Varroc Engineering Limited

Varroc Engineering reported a consolidated revenue of INR 21 billion (2100 crores) in Q4 FY25, marking an 11% year-on-year growth on a like-to-like basis. Indian operations demonstrated strong performance with a 13% growth. The company achieved an EBITDA margin of 10.2% for the quarter, driven by improvements in gross margin and benefits of operating leverage. PBT before exceptional items^📎 and JV profits stood at INR 1 billion (100 crores), representing 4.9% of revenue. For the full fiscal year 2025, consolidated revenue was INR 81.7 billion (8170 crores), growing 8.5% YoY, with India operations contributing 11% growth.

Varroc continued to strengthen its intellectual property portfolio, filing 25 patents and receiving over 10 grants in FY25, bringing the total filings to over 120. A significant focus was placed on ESG initiatives, with renewable energy sourcing increasing to 31% for FY25 (up from 13% in FY24) and reaching 45% in March '25. The company plans to further improve this to over 50% in the coming year through Phase-2 of its renewable energy project, which is expected to boost ESG credentials and reduce electricity costs.

The company successfully reduced its net debt by INR 2,348 million (234.8 crores) in FY25, bringing the absolute net debt to INR 7,480 million (748 crores) as of March 31, 2025. This reduction improved the net debt to equity ratio to below 0.5x from 0.64x at FY24 end, and net debt to EBITDA stood below 1. Varroc generated a healthy free cash flow of INR 3,116 million (311.6 crores) or 3.8% of revenue before growth CAPEX in land. For FY26, the company plans a capex of INR 225-275 crores for capacity expansion, with an additional INR 100+ crores allocated for land purchase in Pune.

Varroc secured new lifetime order wins worth INR 60.5 billion (6050 crores) in FY25, with an annual peak revenue potential of INR 11.7 billion (1170 crores). Notably, over 55% of these new business wins are from EV models, underscoring the company's strong focus on the electric vehicle segment. Management expressed bullishness on EV penetration, particularly in 2-wheelers, highlighting the 5-6x content growth opportunities for component suppliers in EV scooters compared to ICE counterparts, despite a moderated growth pace in the domestic electric 2-wheeler market.

The company completed the sale of its stake in the China JV, realizing net proceeds of RMB 290 million (INR 340 crores) in May 2025, after recognizing an exceptional loss of INR 8.1 billion (810 crores) for FY25. Overseas operations, which account for 4% of total revenue, faced challenges in FY25, experiencing degrowth due to weak European market conditions and reduced volumes from a major customer (Piaggio) in Vietnam. However, new business wins are expected to drive a 'good recovery' and 'good level of growth' from overseas plants starting from the second quarter of FY27.

Varroc aims for its India operations to achieve high double-digit growth in FY26 and targets overall revenue growth of 6-8% above market rates. The company also targets exports to constitute at least 10% of total revenues within the next 2-3 years. Management anticipates a reduction in finance costs to around INR 120 crores and a further debt reduction of INR 400-500 crores in FY26. The Board recommended a dividend of Rs 1 per share for FY25, representing 100% of the face value, reflecting confidence in future cash flow generation.