IPO: Varroc Engineering Limited
Company & Business Profile
Varroc Engineering is a leading manufacturer and supplier of auto components like lighting system, Polymers, Plastics, electric component to two-wheeler, three-wheeler and for Commercial Vehicles. It is a global tier-1 company which directly supply to original equipment manufacturers (OEMs) automotive component group.
VEL is second largest in automotive component with 36 manufacturing facilities across 7 countries (25 manufacturing facilities in India). VEL 65% revenue comes from abroad business and 35% share is from Indian business. In India’s business VEL manufactures 2W and 3W auto part components. It is and one stop shop for all 2W OEMs. Bajaj-Auto is major customer of VEL which share 50% share in revenue in India’s business.
The offer will be OFS for 20,221,730 shares by promoter and promoter group. Omega TJ holdings and Tata Capital Financial Services Ltd are shareholders selling their stake 12.55% and 1.15% respectively.
The price band has been fixed from Rs. 965-967 per share. The offer will open for subscription on June 26 and close on June 28.
It has the leadership in B2B markets in India of supplying OEMs to largest two-wheeler makers like Bajaj-Auto, Yamaha, Honda, Hero.
The company is present in 16 product categories such as polymers, lighting products, plastics, metallic components, auto electricals etc.
The India business unit contributes 35% percent to its total revenues. The company has invested Rs 461 crore towards expansion and research and developments with 5 R&D centers across India.
VEL consolidated revenue in FY18 stood at Rs. 10378 crore. Profit in FY18 stood at Rs. 450 crore vs Rs. 303 crore in FY17.
Focus areas
Going ahead focus would be on high growth markets for global lighting business, increasing customer revenue from India business, pursues strategic JV, operational efficiency etc. Also focus will be on electric vehicle technology.
Valuation
At upper price band of Rs. 967 VEL business valued at P/E of 28.95x on it’s FY18 EPS of Rs. 33.40. It’s book value per share stood at Rs. 209.77 which is 4.5 times higher then it’s issue price. VEL’s RoE and RoCE is ~15% and ~13% respectively whereas profit margins are in the range of ~4-5%. VEL’s nearest peers like Bharat forge and Motherson Sumi trading at P/E of 38.35x and 27.54x.
Objects of the Issue
The objects of the offer are to achieve the benefits of listing on stock exchange and to carry out the OFS by selling shareholders and to enhance visibility and creating corporate brand image.
Listing
The equity shares of the company are proposed to be listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
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