Auto component manufacturer Varroc Engineering IPO consists of entirely an OFS (offer for sale) of 2.02 crore shares by promoters and existing investors. At the upper price band of Rs. 967, the total size of the issue stands at Rs 1,955 crore. Varroc Engineering IPO will result in exit by Singapore-based Omega TC Holdings Pte Ltd, a fund managed by Tata Opportunities, and Tata Capital Finance Services as well as by Tata Capital Finance . Promoter Tarang Jain is selling a small % of his shares.
Varroc Engineering IPO: Details
|Issue Period||Tue June 26- Thu, June 28, 2018|
|Issue Details||Offer for Sale of 202,21,730 Equity Shares|
|Issue Size (Rs. Cr)||1,954.9 Cr|
|Price Band||Rs.965 – 967|
|Employee Discount||Rs.48/- per Equity Share|
|Bid Lot||15 Equity Shares|
|Issue Structure :|
|QIB||50% of the Net offer|
|NIB||15% of the Net offer|
|Retail||35% of the Net offer- 70,42,606 Equity Shares- 681.02 Cr.|
|Appls. for 1x retail||4,69,507|
|BRLMs||Kotak Mahindra Capital, Citigroup Global, Credit Suisse Sec, IIFL Holdings|
|Registrar||Link Intime India Pvt. Ltd.|
About Varroc Engineering
- Varroc Engineering is a leading Indian auto component manufacturer with a large global presence. Varroc Engineering is a tier-1 automotive component group. Tier-1 companies directly supply to OEMS.
- Varroc Engineering designs, manufactures and supplies exterior lighting systems, plastic & polymer components, electrical, electronics components and precision metallic components to passenger cars, commercial vehicles, two-wheeler, three-wheeler and off highway vehicle.
- These supplies are made to OEMs worldwide. It has a 36 manufacturing facilities around the globe.
- As per Crisil, Varroc is the 2nd largest Indian auto component group (by consolidated revenue for FY2017) and a leading Tier-1 manufacturer and supplier to Indian 2-wheeler and 3-wheeler OEMs.
- Varroc is the 6th largest global exterior automotive lighting manufacturer and one of the top 3 independent exterior lighting players (by market share in 2016)
Varroc Engineering : Financials
|(Rs. In Cr)|
|Particulars||9m FY18||FY 17||FY 16||FY 15||FY14|
|Revenue from Operations||10,378.46||9,608.54||8,218.90||6,950.77||6,116.35|
|Revenue Growth (%)||–||16.91%||18.24%||13.64%|
|EBITDA as stated||916.18||675.48||591.57||704.57||422.51|
|Profit Before Tax||512.57||327.19||391.8||63.35||84.22|
|Long Term Borrowings||636.15||755.27||557.35||433.67|
|Short Term Borrowing||343.93||599.19||641.87||383.05|
|Post Issue Equity||13.48|
|EPS Ann (FY18)||44.59|
|PE (Annualized FY18)||28.95|
|PE – (FY17)||42.97|
|CAGR Sales 3 Yrs||16.25%|
|CAGR Net Profit 3 Yrs||91.95%|
|Market cap / Sales||1.36|
Fine Organic Industries IPO: Pros
- Varroc Engineering is a well diversified global auto component business across multiple geographies, vast product portfolio and large customer base.
- Company has good presence in the fast-growing India 2W and Global Passenger Vehicle lighting segment.
- Varroc Engineering derives around 35% of the revenues from India and rest from international markets with North America (22%), Asia Pacific (1%) and rest of the world ( 42%).
- Company has marque customers spread over all geographies. Varroc Engineering customers include Ford, Jaguar Land Rover, FCA, Groupe PSA, the VW Group, Bajaj, Royal Enfield, Yamaha, Suzuki, Honda, Hero, Piaggio and Harley Davidson.
- Bajaj accounts for 18.6% of the revenues followed by Honda at 4% at the end of March 2018.
- Varroc Engineering has low cost, strategically located manufacturing and design footprint with in-house technology, innovation and R&D capabilities
Varroc EngineeringIPO: Risks
- Risk of pricing pressures from OEMs
- Exchange Rate Risks
- Varroc Engineering is heavily dependent on the performance of the global passenger vehicle market and the 2/3 wheeler markets in India.
Varroc Engineering IPO: Comparison with Peers
|Rs. In Crore (FY18 Figures)|
|Company||Varroc (ann fy18)||Endurence||Motherson Sumi|
|Note : for Varroc engg, 9mFY18 figures have been annualized|
Varroc Engineering IPO : Assessment
- Varroc Engineering is a company with global foot print as well as operations in India. It tremendous growth has been propelled by growing its market share of both with existing customers& new customer, geographical acquisitions and expansion and the development of technologically sophisticated products.
- According to Crisil, the market size of the two- and three-wheeler electrical segment is expected to grow at a compound annual growth rate (CAGR) of 16-18 per cent between FY2017 and FY2020.
- This estimate for 2/3 Wheeler Polymer segment is at a CAGR of 18-20 per cent.
- This estimate for Lighting is at a CAGR of 16-17 per cent. This indicates good demand for company’s products.
- Varroc Engineering has strong balance sheet with Net debt-equity stood at 0.3 as on end FY 2018. The company has a consistent track record of operational & financial efficiency
- At the IPO price band of ₹965-967, the PE (price-to-earnings) ratio is about 29 times the company’s annualized consolidated earnings for the year-ended March 2018.
- At post issue P/E of around 29, the Varroc Engineering IPO valuations are reasonable looking to its performance in past and prospects. The Varroc Engineering IPO looks OK for medium to long term and company has strong product base, geographical reach and technological prowess even as these +ves are priced in the high price being demanded. I am +ve on Varroc Engineering IPO, but given the fact that it is not cheap, I intend to apply in the IPO provided there is a good response by institutional investors to theVarroc Engineering IPO.