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.

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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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(Edited by : Pradeep John)