Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Varroc Engineering Ltd (NSE:VARROC, Financial) reported a revenue growth of 10.3% year-on-year for Q2 FY25, with the India business showing a strong growth of 13.4%.
- The company's EBITDA margin improved by 60 basis points and the PBT margin by 150 basis points on a quarter-on-quarter basis.
- Net debt reduced significantly by INR 1,554 million in H1 FY25, bringing the net debt to equity ratio down to 0.5.
- The order book remains healthy with net new business wins achieving annualized peak revenues of INR 6,046 million, with 37% of these wins from EV models.
- Varroc Engineering Ltd (NSE:VARROC) is investing in new technologies and expanding its product portfolio, including integrated starter generators and battery management systems for electric vehicles.
Negative Points
- The passenger car and commercial vehicle segments faced challenges, with passenger vehicles declining by 0.7% and commercial vehicles by 13.3% year-on-year.
- Consolidated profitability was impacted by growth in overseas businesses and R&D spending.
- The gross margin was slightly weaker quarter-on-quarter due to changes in the sales model and resin-related pricing lags.
- The tax rate was higher this quarter due to unrecognized deferred tax assets from overseas losses.
- The European and American two-wheeler markets are impacted by destocking and lower consumption, affecting growth in these regions.
Q & A Highlights
Q: The gross margin this quarter was slightly weaker quarter-on-quarter. What are the reasons for this?
A: There are a couple of reasons. Firstly, in Europe, we've had a change in our sales model to the customer, which has contributed notionally to a margin increase. Additionally, there has been a mix impact and some resin-related lags in our raw material pricing. (Respondent: Unidentified_6)
Q: What is your outlook for future growth, and which segments do you expect to see significant growth in?
A: We see volume expansion in our existing programs, particularly in electronics, which is starting to flow into our revenue. This trend will continue and strengthen further. The order book is translating into revenue now, with growth expected in both two-wheeler and passenger car segments. (Respondent: Unidentified_6)
Q: The tax rate was quite high this quarter. What is the reason for this, and what should be the normalized tax rate going forward?
A: The high tax rate is due to not recognizing deferred tax assets on overseas losses, as we need to see a turnaround to gain confidence. The stable effective tax rate going forward could be around 27%. (Respondent: Unidentified_4)
Q: Can you provide more details on the new business wins, such as the Battery Management System (BMS) order?
A: The BMS order is from an existing customer and will involve large volumes going forward. The interior ambient lighting order is for our overseas electronics plant in Romania, from a North American customer, with SOP expected in 2026. (Respondent: Unidentified_3)
Q: What is the target for debt reduction by the end of this year and for FY26?
A: We aim to end this year with a net debt of around INR 700 to 750 crore. We are trying to achieve more, but certain factors need to align. (Respondent: Unidentified_4)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
