Global brokerage houses reduced the target price of Varroc Engineering while Credit Suisse also downgraded the stock to neutral from outperform following the September quarter earnings.
Credit Suisse also cut target price by 18 percent to Rs 490, implying 9 percent potential upside from current levels as it feels Varroc Lighting System (VLS) margin weakness could persist.
"40-50 percent cut in FY20/21 EPS and growth in FY21/22 appears high due to low base. North America revenue drop is concerning for Mexico facility and facilities in ramp-up phase will limit margins," Credit Suisse said.
The auto-component maker said consolidated revenue from operations on a like-for-like basis for Q2FY20 declined by 9.9 percent YoY to Rs 2,703.23 crore amid challenging market conditions for both India and VLS business.
Profit in the quarter stood at Rs 22.9 crore, down 77 percent YoY, impacted by losses in China JV, higher depreciation and finance costs (partly due to Ind AS 116 adoption).
At operating level, the earnings before interest, tax, depreciation and amortisation (EBITDA) dipped 28 percent YoY and margin contracted 180bps compared to year-ago. Revenue decline and operating losses at the new facilities during the ramp-up phase hit EBITDA.
"The profitability of both businesses suffered due to a challenging external environment as well as the cost/ investments associated with the new facilities to support the next phase of growth," managing director Tarang Jain said.
"We will continue our focus on rationalising costs as well as optimising capex and capacity utilisation over the next few quarters."
Citi has a buy call on the stock, but cut price target to Rs 630 from Rs 750, implying 41 percent potential upside from current levels.
"The ramp-up in the new plants should aid revenue growth going forward. We slash our earnings by 15-33 percent over FY20-22," it said.
The stock was quoting at Rs 446.70, at 1415 hours.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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