Varroc Engineering Posts Rs 4.5 Crore Loss in Q3 FY24 Amid Higher Costs

Varroc Engineering Limited, a global automotive component manufacturer, reported a net loss of Rs 4.5 crore for the quarter ended December 31, 2024, compared to a profit of Rs 38.4 crore in the same quarter last year, as higher material costs and other expenses weighed on profitability.

Revenue from operations grew by 10.1% year-on-year to Rs 207.5 crore in Q3 FY24, compared to Rs 188.5 crore in Q3 FY23. The growth was primarily driven by the automotive segment, which saw revenues increase to Rs 201.9 crore from Rs 184.3 crore in the year-ago period.

However, the company's profitability was significantly impacted by rising input costs. Cost of materials consumed increased by 10.2% year-on-year to Rs 133.2 crore, while other expenses rose by 2.1% to Rs 31.1 crore. Employee benefit expenses also saw an increase of 13.4% to Rs 23.4 crore compared to the same quarter last year.

The automotive segment, which constitutes the bulk of the company's business, reported an operating profit of Rs 10.3 crore in Q3 FY24, up from Rs 9.7 crore in the year-ago quarter. However, the others segment reported a loss of Rs 70.8 lakh, compared to a loss of Rs 39.9 lakh in Q3 FY23.

On a sequential basis, revenue remained relatively flat with a marginal decline of 0.3% from Rs 208.1 crore in Q2 FY24. However, profitability saw a significant decline from a profit of Rs 5.8 crore in the previous quarter.

The company faced headwinds from foreign exchange movements, recording a loss of Rs 41.6 lakh in Q3 FY24 compared to a gain of Rs 24.9 lakh in the corresponding quarter last year. Depreciation and amortization expenses remained elevated at Rs 8.1 crore.

An important development during the quarter was the Group receiving an order from the International Chamber of Commerce, Singapore regarding an ongoing arbitration between VarrocCorp Holding B.V. and its joint venture partners. The Group has assessed an estimated impairment loss of Rs 796.5 crore, which has been disclosed as an exceptional item.

The balance sheet showed total assets of Rs 4,535.1 crore as of December 31, 2024, with the automotive segment accounting for Rs 3,706.5 crore. Total liabilities stood at Rs 2,954.5 crore, including segment liabilities of Rs 1,927.7 crore.

The company's earnings per share (EPS) for continuing operations stood at negative Rs 3.10 for the quarter, compared to positive Rs 25.05 in Q3 FY23, reflecting the significant impact on profitability.

Looking ahead, the company faces challenges from rising input costs and competitive pressures in the automotive component sector. However, the steady growth in the automotive segment's revenue indicates resilient demand from OEM customers.

It's worth noting that the company is currently dealing with certain regulatory matters, including GST-related issues. The Group has received GST orders for demand and interest, against which it has initiated appellate proceedings, believing it has grounds to successfully defend its position.

The results were reviewed by the Audit Committee and approved by the Board of Directors at their meeting held on February 10, 2025. The company continues to focus on operational efficiency and cost optimization measures to improve profitability in the coming quarters.