Investec Upgrades Varroc Engineering Target; Sees Strong Growth And Margin Gains

Investec has reiterated its 'Buy' rating on Varroc Engineering while raising the target price to Rs 800 from Rs 750, citing improving fundamentals and management's confidence in growth acceleration.

The brokergae said,

• All pieces are falling in place.

• Management is quite confident on growth acceleration.

• Healthy revenue growth coupled with cost optimisation should help improve overall margins.

• With an estimated 13% compound annual growth rate in revenue between FY2025 and FY2028, and an improvement of around 90 basis points in the Earnings Before Interest, Taxes, Depreciation, and Amortisation. margin over the same period

• Varroc is expected to achieve about 26% compound annual growth rate in earnings per share between FY2025 and FY2028, and deliver a post-tax return on capital employed of 16% in FY202

• Varroc's shares are currently priced at a valuation that is considered reasonable, trading at about 21 times the estimated earnings per share for the financial year 2027.

In second quarter result, Varroc Engineering Ltd.'s Ebitda margin stood at 9.2%, down 80bps YoY. Revenue growth was 6% YoY, with 8% YoY growth in India operations. Overseas operations remained under pressure due to macro weakness.

Varroc Engineering expects a gradual recovery in its overseas business over the next one–two years, with recent order wins.

ICICI Securities in its brokerage note factored in 12% revenue CAGR over FY25–28E, led by growth in the two-wheeler segment and ramp-up of new order wins.

ICICI Securities also expects ebitda margin to improve to 10.5% to 10.7% in FY27E to FY28E. The brokergae maintained Buy, with a DCF-based target price of Rs 745 (earlier Rs 690), implying 20 times FY28E earnings per share.

Varroc Engineering is a global automotive technology company that designs, develops, and manufactures a wide range of components for two-wheeler, three-wheeler, passenger, commercial, and off-highway vehicles