Varroc Engineering Limited — Q3 FY26 earnings call

Call held 5 Feb 2026

Management summary

Varroc Engineering reported a robust Q3 FY26 with consolidated revenue growth of 10.2% and significant margin expansion, particularly in India operations. The company saw strong traction in its EV segment, with EV revenue growing 50% YoY and contributing 14.3% to total revenue. Despite challenges in overseas businesses and an increase in net debt due to one-time VSS costs, management remains optimistic about future growth driven by record order wins and strategic cost restructuring.

Highlights

  • Consolidated revenue of INR 22.9 billion, up 10.2% YoY, driven by strong India operations growth of 12.3%.

  • Consolidated EBITDA margin at 9.3% (vs 9.2% YoY) and PBT before JV profits at 4.4% (vs 3.2% YoY), with India EBITDA at 11.9% and PBT at 7.6%.

  • EV revenue mix reached 14.3% of total revenues in Q3 FY26, growing 50% YoY, indicating strong EV transition readiness.

  • Achieved net new business wins with annualized peak revenues of INR 20.636 billion in 9 months FY26, the highest ever, with 74% relating to EV motors.

  • Successful execution of a Voluntary Separation Scheme (VSS) with over 400 employees, expected to yield annual savings of approximately INR 20 crores with a 4-year payback.

Concerns

  • Overseas Electronics, Lighting, and Forging businesses continue to face challenges due to customer concentration and macro environment, with turnaround expected only from H2 FY27.

  • Net debt increased to INR 440.5 crores this quarter, primarily due to the one-time cash outflow of INR 79.9 crores for the VSS.

  • Exceptional items included INR 79.9 crores for VSS and INR 22.5 crores for reassessment of gratuity and leave encashment costs due to new labor code definition.

Key financials

  1. Consolidated Revenue ₹2,290 Cr +10.2%YoY
  2. Consolidated EBITDA Margin 9.3%
  3. Consolidated PBT Margin (ex-JV) 4.4%
  4. Consolidated PBT (ex-JV) ₹101 Cr +53%YoY
  5. EV Revenue Mix 14.3%
  6. EV Revenue Growth 50%

What they filed

Q1 FY27: revenue up 29.9%, net profit down 27.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,081 2,075 2,099 2,028 2,207 +6%2,288 +10%2,368 +13%2,634 +30%
EBITDA208 186 221 195 203 −2%210 +13%222 +0%222 +14%
Net profit58 -45 23 107 63 +9%-11 +76%70 +204%78 −27%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • India Operations
    12.3% Revenue Growth11.9% EBITDA Margin7.6% PBT Margin

Order book

high confidence

Total value

₹2,063.6 Cr

as of 2025-12-31 quantified

Execution

INR 982 crores will move to SOP this year

Composition

Mix 2 products
  • EV motors 74%
  • EV orders 75%

Share of order book by product· categories overlap, and sum to 149%

The company achieved its highest ever order wins in the first 9 months of FY26, with a significant portion coming from EV motors, indicating a strong product portfolio.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex Capex disclosed
    • Land purchase for greenfield facility near Pune ₹150 Cr
    So we plan to invest close to about INR 150 crores in land, yes, of course, greenfield facility near Pune, in Pune. Entire thing may not come and hit us in Q4 this year. Part of it may come this year and part of it may spill over to Q1 of next year.
  • Debt Gross ₹750 Cr · Net ₹440.5 Cr · 0.3× EBITDA
    • Other Net debt increased due to one-time cash outflow for Voluntary Separation Scheme (VSS). ₹79.9 Cr
    The net debt of the company in the 9 months of Financial Year '26 is INR 4,405 million. This has increased for the first time after many quarters to the one-time cash outflow pertaining to our VSS. The net debt to equity is very comfortable at 0.26. So gross debt, you can add another INR 300 crores to it, which is what we keep in cash. So about INR 750 crores was the gross debt.

Guidance & targets

Profitability

  • Annual savings from VSS Profitability · Annually · High confidence INR 20 crores
    Yes, yes, that's right. It could be a little more than that. But yes, that's a safe number to go with.

    — Tarang Jain

  • Overseas Electronics, Lighting, Forging turnaround visibility Profitability · H2 FY27 · High confidence H2 FY27
    However, we are winning significant orders for the Overseas Electronics and Lighting businesses already, and a turnaround is expected to be visible from half 2 of Financial Year '27.

    — Tarang Jain

  • Romania electronics cash breakeven Profitability · Next year · High confidence Next year
    I think in some of the markets like electronics in Romania, we may reach cash breakeven by next year, full PBT level breakeven may happen in the following year.

    — Mahendra Kumar

  • Romania electronics PBT breakeven Profitability · Following year · High confidence Following year

    — Mahendra Kumar

Capacity

  • Thailand facility ramp-up to optimal levels Capacity · 2027 · High confidence 2027
    So I would say that definitely in 2027, so I will say in 2027 is when the revenue will increase for this location.

    — Dhruv Jain

Volume

  • 2-wheeler lighting growth Volume · Next 4 years · High confidence Doubling
    On this, and also this 2-wheeler lighting, where the 2-Wheeler Lighting, Premium Lighting business, we have seen a degrowth last 3 years, I would say. But now we are looking at doubling the growth in the next 4 years.

    — Tarang Jain

Debt

  • Net debt status Debt · End of next year · High confidence Zero-debt
    Next year, by next year-end, we should come close to the zero-debt level.

    — Mahendra Kumar

Capex

  • Capex for next year Capex · Next year · Medium confidence INR 300-350 crores
    Next year, let's talk about could be in the range of maybe INR 300 crores to INR 350 crores.

    — Mahendra Kumar

Revenue

  • Overall growth target Revenue · Ongoing · Medium confidence 15-20% ahead of market (at least 4-5% ahead)
    I think we mentioned earlier also, our target is to grow between 15% to 20% ahead of the market, at least 4% to 5% ahead of the market. So that the direction still remains.

    — Mahendra Kumar

What to watch in Q4 FY26

Net Debt Reduction

Next year (Q2-Q4 FY27)
Current INR 440.5 crores
Target Gradual reduction towards zero-debt

Why it matters

To track progress towards the stated goal of achieving a zero-debt status by the end of next year, which is crucial for financial health.

Next year, by next year-end, we should come close to the zero-debt level. So it should be a gradual reduction, maybe largely happening more towards, more between Q2 to Q4 because the Q1 also, part of the consideration for land purchase and all may go during Q1 of next year.

Risks & concerns

  • Challenges in Overseas Businesses

    medium

    Overseas Electronics, Lighting, and Forging businesses continue to face challenges due to customer concentration and the macro environment, with turnaround expected only from H2 FY27.

    Management acknowledged

  • Arbitration case with OPmobility

    medium

    An arbitration case with OPmobility regarding a supply agreement termination and divestment agreement conditions is ongoing, with a value of approximately EUR 66 million. Management believes claims are unreasonable and has not provisioned for them.

    Management acknowledged

Q&A highlights

7 direct
India business revenue growth vs. industry Direct
So I would say it's a combination of weaker performance on ICE versus EV for us. And also, I would say, driven really by mix and model changeovers.

Clarifies that India business growth, while strong, was impacted by product mix and model changeovers in ICE, despite strong EV performance.

Asked by Preet

Overseas business breakeven timeline Direct
I think in some of the markets like electronics in Romania, we may reach cash breakeven by next year, full PBT level breakeven may happen in the following year.

Provides specific timelines for the turnaround of the challenging overseas businesses, starting with cash breakeven in Romania next year.

Asked by Preet

VSS cost and annual savings Direct
Yes, yes, that's right. It could be a little more than that. But yes, that's a safe number to go with.

Confirms the financial benefit of the VSS, with an estimated annual saving of INR 20 crores, justifying the one-time expense.

Asked by Ankur Poddar

Net debt increase and zero-debt target Direct
Next year, by next year-end, we should come close to the zero-debt level. So it should be a gradual reduction, maybe largely happening more towards, more between Q2 to Q4 because the Q1 also, part of the consideration for land purchase and all may go during Q1 of next year.

Management reaffirms its commitment to achieving zero-debt by the end of next year, providing a timeline for debt reduction despite the current quarter's increase.

Asked by Ankur Poddar

E-Mobility and HMI division growth drivers Direct
So I would say one big driver for the growth, in particular, in e-mobility is the fact that the crisis around rare earth magnets has been solved for. So there's definitely a level of backlog also that was covered up through this quarter.

Explains the strong growth in the e-mobility segment, attributing it to the resolution of supply chain issues and covering backlog, indicating operational efficiency.

Asked by Ronak Jain

Overseas business mix and future growth Direct
No, definitely, we will see a better share coming from our business abroad. But today, I think largely the revenue is all mostly coming from India. more than 90% is coming from India. So going forward, with all the business wins and all and a focus on select businesses, certain 4-wheeler electronics, certain lighting, both 2-wheeler, 4-wheeler lighting. And so we are going to drive a lot of the revenues out of selected plants abroad.

Highlights the strategic shift towards increasing the share of foreign business, particularly in 4-wheeler electronics and lighting, leveraging new order wins.

Asked by Priyaranjan

Non-auto business strategy and margins Direct
So I would say from a non-auto perspective, I think our primary interest in the space is also to drive alternate utilization for capacities that we have already built for ICE powertrain, which means the primary target applications would be lower voltage motors. And the business wins that we have so far are also really in these motors and in plastic. ... It's too early to comment on margins, because we are just making a beginning. But yes, in the long term, yes, there should be.

Outlines the rationale for entering non-auto segments (capacity utilization) and provides a long-term positive outlook on margins, despite being early stage.

Asked by Ritik Chopra

Arbitration case with OPmobility Partial
Yes. So basically, the dispute has 2 parts. One is about the supply agreement, which PO terminated abruptly without enough notice and without proper justification. So for that, we filed a court case against them, which is going through the process now. And then this arbitration is something which they initiated saying that some of the divestment agreement conditions have not been met and there are some warranty obligations, et cetera. So it's a combination of many issues.

Provides details on the ongoing arbitration case, clarifying its dual nature (supply agreement and divestment conditions), but notes the difficulty in predicting a timeline.

Asked by Mihir Vora

2 min read 6 chapters

Detailed narrative

Strong India Performance and EV Traction

Varroc Engineering's India operations demonstrated robust growth in Q3 FY26, with revenue increasing by 12.3% year-on-year. This strong performance translated into an EBITDA margin of 11.9% and a PBT margin of 7.6% for the India business. The company's EV segment showed significant momentum, with EV-related revenues constituting 14.3% of total revenues in Q3 FY26 and growing by 50% year-on-year, highlighting successful diversification and readiness for the EV transition.

Record Order Wins and Future Growth Visibility

The company secured net new business wins totaling INR 20.636 billion in annualized peak revenues over the first nine months of FY26, marking its highest-ever order intake. A substantial 74% of these new orders are attributed to EV motors, with INR 982 crores expected to move to SOP (Start of Production) within the current fiscal year. These wins provide strong revenue visibility and are expected to drive future growth, particularly in the EV and 4-wheeler segments.

Strategic Cost Restructuring and Debt Management

Varroc implemented a Voluntary Separation Scheme (VSS) for over 400 employees, incurring a one-time cost of INR 79.9 crores. This initiative is projected to generate annual savings of approximately INR 20 crores, with a payback period of four years, aimed at making the cost structure more robust. Despite a temporary increase in net debt to INR 440.5 crores due to the VSS, the company maintains a comfortable net debt to equity ratio of 0.26 and targets achieving a zero-debt status by the end of next year through gradual reductions.

Overseas Business Challenges and Turnaround Strategy

Overseas Electronics, Lighting, and Forging businesses continue to face headwinds from customer concentration and the macro environment. However, management anticipates a turnaround to be visible from the second half of FY27, supported by significant new order wins. Specifically, the Romania electronics plant is expected to reach cash breakeven next year, with PBT breakeven projected for the following year, while the Thailand facility is slated for ramp-up in 2027.

Capital Expenditure and Non-Auto Diversification

The company plans to invest approximately INR 150 crores in Q4 FY26 (partially spilling into Q1 FY27) for land acquisition for a new greenfield facility near Pune. Capex for the next year is estimated to be in the range of INR 300-350 crores, moderating to INR 250-300 crores in outer years. Varroc is also exploring non-auto segments, leveraging existing ICE powertrain capacities for lower voltage motors and plastics, with long-term margin parity expected.

Arbitration and Regulatory Impacts

Varroc is involved in an arbitration case with OPmobility concerning a supply agreement termination and divestment conditions, valued at approximately EUR 66 million. Management views these claims as unreasonable and has not made any provisions. Additionally, the company recognized an estimated incremental expense of INR 22.5 crores due to the reassessment of gratuity and leave encashment costs, following changes in the definition of wages under the new labor code.

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