Bosch reports subdued Q1 results as slowdown takes a toll on revenues

Transition to BSVI, electrification challenge amidst lower volume offtake to impact growth outlook

The largest auto component maker by market capitalization, Bosch reported a subdued April-June quarter results, which were below Street expectations. Revenues, 85 per cent of which comes from the automotive segment, were down 13.5 per cent over the year-ago quarter. Higher commodity and foreign exchange costs on a weak revenue base impacted operating profit, which fell by 23 per cent, while margins were down 141 basis points over the March quarter to 17.4 per cent. 

The management believes that the slowdown will impact auto sector growth in 2019-20 and there might be a spillover of the same in 2020-21.  The company believes slowdown is structural rather than cyclical and may take 1-2 years before growth comes back. 

What has pulled down growth, according to the management, is the non-banking financial companies’ crisis, cost increase due to upfront insurance charges, uneven monsoons, relaxation of axle-load norms, shift in technology, and the uncertainty in timing related to the introduction of electric vehicles. “The multiple challenges for the sector have come at a time when there is slowdown in the economy,” said Soumitra Bhattacharya, managing director, Bosch.

In addition to the slowdown in the sector, there are specific challenges for Bosch. The transition from Bharat Stage (BS) IV to BSVI emission standards would mean a transition away from diesel to petrol vehicles. Further the cost increase in the case of diesel vehicles will be much more than in petrol vehicles. The expected lower offtake of diesel vehicles, where it has a significant presence, will hurt the company’s powertrain division. While its market share in the petrol powertrain segment is rising and is around a third, it forms less than a fifth of revenue, given that the company has been a late entrant in the category. 

Given the challenges due to BSVI transition as well as electrification, the company indicated it has been restructuring its operations, which include rightsizing employees, reskilling, and redeployment. The company had to take a hit of Rs 82 crore in the June quarter to account for these restructuring costs. 

While the stock shed over 5 per cent in trade due to weak June quarter results and a muted outlook, it is down by a third over the past one year. Given the falling volumes for automakers and further pressure on revenues, analysts don’t expect an upside in the near term.