Weak auto volumes led to sharper revenue decline in Q2 for Bosch

Weak auto volumes led to a sharper-than-expected revenue decline in the July-September quarter for auto parts maker Bosch. 

The company reported a 27 per cent fall in turnover, driven by the mobility segment that fell 31 per cent over the year-ago quarter. This was worse than the Street’s estimates of a 14 per cent fall. 

Most of the key customer segments, such as commercial vehicles, passenger vehicles, and two-/three-wheelers, have seen volume decline upwards of 20 per cent. The worst affected was the heavy commercial vehicle space, which saw a decline of 58 per cent during the quarter. 

Within the mobility space, the company’s bread and butter powertrain solutions saw a sharp 38 per cent fall, thus,  highlighting the overall demand scenario. 

The transition to Bharat Stage (BS) VI and electric vehicles are additional challenges for the firm. 

The higher cost of BSVI diesel engines could weigh on demand, and may impact its sales. The company has already launched a restructuring exercise that includes a voluntary retirement scheme, and is looking at reskilling and redeployment of its workforce.  

The company created an additional provision of Rs 130 crore during the quarter to fund this exercise. 

Weak revenue performance impacted the operating profit, which declined by half in comparison to the year-ago quarter. 

However, what helped was the 130-basis-point fall in raw material sales on account of cost reduction measures and forex recovery. The company was able to keep employee costs under control on account of a reduction in production incentives. 

While the company believes that growth over the next couple of years will be challenging, it is nevertheless focusing on electric mobility solutions, given the structural changes. 

It highlighted that it has contributed to the development of the recently launched Chetak electric scooter from Bajaj Auto. 

This, according to the company, marks its entry into the mainstream electromobility space, and paves the way for future projects in this segment. 

The sector, according to the management, requires government intervention in the form of safer roads and a better environment. 

“Implementation of scrappage policy can be an effective way to curb pollution while being an additional demand booster for the sector,” the management added in an investor call. 

Given the muted near-term outlook, there is more downside in the stock in the near term.