Bosch may outperform market due to rising revenues, new order wins

Two wheeler, tractor sales and rightsizing staff may help offset part of the impact

Despite a muted June quarter performance, auto component maker Bosch outperformed sector volumes for the second consecutive quarter. The gains for India’s largest auto parts supplier by market capitalisation came on the back of higher supply of content per vehicle increasing its market share. 

However, a sharp decline in volume of automakers meant that revenues fell 64 per cent year-on-year to Rs 991 crore. Slowdown in the automotive industry and the impact of Covid-19 on operations led to the decline in sales. The powertrain solutions segment was the key disappointment with its revenues declining 78 per cent. This was offset by a double digit growth in the two wheeler and powersports or niche vehicles unit.

The company’s gross margins for the quarter slid 320 basis points year-on-year given the higher imported content for BSVI parts, freight and adverse forex cost. Weak operating leverage led to a loss at the operating level of Rs 103 crore. Higher other income helped limit the loss to Rs 121 crore as compared to the year ago profit of Rs 282 crore.

Despite the muted outlook for its key segment of commercial vehicles and declining demand for diesel powertrain, analysts at ICICI Securities expect the company to outperform the underlying market due to rising revenues per vehicle, new order wins and focus on being a solutions provider. 

On the cost front, the company continues to rightsize its workforce in line with the market shift from diesel to gasoline systems, electric vehicles and hybrids. Manpower requirements for making petrol-driven units are a third of those required for diesel production. The company has reduced its staff by 1,000 in the June quarter. 

While cost rationalisation should help in improving margins, its top line will continue to see significant pressure given its exposure to commercial vehicles. Though the stock had gained 9 per cent since its results last week, it gave up most of the gains on Friday. Investors should await a recovery and consistent growth trends before considering the stock.