook looks positive, hardening of interest rates,increase in fuel prices and increase in selling price could act as short term impediments.
Government spending on infrastructure projects is likely to continue at a similar paceas the year before with more focus on urban transportation, major highway projects,electricity generation, both with conventional and non-conventional sources. Increased percapita income, higher discretionary spending, growing aspirations of the Indian middleclass, growth of retail credit are the other key drivers of the economy this year.
Disclaimer
The information and opinion expressed in this section of the Annual report consists ofcertain 'forward looking statements' which management believes are true to the best of itsinformation at the time of its preparation. We shall not be liable for any loss, which mayarise as a result of any action taken on the basis of the information contained herein.The information contained herein may not be disclosed, reproduced or used in whole or inpart for any purpose or furnished to any other person without the express prior writtenpermission of the Company.
Report on Corporate Social Responsibility (CSR)
Social commitment is an essential principle underlying the corporate policy guidelinesof the Company. Our responsibility towards Society and Environment is guided by Boschvalues, principles of social responsibility, work safety and environment protection. TheBosch principles of social responsibility include - human rights, equal opportunities,employment of handicapped people, free choice of jobs, rights of children, relations withassociate representatives and their institutions, fair working conditions, occupationalhealth and safety, clean and safe environment with social engagement.
Besides the welfare initiatives within the factory premises, the Company is alsopromoting the interests of underprivileged and impaired sections of society throughmonetary contributions for the social work carried out by charitable organizations, oldage homes and schools, and participates in women empowerment programs. The Company sharesits best practices through information sharing sessions with other companies, NonGovernmental Organizations (NGO) and professional bodies. To sustain cultural values, theCompany supports cultural activities through its fine arts club. During the times ofnatural calamities like floods, cyclone, tsunami, earthquake etc., the Company activelysupports the affected people through voluntary participation and donations.
Based on the survey, strategies on four thrust areas are evolved by the Companyfocusing on the Health & Hygiene, Environment Education, Community Development andVocational Training. These strategies are deployed through social responsibility modelsthat are communicated across the Plants through posters, visual boards handouts andguides. These aid in generating large number of volunteers willing to do their besttowards the betterment of the society. In the spirit of our founder Robert Bosch, theCompany demonstrates social and environment responsibility wherever it does business.
Some of the CSR initiatives undertaken by the various Plants during the year 2010 aresummarized below.
Bangalore Plant:
Based on the need analysis of underprivileged society around the Bangalore Plant whichis in the heart of the city, schools run by City Corporation/ Government were consideredfor projects where most of the children come from lower strata of the society. The Plantadopted a Primary Government School named 'Munichinnappa School' in its neighborhood andprovided renovation of the buildings and upgradation of sanitation facilities.
A comprehensive health check-up camp was organized by the Plant at the schools in theneighborhood and nearby areas. One of the projects included screening of over 250 schoolchildren by a team of 20 doctors. Of the 250 students screened, over 93% of them werediagnosed with health concerns that required immediate medical attention. In an ongoinginitiative, Bosch volunteers accompany these children to the hospitals and get themtreated on a daily basis.
The Plant collaborated with a Government recognized NGO to implement environmenteducation program in schools in the neighborhood. Under this program, school teachers aretrained on maintaining health and hygiene. These teachers in turn create awareness on thisaspect to their students. Through this initiative, we have covered about 6000 students in30 schools so far.
The Plant supported differently abled people through the organization called 'Abilityin disability Foundation (AID)1 and provided raw material to the organizationthat in turn assembles components for the Company. The Company recruited around 35differently abled people for light jobs like component packaging inside the Plant.
'Manasi' a social service initiative by the women employees of Bangalore Plant werehonoured with appreciation award for CSR activities by the corporate Diesel Systems.'Manasi' works for the upliftment of the underprivileged in the slums around the Plant.
The Plant extended its support by collecting and distributing medicines, utensils andfood grains to the flood victims affected in Northern Karnataka last year and contributedmedicines worth one million rupees which helped the district administration to contain thespread of epidemics such as Cholera, Malaria and Diarrhoea in these affected areas. ThePlant in association with Art of Living Foundation has involved in constructing 143 housesfor the homeless in Gulbarga District of the Karnataka State.
The 'Clean Air' campaign was conducted for students in colleges & schools, auto,cab, and bus drivers and general public in order to bring about awareness on environmentpollution and various measures to reduce the same. The Plant commissioned an emissiontesting van for carrying out tests on vehicles.
The Plant organized a 'Society day' for the stakeholders on 25th October 2010. ThePlant Management made a presentation to the stakeholders from State Government, membersrepresenting charitable institutions, NGO's etc., about the community development projectsand other related activities taken up by the Plant during the year 2010. The stakeholdersappreciated the efforts taken up by the Plant. The suggestions offered by the participantswere recorded for future action.
The Company always emphasized on skill development and has believed in keeping in tunewith the latest technology in the market. In the pursuit of improving the skill set andthereby improving the demographic dividend of India, the Company continues to offercomprehensive and intensive skill based training programs under the aegis of 'BoschVocational Centre (BVC)'. The Company imparts training to students under 'Apprentices'scheme and 'engineering stream' besides imparting training to its own employees at BVC.The BVC also conducts training programs for business partners, other business units andemployees' children.
Naganathapura Plant:
Volunteers from the Plant and Management have undertaken several activities to improvethe infrastructure of surrounding areas. The Plant provided fire brigade and ambulanceservices to the neighboring villages during emergencies. Donations were made to'Swayamwara Trust' towards expenses incurred for marriage of the hearing impaired.Furniture and computers were distributed to the nearby Govt, schools. The employees of thePlant contributed one day's salary/wages to help the people who suffered huge lossesduring the devastating floods that affected North Karnataka and a similar amount wascontributed by the Plant Management for the same purpose.
Nashik Plant:
The Plant has adopted Dubewadi Village in association with Kalpataru Foundation,Dubewadi, Trimbakeshwar taluk, which is 50 kms away from the Plant. Various projects areundertaken based on the needs of the village on the four focus areas of CSR of theCompany. A health camp was organized in villages where over 500 people were diagnosed andtreated for ailments and free medicines were provided. Eminent specialists from differentfields like Ophthalmology, Orthopedics, Gynecologists, Pediatrics, Dermatologists, etc.,lent their expertise for a social cause.
The Plant developed 'Annual Agri Plan' in co-ordination with ICRISAT (InternationalCrops Research Institute for Semi-Arid Tropics). Improved varieties of rice was suppliedto the farmers resulting in better production. Demonstration of the same with the help ofAgriculture Department of the Government was conducted. Different crops were alsosuggested based on the season so that the farmers could get a better yield. Soil testingwas conducted to know the strength and condition of the soil.
Income generating programmes were planned & carried out for Economic empowerment ofthe underprivileged in the neighborhood villages in Nashik. The main highlights of thisinitiative include -formation of three women Self-Help Groups (SHG), training the youthfor acquiring skills at the training centre of Larsen and Toubro (L&T), sewing machinetraining for adolescent girls, goat rearing skills, bee keeping and honey collecting. TheCompany mobilized the resources towards renovating the Anganwadi School. Roofs, doors andwindows have been replaced. Toilets and kitchens have been constructed to provide ahygienic environment across schools.
The Plant has partnered with neighboring corporates and formed the Nashik RunCharitable Trust, that works for the benefit of underprivileged members/groups such asphysically and mentally challenged, old age people, orphan children, destitute ladies andadhivasis of the region. After the inaugural race in 2003, Nashik Run, in aid of a socialcause has steadily grown in size and stature and popularity to become one of the mostestablished sports events in the city's calendar. The funds raised through this 'NashikRun' are channeled for the upliftment of underprivileged citizens in and around Nashikwith an objective to bring consciousness for healthy living with caring attitude.
Jaipur Plant:
Water being a scarce resource in Rajasthan, clean & potable water for health andhygiene of the community was chosen as a focus area. A survey was conducted covering 515families living in the surrounding villages in Jaipur. A tripartite model was adopted toimplement the clean water project with community partnership. A Reverse Osmosis Plant wasset up in 'Village Goner' for fulfilling the above needs. Clean water is being supplied tothe villagers with a very nominal price. Around 4000 litres of water is being taken by thevillagers. In order to increase the awareness and easy accessibility of water to thevillagers, few schemes are being worked out in the coming years.
The Plant supported local engineering colleges by providing opportunity to theirstudents to work on projects at Plant premises. The projects are offered in variousfunctions with clear mentors. This has increased awareness of right skills for thestudents and the employment opportunities.
Verna Plant, Goa:
Associates of Bosch Packaging Technology division at Goa started a project called"Prerna' with the aim to serve the needy and those neglected by their own kith andkin. All the activities of Prerna are sponsored by the contributions made by the employeesat the Plant with additional support from the management. Some of the benefits derived outof this were to the children at 'St. Valentines Little Home' and elders at 'Aliso Old AgeHome'.
Bosch India Foundation (BIF):
In an effort to serve the underprivileged and weaker sections of society and towardsextending and sustaining philanthropic values of Bosch Group in India, Bosch formed afoundation in March 2008, called 'Bosch India Foundation'. The Bosch subsidiary companiesin India are the Trustees of the foundation. The foundation has a corpus of Rs.125 Mio.,and receives an annual contribution of post tax profits up to 0.5% by the Boschsubsidiaries in India.
Vocational training and unique health projects have been the main focus areas of theBIF in the initial years. Over 15 different projects in the field of Vocational Trainingand Health program were taken up during 2010-11 and about 1122 underprivileged youthsbenefitted from the programs so far. The projects have been taken up around Boschlocations.
The foundation has partnered with committed NGOs who have been working in the field ofvocational training such as Ragpicker Education & Development Scheme (REDS), ShreeGuruvayurappa Bajan Samaj Trust (SGBST-Unnati), Shree Ramana Maharishi Academy for theBlind (SRMAB), Sri Amman ITC, Cll-Symbiosis, CII-YiLabs, Christ University Centre forSocial Action (CSA), Shishu Mandir, and Loyola ITC. The health projects have been carriedout in partnership with Sparsh and Gujarat Cleft and Craneofacial Research Institute(GCCRI).
Bosch volunteers offer their expertise by fine-tuning the trainings and also take timefor periodic visits to project locations which help to motivate the staff and students aswell as monitor the project status.