Varroc Engineering Ltd Q1 FY27 Earnings Analysis

- Order book is strong with SOP (Start of Production) worth INR 3,300 crores expected in FY 2027 and FY 2028, supporting revenue growth (Page 15). - Confident of achieving revenue around INR 12,500 crores in next two years through order book realization (Page 15). - Overseas business order book of around INR 1,400 crores starting production mainly from FY 2027, with ramp-up in FY 2028 (Page 6). - EV revenue share increasing, with 14% of Q4 revenues from EV models and a 50% YoY growth (Page 5). - Expect significant growth from electronic business, e-mobility, and premium vehicle segments (Page 16). - Overall overseas businesses targeted to break even within two years (Page 15). - Strong domestic growth expected driven by incremental EV penetration and further premiumization even in lower segments (Page 14). Overall, the company anticipates robust growth led by new orders, EV adoption, electronics, and overseas business ramp-up in the next 2-3 years.

- The company aims to achieve double-digit EBITDA margin (above 10%) over the next few years, driven by revenue growth and operating leverage. - India business EBITDA was already above 8% in Q4 FY 2026, with a target to reach approximately 10% consolidated PBT in coming years. - Overseas business, currently breaking even or slightly positive in select segments, is expected to turn profitable and contribute margin improvement within 2-3 years. - Strong order book with INR 33 billion new wins (65% EV-related) supports future revenue growth, particularly from EV and electronics segments. - Revenue from EV models grew 50% YoY and is expected to increase, supported by expansion in e-mobility, lighting, and electronics, which will drive margin expansion. - CapEx focused on EV, electronics, lighting, and automation to support profitable growth. - Net debt expected to reduce to near zero by FY 2028, improving financial flexibility. - Overall, earnings growth guided by operational leverage, market expansion in high-growth EV/electronics segments, and cost optimization.

- For the current year, Varroc Engineering expects CapEx in the range of INR 450-500 crores, including some land acquisition. - Next year, CapEx is anticipated to be around INR 300-400 crores, primarily for capacity creation and program-related growth. - The main focus areas for CapEx are electronics, lighting, and electric vehicles (EV), aligning with the company's growth trajectory towards e-mobility. - Investment is also directed towards mechanization and automation in Indian manufacturing facilities to reduce dependence on labor. - Overseas business wins, including those for the Thailand lighting plant, particularly in passenger vehicle lighting (e.g., headlamps), will lead to increased production starting FY 2027 with ramp-up in FY 2028; CapEx will support this growth. - Overall, CapEx will enable capacity expansion and adoption of better technology to meet growing demand and pursue new opportunities in EV and electronics segments without sacrificing financial discipline.

- There is no immediate plan to raise Non-Convertible Debentures (NCDs); the current NCD approval of INR 500 crore is an enabling resolution only, not for near-term fundraising. - The company is prudent with debt and plans to reduce net debt to zero by FY 2028, but near-term debt levels may remain at INR 500-600 crore due to CapEx and business ramp-up. - Management emphasized maintaining financial discipline while pursuing growth opportunities, and any additional funding needs would be carefully evaluated. - No explicit mention of equity fundraising or plans to issue new shares in the near term was made during the call. - CapEx for growth, largely towards e-mobility and electronics segments, will continue but without immediate plans for increased debt beyond current levels.

- Current order intake is INR 33 billion (approx. INR 3,300 crores), the highest ever for Varroc Engineering. - Around 65% of this order book relates to EV models. - SOPs (Start of Production) worth INR 3,300 crore are expected in FY 2027 and FY 2028. - Overseas order book for the year is close to INR 1,400 crore, with major programs starting production in FY 2027 and further ramp-up in FY 2028. - The overseas business includes wins for the Thailand lighting plant focusing on passenger vehicle lighting and headlamps. - The company expects strong ramp-up in revenues driven by the order book over the next two years. - There is confidence in the order book with no concern about conversion into revenues.