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Bosch searches for traction

The misfiring auto parts giant is counting on India to prime it back to growth.

Rahul Sachitanand        Print Edition: January 24, 2010

If you drive a petrol car in India, chances are that there's a Bosch-made sparkplug firing in the cylinders under the hood. The Mumbai-Delhi Rajdhani Express, Indian Railways' most prestigious train service, is tracked by surveillance systems made by Bosch each moment of its 1,300-km journey. The latest model of the Mahindra Scorpio utility vehicle has a feature that shuts off the engine after two seconds of stopping, saving up to one-tenth fuel on commutes on crowded Indian roads. Yes, thanks again to Bosch in India.

Robert Bosch GmbH, the Indian unit's privately-held German parent came to India in 1922 as a representative office in Kolkata and nearly three decades later started subsidiary Motor Industries Company (MICO). Now, the group, the world's largest auto parts maker, is looking to leverage this 88-year-long relationship to shake off the chill of a recession in the developed world and put itself back on the path to profitability.

Bosch, which until January 2008 went by the MICO name, plans to ramp up its Rs 4,600-crore group revenues in the country by 30-40 per cent on three distinct tracks. It is betting big on the growing interest in cleaner and more efficient diesel vehicles to increase sale of its components. Second, it expects its chain of fast-expanding third-party service centres to feed demand for its parts business.

Bosch Buzz

  • Four in five diesel injection systems in India are made by Bosch.
  • 75 per cent of spark plugs in vehicles are MICO-branded.
  • Boschruns the largest multibrand car service network in India, with 235 outlets.
  • Mostimportant buildings, including Rashtrapati Bhavan, use Bosch's security products.
  • The world's fastest candy-wrapping machine has been introduced in India by Bosch.
  • The company is all-pervasive in the auto industry and beyond.

And finally, the firm is hinging its fortunes on a sure shift of consumers, especially in growth markets, to lowcost vehicles-a movement that has the likes of Renault-Nissan, Volkswagen and Indian vendors such as Bajaj behind it. "India is a critical location for Bosch globally," says V.K. Vishwanathan, Managing Director, Bosch, expecting "local operations to drive innovation in segments such as ultra-low cost vehicles."

That's not an empty boast. Look at a diesel version of the engine for the Nano, Tata Motors' low-cost car, that Bosch is helping develop critical components for. It designed a pump that could withstand the high pressure under which diesel burns in an engine-always a challenge in small engines. That it did so with a single plunger pump in place of the normal three used in larger and costlier vehicles is to Bosch's credit.

Manfred Duernholz, Joint Managing Director, Bosch, who personally led engineers on the Nano project, says his team struck a fine balance between the power required in a small car like the Nano and the pressure generated in diesel engines. "The No. 1 priority with small engines is fuel consumption," says Duernholz, who holds the air of an elderly, friendly professor. "We can compromise on high-pressure and aim for relatively low pressure systems to meet these efficiency standards." The Nano experience is a valuable testimonial as other automakers come calling for small engine blocks to run their sub-$3,000 cars.

Then, there is the increasing dieselisation of automobiles in India. Carmakers such as Maruti Suzuki, Tata-Fiat and Hindustan Motors have begun manufacturing diesel engines in India as demand for diesel-powered cars such as the Tata Indica and Maruti Suzuki Ritz climb. Just one in four automobiles sold in India is diesel-fired but if Europe (half the vehicles bought there run on diesel) is anything to go by, the demand for diesel engines and parts will only grow.

Already, Bosch claims to have cornered a 81 per cent share overall in diesel injection equipment to auto manufacturers, is a monopoly supplier to commercial vehicles and owns a commanding 80-90 per cent share in passenger cars too. This has come, in part, while integrating the latest diesel technology for customers such as Mahindra and Mahindra and Tata Motors. "We will launch the first small pick-up truck that would have a common rail system and we're also collaborating with Bosch to develop electronic stability control for our Global SUV to be launched next year," says Rajan Wadhera, who heads research and development at Mahindra's auto business. Electronically-timed common rail systems have been replacing conventional fuel injectors in auto engines the world over.

There are other sub-trends that Bosch hopes to ride. As emission norms become stringent, Bosch expects its direct injection business (contributing 40 per cent to India revenues, according to analysts), to benefit. It also expects automobiles to get smarter, with electronics taking over functions such as braking and engine management, and, in the nottoo-distant future, parking-assist systems too.

Specifically, in India, Bosch hopes to indirectly benefit from government schemes such as a 15,000-unit bus order supported by an urban renewal scheme, says Navin Paul, who runs the firm's business supplying components directly to manufacturers. "We expect positive momentum in the industry after the first quarter of 2010," he says, marking a big change from last year when truck and bus sales (40 per cent of Bosch's business by end use) halved in the ecomomic meltdown.

Scale at Hand
Bosch's relatively stronger size and spread in India-it has 14 factories making windscreen wipers, spark plugs, inline pumps, power tools, packaging machines and security gear, and distribution covering 1,000 locations-gives it the strategic edge to grow in a fragmented market of some 500 players in India. Few in the business have the heft to manage orders larger than $35 million or around 500,000 units, says Vikas Sehgal, a Chicago-based partner with Booz and Company, a management consultancy.

With key customers looking to shave their variable costs as also tap emerging markets, Bosch plans to aggressively expand operations. Robert Bosch, which is credited with inventing the Magneto starter device for spark plugs in 1902 and, more recently, anti-lock braking systems, is expected to announce an investment of Rs 2,000-2,500 crore at its Indian operations at this week's biennial Auto Expo in New Delhi.

The money will be used to expand Bosch's factory at Naganathapura, near Bangalore, which makes components including vehicle electronics, and another making components such as electric drives and controls in the industrial area of Bidadi, home to Toyota Kirloskar, say two persons familiar with the matter. Bosch declined to detail specific investment plans.

Viswanathan has set ambitious targets for Bosch. It wants to grow at up to two times quicker than the rest of the auto sector in India, which has expanded at over 20 per cent so far this fiscal year. The Bosch MD's confidence in his company's future - also reflected in the increasing Robert Bosch stake in the India-listed unit - comes from a philosophy of having "local solutions for local markets".

One such plan is the company's focus on service centres, which dovetails well with its components business feeding replacements of six million cars on Indian roads (expanding at a million a year and soon to climb to two million additions annually by 2015). Traditionally, the servicing business has been a lucrative one for auto makers, but they haven't been able to adequately cover the country with their network. Hundreds of authorised service centres owned by carmakers compete with thousands of unbranded operators, mostly holein-the-wall businesses, in India. But, as car technologies become more sophisticated, Bosch sees an opportunity.

K. Ravi, Vice President, Automotive Aftermarkets for Bosch, says his company plans to grow service centres to 500 by 2011 from the current 350. (From January 1, he has moved to another responsibility in Bosch in line with a three-year rotation rule the company has for its senior staff.) Bosch might run into stiff competition from start-ups such as Carnation, founded by former Maruti Suzuki MD Jagdish Khattar, who plans to deploy what he calls Workshops on Wheels, stationed at office campuses and which "can undertake 70-80 per cent of the repairs undertaken at a service centre".

Still, the changes at Bosch-it is streets ahead of rivals Continental, Dentsu and Delphi-in India, an economy that could end the current fiscal with growth of over 7 per cent as Germany struggles, potentially make for a big leap. Robert Bosch, earlier this year said it expected to declare a 15 per cent decline in revenues for 2009, its first such fall since World War II, to e38 billion or Rs 2,66,000 crore.

The eyes are then on India and China. While the Asia Pacific region accounts for 17 per cent of Robert Bosch group revenues currently, the group expects the contribution to rise to a quarter by 2015-with revenues growing from e7.6 billion to e22 billion in the region. In India, even if Bosch only tracks the domestic auto industry's growth of 20 per cent, it will deliver annual sales of e4.5 billion by 2015, up some e658 million today.

Ambitious, but "Asia should become a kind of engine for (the group's) growth,"predicts Frank Schwope an auto analyst with NORD/LB, a German financial services firm. For that to happen, Bosch in India will quickly have to shift into top gear.

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