I had a larger bulge on my rudder when I bought the boat 16 years ago. I am sure it was water inside that had frozen while on the hard.
I ground the area out getting down to where the foam was white- about 1 inch down,( by the look of your picture that might be shallower) then filled it back in with layers of cloth and epoxy, cut in increasingly large pieces until almost even with the rest of the surface, then filled with epoxy mixed with filler and sanded down to smooth. I coated only with VC 17 for several years then I re did the whole bottom and finished with Interlux 2000e.
I also drilled 2 1/4 inch holes in the bottom when I first did it and every year I fill them with bedding compound before launch and at haulout i pull the filler out so the water can drain. There always seems to be about 1/4 cup of water drain out even though I have sealed around the shaft. The good thing is no more bulges.