Buy Varroc Engineering; target of Rs 450: Khambatta Securities

Khambatta Securities' research report on Varroc Engineering

The total value of the recently announced sale of Varroc Engineering’s 4W lighting system operations in the Americas and Europe to the French automotive parts company Compagnie Plastic Omnium SE is pegged at Euro 600 mn (approximately Rs 4,800 crore). With the divestment, the company looks to strategically align its resources with the high value and high growth primary markets of China, India, and the global 2W segment. The India operations will now become Varroc’s core business (approximately 85% of the overall post divestment operations). The company will also continue to operate its China JV, the international 2W lighting operations in Romania, Italy and Vietnam, and the global electronics businesses in Poland and Romania.

Outlook

The Varroc stock has fallen by 3% since our 3Q FY22 update report dated 17 February 2022 with a HOLD rating. Based on a target EV/EBITDA multiple of 12.0x FY24E EBITDA, we value Varroc at Rs 450, upgrading it to a BUY with an upside of 23% from current levels.