Buy Varroc Engineering; target of Rs 490: Khambatta Securities

Khambatta Securities' research report on Varroc Engineering

Robust 4Q FY21 revenue growth was primarily driven by an industry-beating 44.6% y-o-y growth at the India business (aided by 29%/27% y-o-y increase in 2W/PV production volume). While the ongoing global semiconductor shortage continued to plague VLS’s business with the company’s established plants in Mexico and the Czech Republic witnessing declines, overall VLS revenues grew by 13.7% y-o-y in euro terms (+25.1% y-o-y in INR terms), thanks to higher production at the new plants in Poland and Morocco. That said, volume ramp-up at the new plants was slower than expected as they continue to operate below breakeven levels. Management continued to deliver on its promise of debt reduction with net debt declining from ~Rs 2,730 crore in Dec-20 to ~Rs 2,250 crore in Mar-21.

Outlook

Based on this, we value Varroc at Rs 490, informing a BUY rating with an upside of 30%.

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