Varroc Engineer

Varroc Engineering reported a consolidated revenue of INR 2370 crores for Q4 FY26, marking a 12.8% year-on-year growth. The full-year FY26 consolidated revenue stood at INR 8890 crores, growing 9% YoY. Profitability also saw an uptick, with Q4 EBITDA margin at 9.7% (up 40bps QoQ) and full-year EBITDA margin at 9.4%. The PBT before JV profit margin for Q4 was 4.5% of revenues, contributing to a full-year PBT margin of 4.3%, an improvement of 50 basis points from the previous year.

India operations demonstrated robust performance in FY26, achieving an EBITDA of 11.7% and PBT of 7.2%, with both metrics growing YoY and QoQ despite supply-side challenges. Overseas businesses, which grew 24% in Q4, are showing signs of revival, with a more visible turnaround expected from H2 FY27. The company aims to increase the contribution of its overseas business to total revenue from the current 7% to approximately 10% by the end of FY27.

The company achieved a record order intake of INR 3300 crores in FY26, with a significant 65% of these orders attributed to EV models. New business wins for FY26 represent an annualized peak revenue of INR 3288.9 crores. Management expects SOPs worth INR 3300 crores to translate into revenue in FY27 and FY28, with overseas EV-related orders, including a INR 1400 crore overseas order book, contributing significantly to future growth.

Varroc Engineering plans a CapEx of INR 450-500 crores for FY27, primarily allocated towards electronics, lighting, EV vehicles, and mechanization/automation initiatives in India. Net debt at FY26 end was INR 49.5 crores, resulting in a comfortable net debt to equity ratio of 0.27. Despite a marginal increase in net debt from INR 31.8 crores in September due to VRS and working capital, the company targets achieving a zero-debt status by the end of FY28, with average debt expected to be in the INR 50-60 crore range for FY27.

The company is strategically focused on high-growth, technology-led segments, particularly in lighting, electric vehicles, and electronics, while strengthening its presence in overseas markets. Management anticipates mid to high teen growth in FY27 and higher margins compared to FY26. The board has recommended a final dividend of 150% of face value for FY26, reflecting confidence in sustained growth and long-term value creation.

Varroc faced challenges from material inflation and supply chain disruptions, including labor shortages at Tier 2/3 suppliers due to the 'war crisis,' but expects normalization by June 2026. The ongoing TYC arbitration process is anticipated to be resolved by the end of FY28. Management expressed confidence in its ability to pass on commodity cost increases to OEMs, mitigating margin impact.