Varroc Engineering Ltd Q1 FY27 Earnings Call Summary

Event Participants

Executives

6 Arjun Jain, Bikash Dugar, Dhruv Jain, Mahendra Kumar, Tarang Jain, Vishal Raval

Analysts

11 Aditya Jhawar, Ankur Poddar, Apurva Mehta, Arvind Sharma, Jyoti Singh, Mihir Vora, Naman Maheshwari, Neha Garg, Rahul Kumar, Shubham Jain, Siddhant Tandon

Financials & KPIs

Geographic & Segment Commentary

India Operations: Revenue grew 28.6% YoY on record industry volumes — PV +16.8%, 2W +22.8%, 3W +39.1%, CV +15.2% (all YoY). EBITDA margin at 10.6% and PBT margin ~7%, with EBITDA up 22% YoY. Strong demand tailwinds included rural recovery, infrastructure spending, and 91% YoY growth in EV 2W volumes.

Overseas Operations: Revenue grew 45.6% YoY, continuing the momentum from Q4 FY26. Losses from overseas operations and overseas R&D are reducing sequentially. Romania electronics plant — now reported separately given its shift to E-architecture work — is focused on passenger vehicle low-voltage and high-voltage electronics, body controllers, and ADAS, with new launches already underway and more expected. 2W overseas business is already profitable; Romania targeted for EBITDA break-even by Q4 FY27.

E-Mobility (EV Revenue): Contributed ~16% of total revenue, growing 87% YoY. Varroc is the primary e-powertrain supplier to the market leader in combined 2W/3W EVs. ~75% of EV revenue comes from Bajaj Auto. Management sees the Iran war structurally shifting consumer preference toward EVs globally, and expects EV penetration to extend from scooters (currently 20-30% of market) into motorcycles, benefiting Varroc's powertrain franchise.

Company-Specific & Strategic Commentary

• EV Powertrain Leadership & Customer Wins: One new e-powertrain business win is expected to reach SOP in Q2 FY27 (customer backed by a significant global OEM). Two additional customers in advanced discussions for e-powertrain — one already won business for another technology product in Q1. Management emphasized a product line and competence-driven strategy rather than explicit customer diversification, though new customer wins (including new OEM entrants like VinFast) are being pursued.

• Leadership Appointment: New CTO Mr. Eric Hamon (25 years global automotive technology leadership) onboard for Business Unit 1, bringing deep expertise in electrification, software-defined vehicles, embedded software, and functional safety. Complements existing strategy of strengthening e-powertrain leadership while expanding into higher-voltage systems and X-in-1 integration concepts.

• KTM Opportunity: Bajaj Auto's takeover of KTM opens incremental direct business opportunities, though management notes KTM's high SKU mix means growth will be step-by-step; too early to quantify.

• FY31 Vision: Management reiterated aspiration to double revenue to ₹20,000 crores by FY31 (from ~₹10,000 crores), with ~10% inorganic contribution and some non-auto revenue. Overseas would be ~20% of FY31 revenue. Inorganic focus areas: e-powertrain, electronics, aftermarket, and export-oriented opportunities, primarily in India, though organic growth (20-25%) is prioritized given expensive valuations.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Order Wins Breakdown & EV Powertrain Pipeline

• Question: Split of ₹600 crores order wins and timeline for traction motor wins with top EV players (Shubham Jain, Investec)
• Answer: ~2/3 of wins are e-mobility volume expansions on existing programs; balance is primarily 4W lighting (Thailand) plus smaller wins (Arjun Jain). One announced e-powertrain win SOPs in Q2 FY27 (customer backed by a significant global OEM); two further customers in advanced discussion with SOPs expected within FY27 (Arjun Jain). With one of the top-3 non-Bajaj EV players, Varroc is in e-powertrain discussion; with another, it has won business for a different technology product declared in Q1 (Arjun Jain).

Overseas Business & Romania Break-even

• Question: Expected delays in overseas OEM launches; timeline for overseas EBITDA/PBT break-even (multiple analysts)
• Answer: No shift expected in order book execution — wins span multiple customers and programs, and revenue will continue increasing (Dhruv Jain). Romania electronics had several new launches this year, driving sequential revenue growth. 2W overseas is already profitable; Romania targets EBITDA break-even by Q4 FY27. Group PBT target of 10% in 3-4 years (Mahendra Kumar). Overseas revenue this year can double (Dhruv Jain).

Margin Recovery Path

• Question: How much of the 50 bps war underrecovery will be recovered and when; tooling margin impact outlook (Shubham Jain, Investec; Apurva Mehta, AM Investment)
• Answer: Recovery efforts already underway; most recovered between Q2 and Q3. The numerator/denominator arithmetic impact may take 1-2 quarters to neutralize (Mahendra Kumar). Tooling was ₹70 crores, impacting 0.8% on margins — a one-time that should not repeat at this scale in Q2. India business should return toward 12% EBITDA margin trajectory in Q2 barring one-timers (Mahendra Kumar).

EV ASP Trends & Pricing Power

• Question: Revenue growth (56% YoY) lagging industry EV volume growth (80-90%); ASP decline and OEM pricing pressure outlook (Mihir Vora, Equirus)
• Answer: ASPs declined high single-digit YoY, driven by product composition improvement. Q1 also saw labor challenges in April-May in own plants and supply chain, now fully recovered (Arjun Jain). OEM cost-down pressure has largely played out; no double-digit ASP declines expected. Integration into smaller boxes (X-in-1) is an ASP increase opportunity, offsetting declines (Arjun Jain).

CapEx & EV Capacity Expansion

• Question: Capex strategy and allocation given EV growth; quantification (Mihir Vora, Equirus)
• Answer: FY27 capex of ₹500-550 crores (India + overseas), higher than last 2-3 years, largely for e-mobility capacity expansion and to service EV models with engine-agnostic products. Front-loaded in Q1 (₹160 crores spent) (Mahendra Kumar, Arjun Jain).

Customer Mix & Diversification

• Question: Progress with non-Bajaj customers, need for southern India manufacturing, quantification of share gains (Aditya Jhawar, Investec; Apurva Mehta, AM Investment)
• Answer: Order book shows large non-Bajaj wins; demand outside Bajaj is significant across product categories. Strategy is product-line/competence-driven, not explicit customer diversification. Customer mix percentages haven't changed dramatically, but absolute growth is happening both inside and outside Bajaj (Arjun Jain). Bajaj remains very important and will always be, but increasing revenues from many other customers will be visible going forward (Tarang Jain).

FY31 Revenue Target & Inorganic Strategy

• Question: Is ₹20,000 crores FY31 target organic; what inorganic areas; timeline of 10% PBT (Naman Maheshwari, Sanghvi Family Office; Aditya Jhawar, Investec)
• Answer: ~10% of the ₹20,000 crores will come from inorganic route, plus some non-auto revenue. Inorganic focus: e-powertrain, electronics, aftermarket, exports (largely in India) — only if financially accretive given expensive valuations (Tarang Jain). 10% PBT is a 3-4 year aspiration (Mahendra Kumar). Overseas would be ~20% of FY31 revenue (Tarang Jain, correcting CFO's 25-30%).

Working Capital & Debt

• Question: Working capital increase detail; zero-debt target timeline (Neha Garg, Zenflow Finance)
• Answer: No change in receivable days; inventory built for peak season plus war-related recoveries pending invoice/collection — temporary (Mahendra Kumar). Zero-debt target maintained for FY28, with management trying to achieve as soon as possible.

EV Revenue Customer Split

• Question: Split of 16% EV revenue between Bajaj and non-Bajaj (Rahul Kumar, Vaikarya)
• Answer: Approximately three-quarters of EV revenue from Bajaj Auto; similar pattern to last quarter with a few percentage points variation (Arjun Jain).

Key Takeaway

Varroc delivered one of its strongest quarters, with consolidated revenue of ₹2,634 crores (+29.9% YoY), driven by 28.6% growth in India and 45.6% in overseas. EV revenue reached 16% of total, growing 87% YoY, with management expecting e-powertrain wins to compound through FY27 — one SOP in Q2 backed by a major global OEM and two more customers in advanced discussions. EBITDA margin declined 100 bps YoY to 8.5% on war-related costs (0.75%) and large low-margin tooling sales (0.8%), but PBT improved 20 bps YoY to 4.3% and India operations delivered 10.6% EBITDA / ~7% PBT margins. Management guided to 20-25% FY27 revenue growth (ambition, not formal guidance) and ₹500-550 crores capex for e-mobility capacity. Romania remains the key turnaround story, targeting EBITDA break-even by Q4 FY27, with overseas revenue doubling this year. Long-term aspiration of ₹20,000 crores revenue by FY31 (10% inorganic) and 10% PBT in 3-4 years frames the strategic direction. Watch points: war-cost recovery pace, tooling one-offs, Bajaj concentration (58% of order book), and overseas OEM launch timing.