Varroc Engineering orderbook at Rs 6,757 crore

Varroc Engineering, a leading supplier to the auto industry, reported a new lifetime order win worth Rs 67.57 billion (approximately Rs 6757 crore) during the first nine months of FY24.

Tarang Jain, CMD of Varroc Engineering, stated in a press statement that these orders will enable the company to increase its revenue better than the industry as the content remains 5-6 times higher than supplying the ICE variants. The company's revenue from supplying EV vehicles in Q3 FY24 was approximately 5.3% of the overall revenue, compared to 4.4% during the previous quarter.

"In Q3 FY24, our existing customers in the EV space have given us further opportunities as the market continues to evolve," said Jain.

The Varroc Group manufactures and supplies electricals, electronics, polymers, metallics, and exterior lighting systems to OEM’s with end-to-end capabilities across design, development, and manufacturing for two-wheelers, three-wheelers, passenger vehicles, commercial vehicles, and off-highway vehicles worldwide. It boasts more than 6,500 employees (750 + R&D engineers) and 36 global operating manufacturing facilities supported by 7 R&D Centres.

As per Jain, Varroc's operations in Q3 FY24 mirrored the industry situation. The company's revenue in India grew by 20.1%, higher than both two-wheeler and passenger vehicle industry growth on a year-over-year basis. However, revenue from our overseas operations had a de-growth as two-wheeler production levels went down in certain markets like Vietnam and Italy. In addition, Varroc's customer concentration in these markets impacted its revenue.

The top executive emphasised that as Varroc looks forward to overseas business, its focus remains to drive customer diversification in the order book and hence mitigate the customer concentration risk. "We also drive cost actions through insourcing and working capital optimisation. These efforts are likely to lead to a gradual recovery in overseas markets and improved financial performance in the medium term".

The company noted that despite de-growth in overseas markets in Q3, the overall revenue from operations grew by 9% on a YoY basis, the reported PBT for the quarter was Rs 70.8 crore, which includes profit from its joint venture of Rs 25.07 crore. The PBT margin improved by 300 basis points on a YoY basis and came at 3.7%.

Varroc management added that last year, the company created an impairment provision for the loan and equity invested in VCHBV for its 4W lighting operations, which it divested. "We have now written off the loans in Q3 as we have completed the FEMA-related compliances for write-off with December 1, 2023 as the effective date. This is also well supported by the opinions of two independent senior legal counsels. As a result, the PAT was much higher due to the recognition of tax benefits from the aforesaid write-off," the statement reads.

The company continued that its focus remains to further strengthen the Indian operations, bringing back profitability in overseas operations, control over capex, and the generation of free cash flow.