Tag: Varroc Engineering

Varroc Engineering targets Rs 8,000 cr revenue with double digit margins in FY24

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Auto component maker Varroc Engineering’s FY24 revenue is expected to be Rs 8,000 crore with double digit margins in the coming quarters, said Group Chief Financial Officer (CFO) K Mahendra Kumar in a conversation with CNBC-TV18 on Wednesday.

Kumar said the company aims to reach Rs 8,000 crore at a consolidated level, including its overseas entities as well. Going forward, the margin is also expected to improve from the current levels, he said.

“More than the EBITDA margins what we are now focusing is on PBT margins. So starting from this year, maybe by sometime mid next year our intention is to take the PBT margins to higher single-digit levels are more than 5 percent,” the Group CFO said.

Varroc Engineering also looks to reduce debt as its working capital improves.

EV revenue may hit Rs 1,000 cr in FY25

Margin from EV (electric vehicle) is far better, Kumar said, adding that the company is expecting a good traction to come from the space. The company also said that revenues from EV will hit Rs 1,000 crore in FY25.

“Certainly margins will be better, margins and of course the revenue per vehicle also will be far better in the EV space. We are expecting some good traction to come in the EV space in the coming years. Like how we indicated earlier in our calls the overall EV revenue should actually touch about Rs 1,000 crore plus levels by next year. So that’s what we are aiming for,” he noted.

Varroc’s Q1 numbers

Varroc Engineering posted a 37.5 percent sequential rise in profit for the April to June quarter. The company reported a profit of Rs 55 crore against a profit of Rs 40 crore in March and a loss of Rs 3.9 crore in the year-ago quarter.

Varroc’s sales for the quarter grew 10.4 percent year-on-year at Rs 1,805.70 crore, which was ahead of the industry as supply to EV players gathered pace in the quarter. Ebitda margin improved 180 basis points to 10 percent from 8.2 percent on-year, driven by business mix, incentives & operating leverage, the company said.

Varroc offers a wide range of electrical, electronics, lighting, polymer, metallic, after-market and advanced safety solutions.

Shares of Varroc Engineering closed 2 percent lower at Rs 369.70 apiece on the NSE in today’s trade.

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Varroc Engineering Share Price: Here’s why the stock is gaining the most in two years

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Varroc Engineering Ltd zoomed more than 17 percent in trade on Thursday after the auto components company reported a profit for the quarter ended June 2023 compared with a loss in the year-ago period.

Varroc Engineering on Wednesday announced that its revenue rose 10.1 percent to Rs 1,792.4 crore in the June quarter compared to Rs 1,628.2 crore a year ago. This was ahead of the industry trends as supply to electric vehicle (EV) players gathered pace during the quarter.

The company reported a net profit of Rs 32.3 crore in the June quarter compared to a loss of Rs 84.8 crore during the year-ago quarter. EBITDA or operating profit rose by 43.4 percent from last year to Rs 169.3 crore.

EBITDA margin for the period also increased by 220 basis points to 9.5 percent, driven by business mix, incentives and operating leverage.

Varroc Engineering also said that its net debt reduced by around Rs 50 crore during the June quarter.

In an interview to CNBC-TV18 in June, Varroc Engineering’s chairman and managing director Tarang Jain had said that the company expected to achieve revenues of Rs 7,500-8,000 crore in financial year 2024 with double-digit profit margins.

“Revenue of Rs 7,500-8,000 crore is a gettable number for FY24 but the way we are positioned today, we are growing much faster than the market and this is also helping our operating leverage. Therefore the profitability will improve,” he had said.

Varroc Engineering manufactures and supplies electrical-electronics, polymers, metallics, and exterior lighting systems to OEMs (Original Equipment Manufacturers). It has a strong presence in the 2- and 3-wheeler space, with Bajaj Auto being its largest client. It also serves clients in the passenger vehicles, commercial vehicles, and off-highway vehicle segments.

Shares of Varroc Engineering are trading 12.8 percent higher at Rs 390.15.

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Varroc Engineering striving for double-digit margin by end of FY24, says CMD

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Tarang Jain, Chairman & Managing Director of Varroc Engineering, has set ambitious goals for the company as it strives for continued growth and success. With a clear vision and strategic plans in place, Varroc aims to achieve a double-digit margin by the end of the fiscal year 2023-24 (FY24). Additionally, the company is determined to increase its return on capital employed (RoCE) from 18 percent to 25 percent. The company also expects to achieve revenues of Rs 7,500-8,000 crore in FY24 and outgrowing the market by 5 to 7 percent.

In an interview to CNBC-TV18, Jain said, “Revenue of Rs 7,500-8,000 crore is a gettable number for FY24 but the way we are positioned today, we are growing much faster than the market and this is helping also our operating leverage. Therefore the profitability will improve. The main metric is return on capital employed (RoCE) which last year was around 18 percent, but our target is to reach about 25 percent. On the margins front we did about 8.7 percent EBITDA last year but we are hoping that in the short term we can achieve a double digit margin, most probably in the second half of the financial year. If the market grows at 4-5 percent, we will be at least 5-7 percent more.

Jain added that Varroc Engineering has had a promising start to the fiscal year 2023-24, particularly during the first quarter (Q1FY24). The company has navigated through challenges related to semiconductor supply issues, which have been a concern for many industries.

“The supply side issue was largely with semiconductors but the situation now in Q1FY24 is much better. We as a company have proactively worked with all our customers in developing alternate bill of materials on the electronics side to de-risk the supply chain,” Jain said.

The emergence of electric vehicles (EVs) presents a significant opportunity for Varroc Engineering. Rather than viewing EVs as a risk, the company recognises them as a growth area and is actively capitalising on this market shift, Jain said.

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Varroc Engineering Ltd is an auto components company that manufactures and supplies electrical-electronics, polymers, metallics, and exterior lighting systems to OEMs (Original Equipment Manufacturers). They have a strong presence in the 2 and 3 wheeler space, with Bajaj Auto being their largest client. They also serve clients in the passenger vehicles, commercial vehicles, and off-highway vehicle segments.

Varroc Engineering operates 36 manufacturing facilities across Europe and Asia, and they generate around 18 percent of their revenues from outside India.

Financially, the company has been improving, with an EBITDA of around Rs 550 crore and a consistent performance of around Rs 150 crore per quarter. The market is interested in seeing if they can achieve double-digit margins as input costs decrease and operating leverage comes into play.

Varroc Engineering has been deleveraging its balancesheet, leading to reduced interest costs, and has also sold its four-wheeler lighting business to a French company to further strengthen its financial position.

The company has an order book of around Rs 5,178 crore, with significant business wins from 7 prominent Electric Vehicle customers amounting to Rs 1,797 crore.

While their revenue from supplying to EV customers in FY23 was only 1.5 percent of their total revenue, they see potential in this segment. Valuation-wise, Varroc Engineering trades at a comfortable level, slightly lower than its competitors.

In terms of shareholding pattern, the promoters hold 75 percent of the company, with other institutional investors like Government Pension Fund Global, Kotak Funds, Nippon Life India, HDFC Trustee, and HSBC Aggressive Hybrid Fund holding smaller percentages.

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Varroc Engineering management clarifies on the cut in the value of its lighting business sale

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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[wealthdesk shortname=”Varroc Engineer” isinid=”INE665L01035″ bseid=”541578″ nseid=”VARROC” sector=”Engineering – Heavy” exchange=”nse”]

Varroc Engineering’s management on Monday said that the focus was to save and conclude the sale of its four-wheeler lighting business, even if it meant selling it at a lower price.

Speaking on a conference call, the management attributed the decline in deal value to the current economic scenario and that M&A activity across the globe is down by as much as 50-60 percent compared to last year.

As part of the revised deal with France’s Plastic Omnium SE, the company will receive 520 million euros instead of the earlier consideration of 600 million euros. Varroc’s lighting business contributed 54 percent to the company’s overall topline.

Varroc divested its lighting systems operations in the US, Brazil, Mexico, Poland, and four other countries. The deal would also allow Plastic Omnium to acquire Varroc’s global R&D operations in India.

As part of the earlier deal, post closure of the transaction, Varroc would receive a post-tax consideration of 160-175 million euros, subject to closing adjustments. An escrow amount of 35 million euros was supposed to be released over 2-3 years.

However, Valeo Vision S.A., a competitor company, filed a lawsuit with German courts, asserting the infringement of the German parts of certain European patents. The lawsuits aimed at obtaining an injunction regarding the lighting products and disclosures regarding past sales.

As part of its settlement, Varroc will pay a compensation of 51.1 million euros to Valeo.

Based on the revised share purchase agreement, the total purchase price has come down to 520 million euros from the earlier 600 million euros.

The net cash accretion, post-tax, will now be down to 5-9 million euros. The company has also cited lower demand caused by the war in Ukraine and other geopolitical issues, which weakened the financial outlook of the business, as some of the other reasons behind the reduction in the deal valuation.

Post the deal closure, Varroc will still have debt worth Rs 1,300 crore on its books.

Varroc Engineering has also shared some business updates in its investor presentation. Here are some key takeaways:

• August and September witnessed the highest-ever revenue for Indian operations
• Have added three new customers in the last six months in the EV segment
• Strong order wins to drive future growth
• Aftermarket business continues to grow at 20 percent

Shares of Varroc Engineering are down 7.8 percent to Rs 312 as of 12:20 pm.

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Sale of bleeding lighting business powers Varroc Engineering stock to 52-week high

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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[wealthdesk shortname=”Varroc Engineer” isinid=”INE665L01035″ bseid=”541578″ nseid=”VARROC” sector=”Engineering – Heavy” exchange=”nse”]The share price of Varroc Engineering, electronic component manufacturing company, touched a 52-week high of Rs 494.60 on Friday, after the company decided to divest its loss making global lighting business.

The company has sold its four-wheeler lighting business in the US and Europe to Compagnie Plastic Omnium SE, France, for about Rs 43.32 billion.

“Varroc, along with its wholly-owned subsidiary VarrocCorp Holding BV Netherlands, has entered into an agreement with Compagnie Plastic Omnium Se, France for the divestment,” the company said in its release.

At 10:42 am, the stock was trading 13.54 percent higher at Rs 468 per share on the BSE. Around 10:00 am, the company had pending buy orders of 325,879 shares, with no sellers.

The lighting business has been making losses for last many quarters for the company. In Q3FY22, the global lighting business had reported an EBITDA loss of Rs 39 crore.

The decision to sell the lighting business could make the firm debt free. “On the first look, the transaction seems to be positive for the company,” said Amit Hiranandani, lead analyst, SMIFS Institutional Research.

The company will now align all resources towards electronics, connectivity, EV product lines and the two-wheeler segment globally with primary focus on high growth markets like India and China.

The company is also retaining its four-wheeler lighting operations in Asia.

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Analyst says hiving off loss-making unit may help re-rate Varroc Engineering stock

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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[wealthdesk shortname=”Varroc Engineer” isinid=”INE665L01035″ bseid=”541578″ nseid=”VARROC” sector=”Engineering – Heavy” exchange=”nse”]

Shares of Varroc Engineering jumped as much as 11 percent on Tuesday after a report spoke about the company’s plan to cut debt.

The auto component maker is likely to sell its global lighting business Varroc Lighting System (VLS) at an enterprise value of up to $650 million to a leading European component maker to pare its debt, ET reported.

As per the report, the company is likely to become debt free after the deal. VLS is the sixth-largest automotive lighting maker globally, supplying parts to Ford and Jaguar Land Rover.

An analyst from a domestic brokerage firm said that in case the company manages to pull off this deal then the company’s stock could get re-rated.

VLS contributes around 65 percent to Varroc Engineering’s overall revenue, he pointed out.

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Since VLS is a loss-making unit and has massive debt on its books, Varroc Engineering’s margin was getting impacted and if the company manages to hive off this arm, it could turn net cash and concentrate on the India business which is relatively more profitable, the analyst explained.

The company brought on board a European investment bank based in Paris a few months ago to look for buyers for its global lighting business where it makes headlamps, rear lamps, and fog lamps, the report said.

The company’s recent foray into the EV component business and the speculation about the company hiving off its loss-making arm have brightened its business prospects.

At 1154 IST, shares of Varroc Engineering were trading 4.7 percent higher at Rs 427.10 on BSE.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow