Varroc Engineering IPO Review: Should you Invest?

Varroc Engineering Limited has planned to raise approximately Rs. 1946 crore through an IPO. Citigroup Global Markets India, Credit Suisse Securities (India) and Kotak Mahindra Capital are the global coordinators of the Varroc Engineering IPO and book running lead managers for the issue.

The pre-issue, promoters’ stake in the company stands at 86.3%. However, post-issue, the promoters’ stake will come down to 85%. Link Intime India is the registrar to the issue.

Varroc Engineering IPO Details

The company will not receive any proceeds from the Offer for Sale. The objective of the IPO is to achieve the benefits of listing their Equity Shares on the Stock Exchanges. The listing of Equity Shares is expected to enhance the company’s brand name and provide liquidity to the existing shareholders.

• Issue Open: June 26, 2018 – June 28, 2018
• Issue Type: Book Built Issue IPO
• Issue Size: 20,121,730 Equity Shares of face value Rs 1 aggregating up to Rs 1,945.77 Cr
• Issue Price: Rs 965 – Rs 967 Per Equity Share
• Market Lot: 15 Shares
• Minimum Order Quantity: 15 Shares
• Listing At: NSE, BSE

Investment Rationale

• As per CRISIL report, Varroc Engineering is considered to be the second largest Indian auto component group (by consolidated revenue for FY2017) and a leading tier-1 manufacturer and supplier to Indian two-wheeler and three-wheeler OEMs (by consolidated revenue for FY2017).
• They are the sixth-largest global exterior automotive lighting manufacturer and one of the top three independent exterior lighting players (by market share in 2016)
• The company has a global footprint with 36 manufacturing facilities, that is spread across 7 countries. The company has 6 facilities for its global lighting business, 25 for its Indian business and 5 for other businesses.
• Strong long-term relationships with marquee auto manufacturers with Ford, Jaguar-Land Rover, the Volkswagen Group, Renault-Nissan-Mitsubishi, Groupe PSA, FCA, a European multinational car manufacturer and an American electric car manufacturer, across the premium, mid-range and mass market pricing spectrum.
• The company has strong competitive position in the growing markets.
• Developed footprints in countries with low labour costs (such as in Mexico or the Czech Republic), thus benefiting from low-cost engineering compared to the average engineering cost in European countries.
• Consistent track record of growth and operational and financial efficiency.
• Comprehensive portfolio of products in the markets which allow it to be a one-stop-shop for the customers and to cross-sell products.

IPO Review: Should you Invest?

Varroc Engineering Ltd has posted the consolidated top-line and bottom-line CAGR of approximately 12% and 10% respectively over the period FY16-18. In FY18, the company has delivered the total operating income of Rs 10,378 crore with net profit at Rs 451 crore. Debt equity ratio improved from 1.3 times in FY15 to 0.3 times in FY18, as the debt fell significantly. The investors may subscribe for the Varroc Engineering IPO.