Varroc Engineering Ltd. share price target

Varroc Engineering’s (VAR) EBITDA margin stood at 10.5%, down ~70bps YoY but ~50bps higher vs consensus/I-Sec estimate. Revenue growth was 11% YoY (adjusted), with 13% YoY growth in India operations.

Varroc Engineering reported healthy revenue growth of 10.1% y-o-y in 3QFY25. This was driven primarily by a strong showing by the company’s India business, which achieved 9.5% growth despite headwinds in the 2W, 3W and PV markets.

Varroc Engineering reported healthy revenue growth of 10.3% y-o-y in 2Q FY25. The growth is primarily attributable to the strong performance of the Indian business, which saw a 13.4% expansion, offsetting the decline in overseas operations.

Varroc Engineering reported 5.2% y-o-y growth in 1Q FY25, driven by strong growth in India offsetting the decline in overseas operations.
Quarterly EBITDA (excl. MTM FX impact) declined 4.3 % y-o-y as EBITDA margin slid 90 bps y-o-y to 9.1%.

Varroc Engineering’s (VAR) EBITDAM stood at 9.2%, down ~30bps YoY, and 100bps lower than consensus estimate in Q1FY25.

Varroc Engineering’s (VAR) EBITDAM stood at 11.2%, up ~190bps QoQ, and 90bps higher than consensus estimate in
Q4FY24, though reported margin included multiple one-offs, including retrospective incentives and provisions from specific EV customer

Varroc Engineering’s (VAR) EBITDAM for Q2FY24 stood at 10.3%, up ~80bps QoQ, and 70bps higher than consensus estimate though revenue was in line. VAR is operating at ~60-65% capacity utilisation, with margin improvement ahead being driven by operating leverage and focus on fixed cost/GM.

Varroc Engineering’s (VAR) EBITDAM for Q1FY24 was at 9.5%, up 20bps QoQ, and higher than our estimate of 8.7%. The beat was due mainly to better business mix, operating leverage and continued cost-reduction efforts. Revenue increased 6% QoQ to INR 17.9bn due to higher 2W volumes, which accounted for ~70% of revenue.

Varroc Engineering’s (VAR) EBITDA margin for Q4FY23 came in at 9.2%, 139bps higher QoQ, and higher than our estimate of 7%, mainly due to business mix, recoveries and operating leverage other than specific benefits of retrospective cost pass through in Q4.

Varroc Engineering’s (VAR) Q3FY23 EBITDA margin came in at 7.8%, up 280bps YoY, mainly led by improved operating leverage on account of 15%, YoY revenue growth with gross margin remaining unchanged. Revenue growth of 15% YoY to Rs17.2bn was mainly driven by organic growth in India business on a low base, cost inflation pass on and new business initiatives in EV/electronics.

Varroc Engineering’s (VAR) adjusted EBITDA margin for Q2FY23 came in at 9.2% against our estimate of 8.6%, with India operations margin at 9.8% and overseas 3%. Revenue grew 12% QoQ to Rs18.3bn led by 17% QoQ rise in India business.

Varroc Engineering’s (VAR) ongoing operations’ revenue declined marginally ~1% QoQ to Rs16.3bn, with QoQ decline being led by ex-India operations of Italy forging and global 2W lighting.

In the past two years, high capex, leveraged BS and demand slowdown, both in India and global markets, impacted earnings and cash flows of Varroc Engineering (VAR). However, we expect that the worst is behind and project strong earnings growth over the next 2-3 years supported by 1) revival in demand across key global markets, 2) cut in capex will help generate strong FCF and de-leverage balance sheet, 3) incremental revenue from past capacity addition (capex of ~Rs 28bn in...

Varroc Engineering Ltd. is a global tier-1 auto components supplier engaged in the design, manufacture and supply of auto exterior lighting systems, plastic and polymer components, electricals-electronics components, and precision metallic components used in passenger cars, commercial vehicles, 2-wheelers (2W), 3-wheelers (3W), and off-highway vehicles (OHV) OEMs. Varroc Lighting Systems division is the sixth-largest supplier globally and one of the top three independent exterior lighting suppliers. Varroc's business consists 1) Global Lighting Business involved in design, manufacture and supply of exterior lighting for passenger cars,with the products sold to OEMs globally; 2) India Business involved in design, manufacture and supply of a variety of...

Varroc Engineering Limited is a global tier-1 automotive component group. The company designs, manufactures and supplies exterior lighting systems, plastic and polymer components, electricals-electronics components, and precision metallic components to various automobile companies worldwide. It is the second largest Indian auto component group and a leading tier-1 manufacturer and supplier to Indian two-wheeler and threewheeler OEMs. The company has expanded in India through acquisitions, mergers, jointventures and has expanded its manufacturing and R&D; footprint by investing in nine manufacturing plants and an additional R&D; center in India since 2012. The company has two primary business lines: (1) the Global Lighting Business under which it design, manufacture and supply of exterior lighting systems to passenger cars OEMs worldwide...

IPO NOTE

Varroc Engineering Ltd (VEL) is a tier-1 automotive component group. It designs, manufactures and supplies exterior lighting systems, plastic & polymer components, electricals-electronics components and precision metallic components to passenger cars, commercial vehicles, 2W, 3W and off highway vehicle OEMs directly worldwide. VEL has..

Strong competitive position in attractive growing markets Strong, long-standing customer relationships Comprehensive product portfolio Low cost, strategically located manufacturing and design footprint Robust in-house technology, innovation and R&D; capabilities...