A technological powerhouse

Bosch India's large R&D budget ensures a steady pipeline of new products that fuels its growth

Bosch India is India's largest manufacturer of fuel injection systems for diesel powered engines. The company recently expanded its footprint to petrol engines and, along with its German parent, developed a low-cost fuel injection system for the Tata Nano, which sports a petrol engine.

Bosch India, 71 per cent-owned by Robert Bosch GmbH (the world's largest supplier of automotive components), is the country's largest auto component manufacturer, based on revenues generated in India. In the 12 months ended December 2011, Bosch clocked revenues of Rs 8,689.5 crore and a net profit of Rs 1,122 crore.

Based on global revenues, Motherson Sumi Systems (MSSL) is now India's largest auto-component vendor. Bosch India however remains the most valuable company in the sector, with a market capitalisation of a little over Rs 28,000 crore - two-and-a-half times that of MSSL. Bosch India gets premium valuation for its superior profitability, better balance sheet, and more stable and predictable financial performance.

Bosch's dominance of the diesel engine market helped it to grow faster than the industry, as more car buyers in India opt for diesel-powered cars to take advantage of the lower price of diesel at the pump. Bosch aided this process by introducing the third generation common rail direct fuel injection system (CRDi) for diesel engines in India in 2006. The technology paved the way for the introduction of the new generation of diesel cars.

The result was a 66 per cent jump in Bosch India's net sales in the last two years to Rs 7,997 crore in CY11, from Rs 4,809.53 crore in CY09. Net profit over this period more than doubled to Rs 1,066 crore in CY11.

Fuel injection systems have remained the bread and butter for Bosch India, but the company has leveraged Bosch's brand equity to build a thriving business in aftermarket components and accessories. In CY11, for instance, nearly 23 per cent of Bosch's revenue came from the sale of spares and components in the aftermarket. These were consumable items with stable demand even in an economic downturn. This cushions Bosch India's revenues and profitability from the cyclical nature of the OEM market.

Bosch's success in the aftermarket has come on the back of large investments in branding, sales and distribution. Bosch is also unique among peers in having a built a sizeable presence in the non-automotive segment. It now has a leading presence in power tools, packaging equipment for ready-to-eat food and security systems, and is spreading its footprint into new industrial segments such as machine tools and industrial automation.

Bosch India has one of the largest R&D budgets among its peers, and spent Rs 114.5 crore on new product development last year. In the last 10 years, the company has on average spent around 2 per cent of its revenues on R&D annually - much higher than its Indian peers. This ensures a pipeline of new products and solutions that keep its growth engine running, besides helping it command a price premium for its products.