This post on Varroc Engineering IPO tries to bring out consolidated brokerage views opinions, IPO Review / Analysis, Note/ reports and recommendation of brokerages , Analyst, Business New papers, Management views, Grey Market Premium, Subscription etc on Varroc Engineering IPO and shall be updated continuously till the closure of the issue. The information collated from various sources and reports in public domain can help investors to decide whether they should subscribe to Varroc Engineering IPO or not.
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Varroc Engineering IPO: Grey Market Premium etc.
26/6/18 Grey Market Premium down to Rs. 40 from Rs. 60 Kostak Rs. 350/-
Complete Anchor List
Anchor Investors (AIs) portion in the Public Issue of Varroc Engineering Limited 60,36,518 equity shares have been subscribed today by 18 AIs at Rs. 967/- per equity share. Anchor investors included Canadian pension fund CDPQ, Eight mutual funds, SBI Life Insurance Company Ltd, Bajaj Allianz Life Insurance Company Ltd , Edelweiss PE etc. Smallcap World Fund Inc. bought the biggest share totalling ~Rs 100 crore.
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Consolidated opinion of Brokerages, Analysts, Business New Paper Reports, Management Views on Varroc Engineering IPO .
Ajcon Global: “At the upper end of the price band, the issue is valued at 29 times of FY18 EPS which we feel is slightly expensive owing to the premium it commands due to the following factors like:a) 6th largest fastest growing among top six global exterior autolighting suppliers, b) strong competitive position in attractive growing markets, c) focus on high growth markets for its global lighting business, d) long standing relationships with marquee clients like Ford, Jaguar Land Rover, Volkswagen, Renault-Nissan-Mitsubishi, American electric car manufacturer – Tesla, Harley Davidson, Suzuki, Honda, Bajaj Auto, Yamaha, Hero,Piaggio, Eicher Motors (Royal Enfield) etc, e) comprehensive product portfolio, f) low cost, strategically located manufacturing and design footprint of 36 manufacturing facilities spread across seven countries, with six facilities for global lighting business, 25 for India business and five for other businesses, g) robust in house technology, innovation and inhouse R&D capabilities in India, Czech Republic, China, USA, Mexico, Germany, Italy, Romania with 1,414 R&D engineers –185 patents granted globally, h) strong balance sheet with Net Debt: Equity at 0.31x, positive operating cash flow with decent RoE of 15.94%, we recommend “SUBSCRIBE” to the issue.”
Angel Broking: “ In terms of valuations, the pre-issue P/E works out to 28.9x FY2018 earnings (at the upper end of the issue price band), which is high compared to its peers like Motherson Sumi, which is trading at 26.4x. Further, VEL has lower RoE at 16% vs. Motherson Sumi at 25% (FY18). Considering the above factors and two year low profitability growth, we recommend NEUTRAL rating on the issue. “
Capital Market: ” Score 45/100, At the higher price band of Rs 967, the P/E on FY 2018 EPS (on current diluted equity of Rs 13.48 crore) of Rs 33.4 works out to 29. Currently, all the comparable listed players are trading at very high P/E multiples.”
Centrum Wealth: ” Price-to-earnings at a discount compared to peer group average.
Current strategy of diversifying product base, technology up-gradation and M&A opportunity to further enhance position.Given this along with decent balance sheet position recommend ‘Subscribe’.”
Choice Broking:“ On valuation front, at higher price band, the company is demanding a P/E valuation of 29x (to its restated FY18 EPS of Rs. 33.4) as against the peer average of 23.1x. With respect to FY19 and FY20 EPS too, it is asking a premium valuation to its peers. Thus, the issue seems to be fully priced. However, considering the global market position, future strong growth outlook, low profitability and expensive valuation, we assign a “Subscribe with Caution” rating to the issue.”
ICICI Direct: ” VEL is a Tier 1 auto ancillary player which has wide range of product portfolio spread across customers & geographies. Further pedigree management, strong growth opportunity & decent return ratio (~16%) remains positive for the company. The company is undervalued at 29x its FY18 EPS compared to some of its peers. Thus, we recommend subscribe to the issue from a long term perspective.”
Nirmal Bang: “Varroc is the 6th largest global automotive lighting company and the 2nd largest in EV lighting. Thus it is ideally placed to capture the migration within the automotive lighting industry from halogen/xenon to LED. Over 2014-16, Varroc Lighting Systems has grown three times faster at 27.5% CAGR v/s an average of 8.6% for its competitors (Top 8). Domestic business will be aided by deeper penetration into existing clients by supplying more products. Varroc is being offered at a PE of 28.9x FY18 (vs. domestic peer average of 41.6x) and EV/EBITDA of 15.9x FY18 (vs. domestic peer average of 17.6x). Thus based on the business capabilities, industry growth prospects and valuations, we recommend subscribing to the issue.”
SMC : “Rating 2/5 The company is heavily dependent on the performance of the global passenger vehicle market and the two wheeler and three wheeler market in India. It generates revenue of 65% from global plants and 35% from domestic plants. Any adverse changes in the conditions affecting these markets can adversely impact its business. Also the company has experienced negative cash flows in prior periods and any negative cash flows in the future could adversely affect its financial condition. Also the issue looks expensive. High risk investors may invest in this IPO for medium to long term”
SP Tulsiyan website: “Company has demonstrated healthy growth historically, and its fundamentals remain sound. However it still has significant ground to cover in terms of improving margins and making inroads into the high-growth domestic passenger vehicle OEMs. Considering positive view on auto sector coupled with issue not being aggressively priced, one can apply in the IPO, preferably with a medium to long term view. ”