Ajcon Global has come out with its report on Varroc Engineering. The research firm has recommended to "Subscribe " the IPO in its research report as on June 25, 2018.
Incorporated in 1988 at Aurangabad by Jain Family, Varroc Engineering, is a Tier I automotive component group which is engaged in designing, manufacturing and supplying exterior lighting systems, plastic and polymer components, electrical electronic components, and precision metallic components to passenger cars, commercial vehicles, two-wheelers, three-wheelers, and off highway vehicle manufacturers. Varroc has a global footprint of 36 manufacturing facilities spread across seven countries. It is the second largest Indian auto component group (by consolidated revenue for FY2017) (Source: CRISIL Research) and a leading tier-1 manufacturer and supplier to Indian two-wheeler and three-wheeler OEMs (by consolidated revenue for FY2017) (Source: CRISIL Research). It is the sixth-largestglobal exterior automotive lighting manufacturer and one of the top three independent exterior lighting players (by market share in 2016) (Source: Yole). It has a global 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. Given its global presence, the revenue stream is diversified both geographically as well as across customers.
Valuation and OutlookAt 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 forglobal 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 cashflow with decent RoE of 15.94%, we recommend “SUBSCRIBE” to the issue.
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