Varroc Engineering Q1 Results Review - On The Right Direction: Dolat Capital

Dolat Capital Report

Varroc Engineering Ltd. displayed decent performance in Q1 FY24. Revenue grew 6 % QoQ to Rs 17.92 billion led by a sequential recovery in volume from Bajaj Auto Ltd. and incremental revenue from new business in the electric vehicles segment.

Ebitda grew 11 % QoQ, margin expanded 42 basis points QoQ to 9.3%.

Business outlook- Management is confident to outperform industry growth led by the introduction of new products (like electronics and EVs) and new orders wins in the lighting, metallic, and polymer business.

Varroc Engineering started mass production of both the traction motor and controller for Bajaj Auto ( 15,000 per vehicle for both put together) and targeting EV revenue of Rs 10 billion by FY25E.

Valuation- We see a sharp revival in revenue and profitability in medium term led by incremental revenue from new products, cost cutting exercise and reduction in interest cost.

We maintain 'Buy' with target price Rs 424 (based on 19 times FY25E earnings per share).

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