Khambatta Securities' research report on Varroc Engineering
Varroc’s business performance remained under stress in 3Q FY22 as the semiconductor shortage continued to affect production at OEMs, impacting VLS sales negatively (-15% y-o-y in euro terms). Although 2W production volumes in India was weak during the quarter, revenues at the India business grew marginally (+2% y-o-y). Consolidated revenues saw a modest sequential improvement, driven by a 10.7% increase in VLS’s euro sales. EBITDA (excluding FX loss/gain on intercompany loans) was down on a y-o-y basis, although it was up sequentially as the company reported material EBITDA in 3Q FY22, compared to a negligible amount in the quarter before. The margin pressure is attributable to sub-optimal capacity utilisation at older VLS plants, input cost pressures, and supply chain disruptions. The net loss was up on a y-o-y basis while, sequentially, the loss was lower.
Based on a target P/E multiple of 18.0x FY 24E EPS, we value Varroc at Rs 425, downgrading it to HOLD with an upside of 13% from current levels.
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At 15:45 hrs Varroc Engineering was quoting at Rs 372.10, down Rs 4.80, or 1.27 percent.
It has touched an intraday high of Rs 390.00 and an intraday low of Rs 368.95.
It was trading with volumes of 39,743 shares, compared to its thirty day average of 94,868 shares, a decrease of -58.11 percent.
In the previous trading session, the share closed down 4.58 percent or Rs 18.10 at Rs 376.90.
The share touched its 52-week high Rs 458.30 and 52-week low Rs 260.20 on 14 January, 2022 and 14 September, 2021, respectively.
Currently, it is trading 18.81 percent below its 52-week high and 43.01 percent above its 52-week low.
Market capitalisation stands at Rs 5,685.18 crore.
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