Varroc Engineering Q1 FY27 earnings call

Varroc Engineering reported a robust Q1 FY27, with consolidated revenue growing 29.9% year-on-year to INR 2,630 crores. This growth was supported by resilient Indian economy, strong domestic consumption, improving rural demand, and healthy infrastructure spending. The automotive sector saw record passenger vehicle sales and broad-based growth across 2-wheelers, commercial vehicles, and tractors, translating into one of the strongest quarters for the Indian automotive sector.

India operations demonstrated strong growth of 28.6% year-on-year, while overseas revenue surged by 45.6% year-on-year, continuing the momentum from Q4 FY26. The company's focus on accelerating revenue growth in both markets is yielding results. EV 2-wheeler volumes grew by an impressive 91% year-on-year, now contributing 15.8% of the total revenue, indicating strong traction in the electric vehicle segment.

Despite strong revenue growth, EBITDA margin for the quarter was 8.5%, down from 9.5% in the prior year. This was primarily due to war-related costs and higher commodity prices, which accounted for a 0.75% impact on EBITDA. Additionally, significant tooling sales at lower margins contributed another 0.8% impact. India operations, however, maintained a healthy 10.6% EBITDA margin and 7% PBT margin, showcasing resilience in core domestic business.

Varroc secured net new business wins with an annualized peak revenue of INR 600 crores this quarter, adding to the INR 3,509 crores order book at the beginning of the year. Approximately two-thirds of these new wins are in e-mobility, with the remainder in 4-wheeler lighting and other segments. The company is actively engaged with all top 3 EV players in the 2-wheeler and 3-wheeler segments, expecting continued growth as EV penetration gains momentum and new customer gains materialize.

The company's capital efficiency metrics improved, with ROCE rising to 24.6% from 23.6% and ROE to 16.4% from 11% year-on-year. Net debt increased by INR 31.6 crores quarter-on-quarter to INR 527 crores, mainly due to front-loading of capex (Q1 spend of INR 160 crores) and an increase in net working capital of INR 44.1 crores. However, net debt to equity remains comfortable at 0.28, and net debt to EBITDA is below 0.6, reflecting prudent financial management.

Varroc continues to invest in technology, people, and capabilities, including the appointment of Mr. Eric Hammond as Chief Technology Officer for Business Unit 1. This strategic hire, with 25 years of global automotive technology experience, is expected to strengthen capabilities in electrification, software-defined vehicles, and cybersecurity. These investments are aimed at developing next-generation mobility technologies and partnering with leading automotive OEMs to deliver innovative and safety-critical solutions.