Varroc Engineering shares jump 7%, ICICI Securities says 'Buy' stock
Varroc Engineering: ICICI Securities anticipates a gradual recovery in Varroc’s overseas business over the next one to two years, bolstered by recent order wins.
- May 30, 2025,
- Updated May 30, 2025 11:38 AM IST
Varroc Engineering’s stock witnessed a robust gain of over 7 per cent in Friday's trading session, driven by the favourable outcomes reported in its March quarter results. The stock surged 7.15 per cent to reach a high of Rs 549.85 on the Bombay Stock Exchange (BSE), reflecting investor optimism stemming from the company’s performance and future prospects.
The company's earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin stood at 10.5 per cent, marking a decrease of approximately 70 basis points year-on-year. However, it surpassed consensus estimates by around 50 basis points. Varroc Engineering's revenue grew by 11 per cent year-on-year, with Indian operations contributing a 13 per cent increase, although overseas operations remained challenged due to macroeconomic weaknesses.
ICICI Securities anticipates a gradual recovery in Varroc’s overseas business over the next one to two years, bolstered by recent order wins. The firm projects a 10 per cent revenue compound annual growth rate (CAGR), particularly driven by the two-wheeler segment and the ramp-up of new order wins. The brokerage predicts an improvement in EBITDA margins to approximately 10.4 per cent in FY26 and 10.8 per cent in FY27.
Cost reduction measures and foreign exchange gains have contributed to a quarter-on-quarter improvement of approximately 150 basis points in EBITDAM. Additionally, employee expenses have been reduced following a recent restructuring exercise. Varroc Engineering also managed to decrease its net debt by Rs 40 crore during Q4 to Rs 750 crore, with further reductions anticipated from the sale of its China joint venture stake.
The company expects to invest approximately Rs 250 crore in capital expenditure for FY26, alongside a planned land purchase valued at Rs 100 crore. The revenue contribution from the electric vehicle (EV) segment increased significantly to 9.8 per cent in FY25 from 5.3 per cent in FY24, largely fuelled by sales to Bajaj Auto.
Lifetime order wins in FY25 amounted to Rs 6,100 crore, with a substantial portion coming from the EV segment. These new orders are expected to drive Varroc’s growth, potentially contributing additional revenues of Rs 840 crore in FY26 and Rs 1,180 crore in FY27. The company is also exploring opportunities to supply products to KTM in Europe, anticipating further growth in EV revenues.
ICICI Securities maintains a BUY rating on Varroc Engineering with a revised target price of Rs 610, based on a discounted cash flow model. The target price revision reflects confidence in the company’s strategic initiatives and projected financial improvements.
Varroc Engineering’s stock witnessed a robust gain of over 7 per cent in Friday's trading session, driven by the favourable outcomes reported in its March quarter results. The stock surged 7.15 per cent to reach a high of Rs 549.85 on the Bombay Stock Exchange (BSE), reflecting investor optimism stemming from the company’s performance and future prospects.
The company's earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin stood at 10.5 per cent, marking a decrease of approximately 70 basis points year-on-year. However, it surpassed consensus estimates by around 50 basis points. Varroc Engineering's revenue grew by 11 per cent year-on-year, with Indian operations contributing a 13 per cent increase, although overseas operations remained challenged due to macroeconomic weaknesses.
ICICI Securities anticipates a gradual recovery in Varroc’s overseas business over the next one to two years, bolstered by recent order wins. The firm projects a 10 per cent revenue compound annual growth rate (CAGR), particularly driven by the two-wheeler segment and the ramp-up of new order wins. The brokerage predicts an improvement in EBITDA margins to approximately 10.4 per cent in FY26 and 10.8 per cent in FY27.
Cost reduction measures and foreign exchange gains have contributed to a quarter-on-quarter improvement of approximately 150 basis points in EBITDAM. Additionally, employee expenses have been reduced following a recent restructuring exercise. Varroc Engineering also managed to decrease its net debt by Rs 40 crore during Q4 to Rs 750 crore, with further reductions anticipated from the sale of its China joint venture stake.
The company expects to invest approximately Rs 250 crore in capital expenditure for FY26, alongside a planned land purchase valued at Rs 100 crore. The revenue contribution from the electric vehicle (EV) segment increased significantly to 9.8 per cent in FY25 from 5.3 per cent in FY24, largely fuelled by sales to Bajaj Auto.
Lifetime order wins in FY25 amounted to Rs 6,100 crore, with a substantial portion coming from the EV segment. These new orders are expected to drive Varroc’s growth, potentially contributing additional revenues of Rs 840 crore in FY26 and Rs 1,180 crore in FY27. The company is also exploring opportunities to supply products to KTM in Europe, anticipating further growth in EV revenues.
ICICI Securities maintains a BUY rating on Varroc Engineering with a revised target price of Rs 610, based on a discounted cash flow model. The target price revision reflects confidence in the company’s strategic initiatives and projected financial improvements.