Varroc Engineering IPO Review

Varroc Engineering Pvt Ltd is global providers of automotive parts. The company manufactures and supplies components and subassemblies for automobile, consumer durable, and white goods industries. They offer injection molded engineering plastic components, multilayer co-extruded thermoplastic sheets, injection and compression molded automotive and allied rubber products, polyurethane foam seat assemblies, rear view mirrors, air cleaner assemblies, and acrylic and polyurethane painted parts.

The company has three subsidiaries namely, Durovalves India Pvt Ltd, Varroc Exhaust Systems Pvt Ltd and Varroc European Holding BV. The company is based in Aurangabad, India with manufacturing plants in Noida, Gurgaon, Delhi, Pantnagar, Chennai, Pune, and Mumbai, India; Amsterdam, the Netherlands; Warsaw, Poland; and Milan, Italy.

Varroc Engineering Pvt Ltd was incorporated in the year 1988. During the year 2001-02, the company entered into technical collaboration/ assistance agreements with Mitsuba Corporation, Japan for the manufacture of Flywheel Magneto Assemblies and Driver Gear for Starter Motor. Also, they came into technical collaboration/ assistance agreements with Shindengen Manufacturing Company Ltd, Japan for the manufacture of CDI & RR.

VarrocDuring the year 2004-05, the company entered into agreements with Electric Components & Industries Europe Srl, Italy for the acquisition of designs of Electronic Dashboard and LED Tail Light relating to the manufacture of dashboard instrument cluster and lighting equipment of motorcycle.

During the year 2005-06, the company increased the production capacity at various units namely Auto Electric Switches at Waluj Pant-IV, Plastic Auto Components at Pune Plant-I, Rear view Mirror Assembly at Pune Plant-II and Automobile Seat Assembly at Pune Plant-II. They commenced commercial production in their Binola Plant and Waluj Plant-VII from January 1, 2006 and March 1, 2006 respectively.

Varroc Engineering Ltd. raised Rs 583.73 crore by selling shares to 30 anchor investors.

The international anchor investors included Schroder International Selection Fund, Nomura Fund Ireland Public Ltd., DSP BlackRock, First State Investments, while L&T Mutual Fund, Bajaj Allianz Life Insurance, ICICI Prudential AMC, Kotak Mutual Fund and SBI Mutual Fund were some of the domestic funds which participated in the anchor allotment.

List of the anchor investors

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The promoter and two investors will sell shares to raise up to Rs 1,950 crore through the IPO of the Aurangabad-based company which supplies parts to Jaguar Land Rover, Bentley and even Tesla Inc.

Tata Group’s investment arms – Tata Capital and Omega TC – and promoter Tarang Jain will offload 2 crore shares at Rs 965-967 apiece. The world’s sixth largest exterior automotive lighting maker won’t get any share of the proceeds.

Varroc Engineering IPO Dates & Price Band:

  • IPO Open: 26-June-2018
  • IPO Close: 28-June-2018
  • IPO Size: Approx Rs.1945 Crore (Approx)
  • Face Value: Rs.1 Per Equity Share
  • Price Band: Rs. 965 to 967 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 2,02,21,730 Shares

Market Lot:

  • Shares: Apply for 15 Shares (Minimum Lot Size)
  • Amount: Rs.14,505

IPO Allotment & Listing:

  • Basis of Allotment: 3-July-2018
  • Refunds: 4-July-2018
  • Credit to demat accounts: 5-July-2018
  • Listing: 6-July-2018

The promoters:

Tarang Jain

Main objects of the issue are:

1) to achieve the benefits of listing the Equity Shares on the Stock Exchanges and
2) to carry out the Offer for Sale by Selling Shareholders

Lead Managers:

Citigroup Global Markets India Private Limited
Credit Suisse Securities (India) Private Limited
IIFL Holdings Limited
Kotak Mahindra Capital Company Limited

Registrar to the IPO:

Link Intime India Private Limited

Our Strengths

We believe that the following are our primary strengths

Strong competitive position in attractive growing markets

Our Strategies

Focus on high growth markets for our Global Lighting Business

Focus on increasing customer revenue for our India Business

Continue to invest in our R&D, design, engineering and software capabilities in order to capitalize on future trends.

Pursue strategic joint ventures and inorganic growth opportunities

Focus on operational efficiency


Qualitative Factors

Strong competitive position in attractive growing markets

Strong, long-standing customer relationships

Comprehensive product portfolio

Low cost, strategically located manufacturing and design footprint

Robust in-house technology, innovation and R&D capabilities

Consistent track record of growth and operational and financial efficiency

ICICI Sec. IPO Review and the list of anchor investors



The company’s Global Lighting Business, which focuses on the design, manufacture, and supply of exterior lighting for passenger vehicles, is the sixth-largest tier-1 automotive exterior lighting manufacturer globally and one of the top three independent exterior lighting players (by market share in 2016) (Source: Yole).

Strong, long-standing relationships with many of its customers. In the Global Lighting Business, it has a relationship with a large British car manufacturer since 2006. In the Indian Business, it has a longest-standing relationship is with Bajaj since 1990.

It has a comprehensive portfolio of products in the markets which allow it to be a one-stop-shop for the customers and to cross-sell products.

A global footprint of 36 manufacturing facilities spread across seven countries, with six facilities for the Global Lighting Business, 25 for India Business and five for other Businesses.

Key Parameter 

The Revenue is growing at CAGR of 13.96% from FY15 to FY18.

The PAT is growing at CAGR of 10.43% from FY14 to FY18.

The company is has total debt of around 1390 Cr on books as on 9MFY18.

The Company’s EBITDA Margins are in the range of 6-10% in last 4 years.

The Company is generating positive cash flows from operations from FY13-17


Total Income of 2016-17 INR 9702.87 Crore

Total Income of 2017-18(9M) INR 7415.42 Crore

Net Profit of 2016-17 INR 303.39 Crore

Net Profit of 2017-18 (9M) INR 307.96 Crore

Earnings per Share (EPS) INR 27.74

Earnings per Share 2017-18 (9M) INR 22.84

Earnings per Share 2017-18 (12M) INR 30.45( expected )

Equity Capital as on 31.12.2017 INR 134.81 Crore

Upper Price Band/last EPS: 31.76

Book Value of the Share as on 31.12.2017 INR 212.06

Upper offer price/Book Value Ratio: 4.56

Return on Net Worth: 13.88% for 2016-17

ICICI Sec. IPO Review and the list of anchor investors


There is outstanding litigation against its Company, its Subsidiaries and its Directors which, if adversely determined, could affect its business and results of operations.

Pricing pressure from customers may adversely affect its gross margin, profitability and ability to increase its prices, which in turn may materially adversely affect its business,results of operations and financial condition.

Its business is dependent on certain major customers, with whom we do not have firm commitment agreements. The loss of such customers, a significant reduction in purchases by such customers, or a lack of commercial success of a particular vehicle model of which we are a significant supplier could adversely affect its business, results of operations and financial condition.

Varroc is exposed to counterparty credit risk of its clients and any delay in receiving payments or non-receipt of payments may adversely impact its results of operations.

Varroc is heavily dependent on the performance of the global passenger vehicle market and the two wheeler and three wheeler markets in India. Any adverse changes in the conditions affecting these markets can adversely impact its business, results of operations and financial condition.

Varroc failure to identify and understand evolving industry trends and preferences and to develop new products to meet its customers demands may materially adversely affect its business.

Varroc is subject to environmental and safety regulations that may adversely affect its business and we have been subject to environmental notices in respect of certain of its manufacturing facilities and may be subject to further notices in the future.

Varroc employees are members of unions and we may be subject to industrial unrest, slowdowns and increased wage costs, which may adversely affect its business and results of operations.

Varroc insurance coverage may not be adequate to protect us against all potential losses, which may have a material adverse effect on its business, financial condition and results of operations.

Varroc has unsecured borrowings that may be recalled by the lenders at any time.

Varroc has experienced negative cash flows in prior periods and any negative cash flows in the future could adversely affect our financial condition and the trading price of its Equity Shares.


At the higher price band of Rs 967, the P/E on FY 2018 EPS (on current diluted equity of Rs 13.48 crore) of Rs 33.4 works out to 29. Currently, all the comparable listed players are trading at very high P/E multiples.

Minda Industries, Motherson Sumi Systems and Endurance Technologies are some of the comparable listed peers. Minda Industries reported consolidated net sales of Rs 4470.56 crore and Pat of Rs 310.19 crore in FY 2018, giving an EPS of Rs 35.6. At the current market price of Rs 1262, the stock trades at around 35.4 times its FY 2018 consolidated earnings.

Motherson Sumi Systems reported consolidated net sales of Rs 56293.32 crore and Pat of Rs 1597.01 crore, giving an EPS of Rs 7.6. At the current market price of Rs 307, the stock trades at around 40.5 times its FY 2018 consolidated earnings.

Endurance Technologies reported consolidated net sales of Rs 6538.14 crore and Pat of Rs 390.75 crore, giving an EPS of Rs 27.8. At the current market price of Rs 1262, the stock trades at around 45 times its FY 2018 consolidated earnings.

Grey Market Trend

As on 26 June 2018 GMP Rs. 62/-, Kostak Rs.350/-

Disclaimer: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.


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