VARROC - Varroc Engineer

📊 NSE: VARROC 🏢 Auto Ancillaries 📅 Last Updated: 12/14/2025 14:56

💰 Financial Performance

Revenue Growth by Segment

India Business revenue grew 8% YoY to INR 20,879 million in Q2 FY26. Overseas Business revenue declined 18% YoY to INR 1,194 million, primarily due to US tariffs impacting the Forging segment. Overall FY25 revenue was INR 81,541 million, up 8.0% from INR 75,519 million in FY24.

Geographic Revenue Split

As of H1 FY26, India accounts for 89% of total revenue, while Overseas business and exports contribute 11%. This reflects a strategic shift toward the domestic market following the divestment of certain global lighting businesses.

Profitability Margins

PBT margins improved significantly from 1.1% in FY23 to over 4% in Q2 FY26. Gross margins improved by approximately 1% during this period due to better product mix and cost-saving initiatives. FY25 PAT was INR 697 million compared to INR 5,530 million in FY24, which was skewed by a one-time deferred tax credit.

EBITDA Margin

EBITDA grew from INR 5,966 million in FY23 to INR 7,767 million in FY25. The India Business EBITDA for Q2 FY26 was INR 2,405 million (11.5% margin), up 11% YoY, driven by operating leverage and cost reduction.

Capital Expenditure

H1 FY26 CAPEX was INR 186 crores, largely front-loaded for a new facility in Thailand and SMT line expansions. The company is expanding SMT lines from 10 to 15 to cater to growing electronics demand.

Credit Rating & Borrowing

Net debt was reduced significantly to INR 3,800 million (INR 380 crores) in Q2 FY26 from INR 7,480 million in FY25. Borrowing costs are approximately 8% for debt and 7% for receivables discounting (INR 700-750 crores). Net Debt to EBITDA improved from >2x in FY23 to 0.47x in FY25 and 0.22x in Q2 FY26.

⚙️ Operational Drivers

Raw Materials

Key raw materials include plastic resins for moulded parts, electronic components for SMT lines, and steel for forgings and engine valves. Raw material costs were INR 52,092 million in FY25, representing 63.9% of total revenue.

Capacity Expansion

Expanding SMT lines from 10 to 15. Established a new facility in Thailand and acquired land in South and West India to strengthen OEM relationships. The company operates 37 manufacturing plants and 7 R&D labs globally.

Raw Material Costs

Raw material costs as a percentage of revenue stood at 63.9% in FY25. The company manages costs through customer recoveries, particularly for rare earth freight impacts, ensuring minimal bottom-line margin erosion.

Manufacturing Efficiency

The company is focusing on 'first-time right' delivery and program management efficacy. Operating leverage from increased India volumes is helping improve absolute P&L parameters.

📈 Strategic Growth

Expected Growth Rate

12%

Growth Strategy

The company aims to double revenue by 2030 by focusing on EV components, which represented 63% of the INR 893 crore peak annual revenue from H1 FY26 new wins. Strategy includes expanding SMT lines for electronics, scaling the Romania electronics plant (SOP mid-2026), and growing the aftermarket division which serves 27 countries.

Products & Services

2-wheeler and 4-wheeler lighting, TFT clusters (bonded, Wi-Fi/Bluetooth enabled), EV powertrain components, engine valves, forgings, and plastic-moulded body systems.

Brand Portfolio

Varroc, Varroc Connect, Durovalves India.

New Products/Services

High-voltage electronics for e-powertrains, 4W lighting for passenger vehicles, and advanced TFT clusters. New business wins in H1 FY26 reached a peak annualized revenue of INR 8,928 million.

Market Expansion

Expansion into Thailand with a new facility and strengthening presence in South/West India. Targeting high-performance e-powertrain components for the Romanian plant by end of 2025.

Market Share & Ranking

Varroc is a market leader in India for 2W mobility, lighting, and driver assistance systems.

Strategic Alliances

The company completed the merger of Varroc Polymers Limited with Varroc Engineering Limited effective February 1, 2025, to streamline operations.

🌍 External Factors

Industry Trends

The industry is shifting toward electrification and connected 'intelligent cockpits.' Varroc is positioning itself as a 'partner of choice' for EV OEMs, with 63% of new order wins being EV-related.

Competitive Landscape

Competes with global and domestic auto-component players in lighting and electronics. Key advantage is the low-cost manufacturing base in India combined with R&D in Romania and China.

Competitive Moat

Moat is built on 125+ patents, long-term OEM relationships (37+ years for the Chairman), and deep integration in the EV supply chain. Sustainability is driven by R&D in advanced electronics and lighting.

Macro Economic Sensitivity

Highly sensitive to automotive production trends in India; 2W production grew 10.6% and 3W grew 18.3% in Q2 FY26, directly boosting Varroc's domestic performance.

Consumer Behavior

Shift toward premiumization in 2Ws (TFT clusters, LED lighting) and rapid adoption of EVs are driving demand for Varroc's advanced electronics portfolio.

Geopolitical Risks

US-China trade tensions and US tariffs on forgings are primary risks. The company is also monitoring rare earth supply chains.

⚖️ Regulatory & Governance

Industry Regulations

Operations are subject to automotive safety and emission standards. Overseas business is currently impacted by US tariff regulations on forging imports.

Taxation Policy Impact

The company benefits from a recurring R&D tax credit of approximately INR 11 crores per quarter related to overseas R&D spending.

Legal Contingencies

The company successfully executed a Scheme of Amalgamation for Varroc Polymers Limited, increasing authorized share capital to INR 559.4 million.

⚠️ Risk Analysis

Key Uncertainties

High customer concentration with Bajaj (45%) and the successful ramp-up of the Romania electronics plant are key uncertainties. Volatility in global EV adoption rates could impact the SOP timelines of new business wins.