Varroc Engineering - Lighting Business Divestment; A Paradigm Shift In RoCE: ICICI Securities
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ICICI Securities Report
Varroc Engineering Ltd.’s global lighting system business in past couple of years has been unable to withstand various headwinds and was making losses at Ebitda level, resulting in pile-up of debt even after raising equity from the secondary market.
FY23E too was ticked to be a challenging year for the asset heavy Varroc Lighting System segment.
Thus, we believe it was a wise decision by management to divest Varroc Lighting System and focus on asset-light businesses with better profitability and leaner books.
We expect Varroc Engineering to witness a paradigm shift in return on capital employed ahead by shifting from ~1.5 times fixed asset turn and sub-8% Ebitda margin to approx. three times fixed asset turn and ~11% Ebitda margin.
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