Expect 15% sales growth in India: Bosch

Below is the edited transcript of his interview with CNBC-TV18’s Shereen Bhan.

Q: We are an economy that is now expected to grow between 5.5% and perhaps 6% as opposed to more than 8%. The auto industry has seen a significant slowdown, especially on the passenger car side. What are your clients telling you about the slowdown that they are witnessing? How is that going to impact Bosch’s plans for India?

A: First of all, we are still seeing growth in India. As far as Bosch group in India is concerned, we are expecting 15% growth in sales. That is well above the average of the group worldwide.

Obviously, we are seeing lower GDP growth, we are seeing lower increase in the production volume in India, but still compared to other markets, it has grown.

Q: Are you scaling back your capex? The last conversation that we had, you had outlined a fairly significant capex of about Rs 2,200 crore. Right now, when we talk to everybody else in the auto sector, they are a bit cautious in terms of additional spending, incremental investments.

A: Capex basically stays. As far as the mid-term and long-term outlook for the Indian market is concerned, we are still expecting double-digit growth in production volume. We are preparing for this. We had outlined these Rs 2,200 crore of investment in 2012 and 2013. We might see minor adjustments, let us say pulling it back three months or six months. But we are not questioning any basic investments. We are not scrapping any investment projects that we have been outlined.

Q: In terms of India’s contribution to Bosch’s global revenues, currently 3%, the target was 5% by 2015, does the current turbulence in the Indian environment changed that?

A: We have this year over average growth, 15% in India, maybe 4-5% for the group as a whole. So, the share of India is increasing. We are looking forward probably to the 5% in the second half of the decade.

Q: We have had a couple of things go wrong, interest rates have been very high, fuel prices are very high in India, commodity prices have bounced back, they are now back on the higher side, and labour is a huge issue now we have seen. How much of a concern is that? How is Bosch looking at labour related issues in India?

A: I think labour relation is something that needs to be managed.

Q: You have to deal with it at your own facility in Bangalore as well.

A: Obviously in discussion with labour, there is always a vested interest of the employees and vested interest of the company. The point is to have an open communication to manage the labour relations in a positive way. As a company, we are very used to working with unions. In Germany, we have strong unions. So, in the management, we deal with tough unions in France, in Spain etc. So, I think as a company we have the basic competency.

Q: Do you believe what we have seen happened at Maruti is going to change the way that Indian auto companies are organised? We are going to moving away from contract labour, you are now going to have to pay much more to people who maybe perhaps on contract, but their salaries will now be equitable to people who are permanent employees. Is the cost arbitrage advantage that India enjoyed going to be diminished significantly? What is this going to mean then for competitiveness of the Indian auto sector?

A: First of all, we as a company do not employ contract labour in manufacturing. So, we have equal pay for the employees in the manufacturing area. I will not comment on what the Indian industry or the Indian car makers should be doing or shouldn’t be doing. The labour cost advantage of India is still quite significant, even if you go to 100% non-contract employment.

Q: What seems to be the biggest challenge here, as far as India is concerned? What are clients telling you? I outlined the number of obstacles as far as growth was concerned, but we are perhaps going to see a bunch of new models being launched around the festive season.

A: The expectations for the second half of the year are basically positive. So, August-September-October, they are hoping that the festive season will turn things around. I am not so near to the festive season, but we tend to believe them. We hope that is this way.

But again we are only looking at these short-term developments. As far as Bosch is concerned, we are much more interested in the long-term, the structural development, in the potential of the country. We do not see a basic change or basic negative trend.