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Growth tapering; margins under pressure Medium-term outlook positive; well-placed for upcoming regulations

* Bosch (BOS) earnings grew 5% YoY to INR5.8b and were ahead of our estimate on the back of strong topline performance and higher-thanexpected other income.

* Due to weaker-than-expected margins in 2Q in the standalone business and margin headwinds in the RBIC business, we cut our FY27 earnings estimate by 6%. We project BOS to clock a 27%/35%/20% CAGR in revenue/EBITDA/PAT over FY26-28. However, the stock at 51x/44x FY27E/FY28E appears fairly valued. We reiterate our Neutral rating with a TP of INR47,200 (based on ~41x FY28E EPS).

Earnings beat on strong topline performance and higher other income

* BOS’ net revenue in 2QFY27 beat our estimate, growing ~29% YoY to INR61.6b (est. INR58b), led by strong performance across segments.

* Mobility business grew 29% YoY, driven by 36% growth in Power Solutions and a 20% YoY growth in the 2W segment, followed by 14% growth in the aftermarket business. The Consumer Goods segment grew relatively slower at 17% YoY.

* Gross margin contracted ~170bp YoY to 33.7%, below our estimate of 35%.

* EBITDA margin came in at 13% (+15bp YoY and -98bp QoQ), marginally lower than our estimate of 13.3%.

* As a result, EBITDA was in line with our estimate, rising ~30% YoY to INR8b (vs estimate of INR7.7b).

* Other income came in at INR896m vs our estimate of INR350m.

* An exceptional income of INR1.2b was recognized following the reversal of provisions toward long-term services for managerial staff.

* Adjusted for this, PAT grew 5% YoY to INR5.8b (11% above estimate).

* Further, the Board has approved a 1:5 stock split and a 3:1 bonus issue. This action is expected to be completed within two months.

* Management expects the strong demand momentum witnessed in 2QFY27 to moderate in 2HFY27, given the high base, elevated inflation, weak monsoon, and tighter interest rates. While 2W demand remains healthy, growth is expected to be flat-to-modest in 3QFY27. ? Power Solutions is expected to benefit from tighter emission norms, including CAFE 3 and proposed BS7 regulations, with BOS positioning itself as a technology and calibration partner for OEMs. CNG direct-injection technology has also been validated, with diesel-comparable performance and fuel efficiency.

* 2W business growth is being driven by higher production, premiumization, and increasing electronic content, with BOS having shipped over 10m electronic control modules to date.

* RBIC margins remain under pressure from higher aluminum and imported component costs, rupee depreciation, and start-up expenses. Management expects gradual improvement from 2Q levels as forex, capacity-related, and rawmaterial headwinds ease over the coming quarters.

* BOS remains focused on localization, operational efficiencies, and portfolio expansion, while progressing with its Bosch-TACO and Bosch-TSF joint ventures. Management is also evaluating opportunities arising from changing global supply chains and India's FTAs to expand exports

Valuation and view

Due to weaker-than-expected margins in 2Q in the standalone business and margin headwinds in the RBIC business, we cut our FY27 earnings estimate by 6%. We project BOS to clock a 27%/35%/20% CAGR in revenue/EBITDA/PAT over FY26-28. However, the stock at 51x/44x FY27E/FY28E appears fairly valued. We reiterate our Neutral rating with a TP of INR47,200 (based on ~41x FY28E EPS).

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