Q1 2027 Varroc Engineering Ltd Earnings Call
Speaker #1: Thank you, Atheru. Good evening, everyone. We are pleased to invite you to the Q1 FY27 post-results conference call of Varroc Engineering. The management team will be represented by Mr. Taranjan, Chairman and Managing Director.
Speaker #1: Mr. Arjun Jan hold time Director and CEO, Business Unit One. Mr. Dhruv Jan hold time Director and CEO, Business Unit Two. Mr. Mahendra Kumar, Group CFO.
Speaker #1: Mr. Vikas Dugda, Head IR. And Vishal Raval, Head Finance Controller. So, without further ado, I now hand over the call to Vikas for the disclaimer.
Speaker #1: Vikas, over to you.
Speaker #2: Yeah. Thank you, Mihir. Thank you, Atheru, for hosting the call. Okay, just a small disclaimer that today's disclaimer—today's discussion may include statements which may constitute forward-looking statements.
Speaker #2: All statements that address expectations or projections about the future, including but not limited to statements about the strategy for growth, business development, market position, expenditures, and financial results are forward-looking statements.
Speaker #2: Forward-looking statements are based on certain assumptions and expectations of future events and involve known and unknown risks, uncertainties, and other factors the actual result, performance, or achievement could differ materially from those spoken in any such forward-looking statement.
Speaker #2: No obligation is assumed by the company on forward-looking statements. With this, I hand over the call to our Chairman, Mr. Taranjan.
Speaker #3: thank you, Vikas. And thank you, Mihir and team Atherus, for hosting the call. I am Taranjan here, and good evening to everyone. India's economy has remained resilient in Q1 of FY27, April to June 2026, supported by a strong domestic consumption, improving rural demand, healthy infrastructure spending, and accommodative financing conditions.
Speaker #3: These macroeconomic tailwinds s translated into one of the strongest quarters for the Indian automotive sector, with passenger vehicle sales reaching record levels and broad-based growth across two-wheelers, commercial vehicles, tractors, and exports.
Speaker #3: Improved affordability, rising consumer confidence, robust freight activity, and accelerating EV adoption supported demand while rural recovery—particularly benefited two-wheelers and farm equipment. For the auto component industry, the positive environment led to a higher production schedule, improved capacity utilization, and stronger opportunities in electronics, EV systems, lighting, and advanced vehicle technologies.
Speaker #3: Despite the ongoing risk from commodity price volatility and global geopolitical uncertainties, the overall outlook for financial year 2027 remains positive, with India continuing to be one of the fastest-growing automotive markets globally.
Speaker #3: In Q1 of financial year 2027, we saw strong growth across all the automotive segments on a year-on-year basis. On a year-on-year basis, two-wheelers grew by 22.8%, three-wheelers grew by 39.1%, passenger vehicles grew by 16.8%, and commercial vehicles grew by 15.2%.
Speaker #3: The EV two-wheeler volume on a year-on-year basis grew by 91%. Despite seasonality, effect on a quarter-on-quarter basis, we still saw a growth on two and three-wheelers, two-wheelers grew by 2.7%, three-wheelers grew by 3.4%, passenger vehicles degrew by 7.5%, and commercial vehicles degrew by 16.9%.
Speaker #3: In Q1 of financial year 2027, the company registered a very strong growth of 29.9% and a consolidated revenue reported as Rs. 26.3 billion. The growth was supported by both India operations, which saw a growth of 28.6%, and also overseas revenue growth.
Speaker #3: The momentum of growth in the overseas business, which started in Q4 of financial year 2026 and gathered further pace in Q1 of financial year 2027, registering a 45% 45.6% growth on a year-on-year basis.
Speaker #3: As emphasized in our last learning call, a foremost priority remains accelerating revenue growth across both India and the international markets. A reminder for the quarter was around 8.5% as compared to 9.5% during the similar period last year.
Speaker #3: A PBT before joint venture and exceptional items for Q1 FY27 came in at 4.3% of revenue, an improvement of 20 basis points on a year-on-year basis, the profitability in this quarter was adversely impacted by higher commodity prices due to war-related costs, higher tooling sales, and the business mix.
Speaker #3: Despite that, the Indian operations reported a 10.6% EBITDA margin and around a 7% PBT margin. The revenue from supplying to electric vehicles in this quarter was around 15.8% of revenue, and grew by 87% on a year-on-year basis.
Speaker #3: In the overseas electronics and lighting business, we have further won some business, notably for our lighting operations in Thailand, sequentially the losses from the overseas operations as well as from overseas R&D is reducing.
Speaker #3: We hope to maintain this momentum of increasing revenue and hence the profitability here. We continue to invest not only in technology but also in people and strengthening our capability.
Speaker #3: Recently, we have appointed Mr. Eric Hammond as a Chief Technology Officer for our business unit one. He comes in with 25 years of global automotive technology and engineering leadership experience.
Speaker #3: With deep expertise in electrification, software-defined vehicles, connected systems, embedded software, functional safety, and cybersecurity. He has successfully led large-scale global R&D organizations developed next-generation mobility technologies and partnered with leading automotive OEMs to deliver innovative and safety-critical solutions.
Speaker #3: As emphasized earlier, in India, we continue to leverage our strong customer relationships, technology capabilities, and expanding product portfolio to capitalize on opportunities emerging from electrification and the premiumization trends.
Speaker #3: In our overseas markets, we are strengthening our presence through deeper through deep customer engagement, enhanced engineering capabilities, and focused business wins positioning ourselves as a reliable global partner.
Speaker #3: In Q1 of financial year 2027, a net new business wins with an annualized peak revenues of Rs. 5,991 million. The net debt of the company in Q1 of FY2027 is Rs.
Speaker #3: 5,268 million, which is an increase of Rs. 316 million from the last quarter, mainly due to the increase in net working capital of Rs.
Speaker #3: 441 million due to higher revenues. The net debt to equity is very comfortable at 0.28. The average ROC of the company is around 24% in Q1 of financial year 2027.
Speaker #3: In this volatile new normal environment, we continue to strengthen our company for long-term growth and performance by taking appropriate decisions and meticulously executing them.
Speaker #3: I endeavor remains to improve the contribution margin, control the fixed costs, generate free cash flow, and improve on the return on capital from all the business segments in which we operate.
Speaker #3: With this, I will now ask MK, our group CFO, to walk you through the presentation and give more insights into the financial performance, we have uploaded the investor presentation to the stock exchanges as well as on the website.
Speaker #3: Over to you.
Speaker #2: Thank you, Saran. Good evening, everyone. Let me take you to slide number 7 in the presentation, which is on the highlights for Q1. As our CMD explained, Q1 revenue was at 2,634 crores, which meant a growth of almost 30% year over year.
Speaker #2: But out of this, if you if you eliminate the inflation-related impact, there could be a 4% difference. Within this, 30% Indian operations registered close to 29% growth, and the overseas operations saw a growth of close to 46%.
Speaker #2: Now, you may recollect that last quarter, Q4, also we registered a significant growth in the overseas operations. So that is continuing now also. So more than the percentage, it's the direction which is important here.
Speaker #2: And then revenue from EV models in Q1 was at 16% of total revenue, which again was a phenomenal growth of 87% year over year.
Speaker #2: Coming to PBT during Q1, it was at 4.3% versus 4.1% shown last year. EBITDA came in at 8.5% compared to 9.5% last year. But this was largely impacted by the war-related impact.
Speaker #2: Basically, the war-related impacted EBITDA level was totally coming to about 0.75%. This has two parts, actually. The genuine under-recovery impacted us to the extent of half a percent.
Speaker #2: The remaining 0.25% EBITDA level or PBT level was driven more by the numerator, denominator impact. Then coming to net debt, net debt was at 527 crores compared to 495 crores.
Speaker #2: This was largely because of the front-loading of capex, which we explained in the previous calls also. Regarding the order wins, in terms of net new business annual peak revenue, it was close to 600 crores.
Speaker #2: Prominent wins were related to the four-wheeler lighting business, then for our Thailand operations from a prominent customer. We also restated the e-mobility volumes in India based on the recent trends.
Speaker #2: So that also increased the overall peak revenue potential. Another significant improvement in terms of the capital efficiency metrics is relating to ROC, ROE, and, of course, the even EPS improvement also.
Speaker #2: So if you take out the exceptional items in Q1 of last year, which was basically relating to the accounting adjustment, which we had to do after the exit from China JV, if you compare the ROC, last year same time we were at 23.6, it went up to 24.6 now.
Speaker #2: A significant improvement in return on equity also from 11% to 16.4% this time. And in terms of EPS also, last time it was 11.5 rupees on annualized basis, which is now 20.3.
Speaker #2: On annualized basis. So that's a significant improvement compared to last time. Coming to the other points, of course, the patents filed continues to be strong at 135-plus patents.
Speaker #2: Going to slide number 8, this is about the industry performance. As all of you know, automotive industry continued the good run. It started during the GST simplification exercise.
Speaker #2: So in Q1 also, the two-wheeler grew by almost 23%, three-wheeler by 39%, passenger vehicle by 17%, and commercial vehicle by 15%. All these are year over year growth numbers.
Speaker #2: Within this, the EV two-wheeler volume registered a growth of 91% year over year. And on sequential quarter-on-quarter basis, two-wheeler had a marginal growth of 2.7% and three-wheeler by 3.4.
Speaker #2: Passenger vehicle had a deep growth of close to 7.5%. Going to the next slide, slide number 9, so basically EBITDA came in at 8.5% versus 9.5% last year.
Speaker #2: If you compare with the previous quarter also, it was 9.7, now it is 8.5. But if you really look at the reasons for this, we also had a significant tooling sale in Q1.
Speaker #2: Sorry, at a lower margin. Which is more like a significant one-timer. Of course, there will be some tooling sales every quarter to a small extent, but this was a large number.
Speaker #2: So that impacted close to 0.8%. And other major reason was the war-related inflationary impact, which I spoke about. So that was about 0.7%. So that was the performance during this quarter.
Speaker #2: And if you really look at PACT, if you take out the exceptional items in Q1, it was almost a 70% growth year over year.
Speaker #2: In Q1. The next slide, we updated this information where you can see what happened in terms of geographical segmentation: India and overseas. India, if you really see, it was like 29% year over year growth and 10% sequential growth.
Speaker #2: In terms of EBITDA also, year over year growth was 22% and PBT was like 41%. Overseas business also, we can see continuing improving trend.
Speaker #2: From the earlier quarters, the last bots relates to the R&D investment, which we started largely from Q2 of last year. That's why it was significantly lower in Q1 of last year.
Speaker #2: But here again, we see improvement compared to the previous quarter. Coming to the next slide, which is about reduction in net debt. There was a marginal increase in net debt this quarter compared to the March end.
Speaker #2: March end number. But like how I explained, this was largely driven by the capex front-loading which this year is going to be a capex heavy year as we explained in the previous calls also.
Speaker #2: This is needed to support the growth. But even with this increase also, the net debt to equity was below 0.3. It was at 0.28.
Speaker #2: Net debt to EBITDA was below 0.6. The next slide is about the revenue breakdown on the customer breakdown, which is more for information. Slide number 13, we again gave the order book status.
Speaker #2: So we started with 3,509 crores at the beginning of the year. Current quarter, we added close to 600 crores. Out of that, close to 500 crores has been taken to startup production already.
Speaker #2: All this is in terms of annual peak revenue potential, not actual numbers for this year. So in terms of which also, if you really see, the Bajaj, non-Bajaj mix shows Bajaj mix of 58% in the annual peak revenue.
Speaker #2: And two-wheeler and three-wheeler at 75%. So let me stop here. I will be happy to take your questions. Thank you.
Speaker #1: Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone.
Speaker #1: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question.
Speaker #1: Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question comes from the line of Shubham from Investech. Please go ahead.
Speaker #2: Okay, hi. Thanks for the opportunity. Congrats on a great set of numbers. First question, you had reported an order window of about 600 crores this quarter.
Speaker #2: Can you please provide the split between the four-wheeler lighting order and the e-mobility one?
Speaker #3: Do you have the breakup? Yeah. So the bulk is the bulk is e-mobility, which is a volume expansion on which is a volume expansion on our existing running programs.
Speaker #3: So yeah, I would I would imagine, I think, two-thirds is e-mobility. And then the balance is a combination of four-wheeler lighting. I would say the most significant portion of the balance is the four-wheeler lighting business with.
Speaker #3: And then I would say, you know, different smaller business wins across product groups.
Speaker #2: Okay. Okay. And for your overseas order book, now there has been some reports of expected delay in launches by some overseas OEMs. So do you foresee a situation wherein you would, you know, face a delay in your order book execution?
Speaker #2: For your overseas business?
Speaker #3: Yes. So just to answer this question, we have so we have we've reported some wins in past quarters, and it's really across multiple customers and multiple programs.
Speaker #3: So one is that so just to answer your question, we're not expecting you know, a shift in you know, our main message so far has been that we will be continuing to increase our revenue in our overseas locations.
Speaker #3: This will certainly still take place because we're not dependent on any one customer here.
Speaker #2: Okay. Okay. Also, for your traction motor business, you had earlier indicated that you are in advanced discussions with an OEM at Bajaj. When should we expect that order wind to flow in?
Speaker #3: No. So we've already announced one business win, which we expect will which we expect is going to become begin imminently, I would imagine. In fact, in quarter two.
Speaker #3: And then there is two further two further customers where, you know, I would say we're in fairly advanced we're in fairly advanced discussion where also I would expect SOPs to take place in this financial year.
Speaker #2: Okay. Okay. And also, so given the strong demand momentum that you're seeing across the automotive industry and more so for the EV industry where we have a much higher content, you know, how how should we think about, you know, growth for Bajaj for the domestic business for this, you know, if you can put a number around it, yes?
Speaker #3: Okay. Honestly, it's difficult to I think it's difficult to predict a forward number, especially if we're talking about forward number for one particular customer.
Speaker #3: But of course, EV penetration continues to grow at the rate at which it has been growing. I would definitely imagine that our e-mobility business would gain further significance in our overall, you know, in our overall revenue and hence, as a natural result of that, Bajaj would also become more salient than it is today.
Speaker #3: In the overall revenue. But having said that, from an EV perspective, like we've just talked about, there is further customers also that we expect will that that that we expect will come on board.
Speaker #2: Okay. Okay. Also, so last one on margins, you mentioned about 50 bips of under recovery this quarter. Now, how much of that you expect to recover from your customers going ahead?
Speaker #2: And how should we think about margins for the full year?
Speaker #3: Yeah. So the efforts are already underway. So we should be getting it between this quarter and next quarter, most of it.
Speaker #2: Okay. Okay. Thank you. That's it from my side. Thank you.
Speaker #1: Thank you. The next question comes from the line of Arvind Sharma from CT Group. Please go ahead.
Speaker #4: Yeah. Thank you so much for taking my question. The first question, which you again indicated a bit already, is on the e-mobility segment. Based on the order book that you have, how sustainable do you think the growth is?
Speaker #4: Because this quarter was a very strong quarter.
Speaker #3: So I would say it's the order book is fundamentally strong, right? We are primary supplier to we are primary supplier to essentially the market leader when you combine two-wheeler and three-wheeler.
Speaker #3: So from that perspective, I think growth fundamentally depends also on EV penetration, which is something that we see gaining momentum rather than reducing in momentum.
Speaker #3: Further to that, like we talked about, we have incremental customer gains also, which in my mind, coupled with the fact that the content the content in an EV that we have is so high, I would imagine that that growth that that growth really continues to continues to take place.
Speaker #3: And just to add to that, see, looking at the situation globally now, due to this Iran war, we do see a very positive maybe you can call it structurally a shift also in the consumer mindset to move towards EVs, at least on a two and three-wheeler space.
Speaker #3: And of course, the moment I mean, you see the main volumes are today more in the scooter segment, which is 20 to 30 percent of the market.
Speaker #3: But now we're looking at, you know, OEMs also looking at motorcycles now. So going forward, we do expect that even the motorcycle segment will see EV penetration as we move forward.
Speaker #3: And we being one of the very significant players in this EV power train, segment, I think we stand to gain from it going forward.
Speaker #4: So thank you so much. So the other question would be on the electronics Romania segment. You given a separate slide on it. It would please share the key customer segment and we don't have a previous quarter or previous period revenue.
Speaker #4: How is the revenue trending there? What are the key drivers? The electronics Romania segment.
Speaker #3: So just to pick up this side, Arvind, the cloud. Yeah. So because this side, Arvind, so earlier our Romania unit Romania location used to support was the was the captive for lighting business.
Speaker #3: So that was clubbed under the lighting revenue. But now since we are doing more related to E architecture, so that's why and the business which we have So that's why we have segregated that.
Speaker #3: And the growth thing that Romania business is going to grow, so because of that, we are showing how the we are showing that slight separately now.
Speaker #4: Cash, what would be the key customers out there?
Speaker #3: So we haven't segment.
Speaker #4: Segment. Segment.
Speaker #3: Yes. No, no. So maybe I'll try to answer this one. So basically, our Romania electronics plant is focused on passenger vehicle electronics. And, you know, and at Prakash mentioned, the focus is on a variety of low-voltage and high-voltage electronics.
Speaker #3: And we've already announced some some order wins in past quarters. And we believe this will continue.
Speaker #4: Sure. Thank you so much. I have a very small data query. When I look at the revenue breakdown that you have in in slide 13, I believe the overseas forging, which is 3.3 percent, that is a part of the ICE power train business.
Speaker #4: When we moved down and you have the actual numbers, that's right.
Speaker #3: That's correct.
Speaker #4: Okay. Thank you so much, sir. That's all from my side. Thanks a lot.
Speaker #1: Thank you. The next question comes from the line of Rahul Kumar from Vaikarya Fund. Please go ahead.
Speaker #2: Yeah. Hi. You briefly discussed about this, but can you tell us the progress on the, you know, top three EV player discussion?
Speaker #3: So top three EV okay. So I, you know, I would say there is a top three in two-wheeler and also the top three in or really the top yeah, the top three in three-wheeler.
Speaker #3: So today, we are essentially engaged in terms of business relationship with with each of the three. Right? In fact, and from a e-power train perspective, one, we already have significant business with.
Speaker #3: And one more one when I say there is two that we are further engaged with, it is essentially two more from this list of the top three in both these segments.
Speaker #3: We've also been able to win business not necessarily for e-power train, but for other product lines within other within other one of these top three players.
Speaker #3: So really, I think, you know, across the board, I think the engagement with, you know, the engagement with the market leaders here has been extremely strong.
Speaker #3: And we expect that that will convert into more significant revenue like I said, you know, through the through the financial year.
Speaker #2: Okay. Okay. No, actually, I meant, I think in the last on-call, actually, we had discussed about, you know, the progress on the two-wheeler EV side for the EV power train products.
Speaker #2: So you know, on that, we had mentioned that we are an advanced stage with one of the top three. So do we understand that, you know, we are now in discussion with both the top three players?
Speaker #3: Yes. So again, I will repeat, right, with one of them, we are in discussion for the e-power train. With another one of them, we've already won business for another technology product.
Speaker #3: Which we have declared Q1.
Speaker #2: Okay. Okay. Okay. Okay. Understood. Understood. And the and the SOP, which is starting in Q2, this is this is with another EV player right?
Speaker #2: I meant, right in understanding?
Speaker #3: Yes. But it's another EV player with investment from an extremely significant global OEM.
Speaker #2: Okay. Okay. Understood. Understood. Second question is on the overseas, actually. I think there was one project which was expected to start from H2 of this this fiscal so, you know, are we on track for that?
Speaker #2: And given the second question is on the overseas again, given the robust business we have done so far, you know, the progress which we have done, so do we expect the break even for the overseas earlier versus the previous guidance of Q4 exit?
Speaker #3: So so maybe maybe just to clarify the second question. So the second question, I believe that our message stays the same. So we are not changing our message from from the past.
Speaker #3: And regarding regarding the first question in terms of the the launch that you're mentioning in, you know, mid-year this year, so we've already had a few new launches this year in our Romania electronics location.
Speaker #3: I believe that's the one that you are referring to. And this is also why we are seeing an increase in revenue quarter on quarter in our you know, in our business overseas.
Speaker #3: And this will continue to increase in subsequent quarters.
Speaker #2: So basically, it's progressing well. Okay. Understood. Thank you.
Speaker #1: Thank you. The next question comes from the line of Siddhanth Tand from Goodwill. Please go ahead.
Speaker #4: Yeah. Hi. Our largest customer has taken over a global OEM, KTM. So are we is there any potential for business over there that we have gotten any inquiries?
Speaker #3: Yeah, of course. So, you know, we already do we, you know, even prior to this, we did a fair amount of direct business with KTM.
Speaker #3: And post post this I would say more complete takeover, there is incremental opportunities you know, that had arise in line with the strategy the strategy that Bajaj O2 follows with KTM now.
Speaker #3: So yes, there's definitely a couple of immediate opportunities and we hope over time this translates to more.
Speaker #4: Okay. Perfect. Could you quantify them or too early?
Speaker #3: So I'd say it's too early to quantify because it's too early to quantify because you know, you know, KTM is a is a brand with a very high SKU mix, right?
Speaker #3: So you you go at this really step by step in terms of you know, how you grow in there.
Speaker #4: Understood. Perfect. Thank you.
Speaker #1: Thank you. The next question comes from the line of Naman Maheshwari from Shangri Family Office. Please go ahead.
Speaker #4: Hi. Sir, I hope I'm audible.
Speaker #3: Yes.
Speaker #4: Great. So many congratulations on a very robust set of number and I hope this trend continues. Sustainably. Just two quick question more from a forward-looking point of view.
Speaker #4: You know, we onboard Mr. Eric so now how does the strategy change with him coming on board? Are there some new avenues that we are looking to come in basically into e-axis or would it focus more on ADAS?
Speaker #4: And if you could throw some light at what sort of a market are we trying to chase? You know, and how to how to look at customer wins happen?
Speaker #4: I know it's not going to happen overnight, but how do you see that, you know, from a structural point of view for the company?
Speaker #4: I think it's a very important and a very good appointment. So how does it move you know, the needle or help the rock grow?
Speaker #4: So that's one question.
Speaker #3: Yeah. So I would say the strategy does not necess does not necessarily change. I feel Eric comes on board and I think really complements with his experience you know, the path that we have set out for ourselves.
Speaker #3: You know, Eric has a vast experience with e-power train and this is also where when it comes to Q and three-wheeler EV, we are I would say really where e-power train market leader.
Speaker #3: So from that perspective, I think strengthening our position in this core segment which as we see also is an extremely high growth segment, I would say is a critical priority.
Speaker #3: Of course, as a part of the roadmap, we look to expand expand this expand this capability into other market segments. And you know, I would say Eric would definitely you know, Eric would definitely you know, Eric definitely comes with the experience to really lend to that.
Speaker #3: So whether it is in terms of addressing higher voltage systems, whether it is in terms of addressing, let's say, you know, really more X in one kind of concepts, we believe this is where the market is moving towards.
Speaker #3: We believe we have the core capabilities required to execute it. And I think with with Eric, I think we also achieve the experience of having seen and done that.
Speaker #3: So so yeah, you know, you know, like you, we are also very excited by the appointment. So yes.
Speaker #4: Okay. Yeah. No, sir. Very good. And so just just one more part onto onto you know, the order wings, right? We we see a good traction coming on.
Speaker #4: So how do we you know, how do we how do we look at you know, new engagement that are taking place, right? There are some new OEMs which have set up their shop in India, you know, in the EV system like WinFast and everyone.
Speaker #4: So you see that incrementally we can you know, get in that supply chain also and they are also having a very large expansion plan.
Speaker #4: So we could be part of it. So just wanted some thoughts on that.
Speaker #3: Yes, of course. And with let's say the customers you name and also the customers you allude to, we are you know, we're already engaged.
Speaker #3: And we would expect to see some action in those spaces.
Speaker #4: Okay. Okay. Many congrats, s, sir. Keep delivering all the best. Thank you.
Speaker #3: Thank you. Thank you.
Speaker #1: Thank you. Before we take the next question, a reminder to all the participants to ask a question. Please press star and one. I repeat, to ask a question, please press star and one.
Speaker #1: The next question comes from the line of Jyoti Singh from Hai Thong. Please go ahead.
Speaker #5: Hi. Thank you for the opportunity. And sir, congrats on the big beat on the revenue side. So first question on the revenue as well, like it's nearly two years that we have delivered and we have guided mid to high teams.
Speaker #5: For 27. So this is the first quarter we have delivered this kind of growth. So what kind of expectation we can build going forward?
Speaker #3: No, I think that this year seems to be pretty strong for us. And though we have grown 30% this quarter, we do we do believe that probably for the whole year, we could be achieving about at least between a 20 to 25% growth.
Speaker #3: In this financial year, looking at how things are moving at the moment. So that's the that that would be our expectation because the second half last year was fairly good.
Speaker #3: You know, so considering that, I think 20 to 25% would be the right level of growth we would be achieving this year.
Speaker #4: Don't take it as a guidance, but more like our ambition.
Speaker #5: Okay. Understood, sir. And sir, also like earlier participant was asking question around WinFast and other player so can you guide us any any new client that we have impanelled or any any other that it is in the pipeline so that we are seeing the visibility for even FY28?
Speaker #3: Yeah. So I think most I think especially in any new customer engagement, I think we we generally cannot talk about that before there is actual certification of SOP.
Speaker #3: But having said that, right, I think it is clear there is entrance it is clear there are people entering the market. It is clear also that existing incumbents in the market are looking to build more vehicles also for export.
Speaker #3: So wherever those opportunities are, we will look to participate.
Speaker #4: Yeah. And we've already won some new customers also in this year. So but thing is that we're not we cannot disclose the names at the moment.
Speaker #4: But but we are engaged and definitely one of the objectives is to get a new customers also. Not just rely on the existing customers.
Speaker #4: We're very important to us. But yes, we are expanding our customer base also in India as well as abroad.
Speaker #5: Great, sir. So sir, going forward, we are targeting diversification of the customer and some certain percentage that we are targeting from each customer or Bajaj will be keep continue major customer for Varroc.
Speaker #3: Yeah. So you know, and we we said this before, but I would say our path is not necessarily is is not necessarily a similar diversification strategy.
Speaker #3: I think our path forward is really is really a product line in competence driven is really a product line in competence driven strategy. So there is clear product lines where we look to drive growth and where we look to drive focus.
Speaker #3: And as those materialize, I think it really depends on how the end customers also perform in the in the market, which determines the customer mix for us.
Speaker #4: Yeah. But the point here is that like we have said before that see Bajaj Auto continues to remain a very important customer for us and will be.
Speaker #4: Always. But having said that, I think we are actually kind of also kind of growing with quite a few other customers, you know. So so going forward, you will see that increased revenues coming in from many other customers.
Speaker #4: Also, not just from Bajaj.
Speaker #5: Okay, sir. And sir, just last question on the order book side, like this time we we have a major customer around 70% 72% from the EV side.
Speaker #5: Versus I was 28%. So we are going to see this kind of revenue shift on the segmental side keep getting like I I understand we are 95% power train agnostic.
Speaker #5: So we are seeing much demand from the EV side and as well as on ice or how it is going on.
Speaker #3: So so I think there's a few different questions in there. Firstly, I would say we are not 95% power train agnostic. In fact, I would say we're I think only around 70% power train agnostic.
Speaker #3: The balance comes from our ice power train, knee power train business. But but yes, you know, I think like we said earlier also during this call, we expect the balance we expect the balance to move more towards EV product.
Speaker #3: Really driven by the fact that EV penetration is increasing. Right. So this does not mean that ice is declining. In in in absolute terms.
Speaker #3: But it means that in terms of the percentage of our growth, we would expect more to come from EV.
Speaker #5: Okay. Great. Thank you, sir.
Speaker #1: Thank you. Ladies and gentlemen, you are requested to restrict your questions to two questions per participant. I repeat, you are requested to restrict your questions to two questions per participant.
Speaker #1: The next question comes from the line of Ankur Padar from Swan Investments. Please go ahead.
Speaker #4: Hi sir. Congrats on a good set of numbers. My question is regarding our overseas business. The firstly, can you let us throw some light on how the order wins or do we see going forward?
Speaker #4: And secondly, is on a margins, we see that the losses have come down. So by when do we expect to break even in terms of EBITDA as well as on PBT?
Speaker #4: And what do we see steady state margins going forward?
Speaker #3: Yes. So so to the first question regarding our regarding, you know, what we're projecting in the future as order wins, so I'll just say again that when it comes to the past year, I believe we have mentioned certain significant order wins.
Speaker #3: And certainly we are expecting to see this also in the future. So in subsequent quarters, we believe we will be you know, we will be mentioning certain significant order wins both in the electronics as well as in the lighting space.
Speaker #3: Overseas. And yeah, so as far as the margins are concerned, previously also we explained in two wheeler, we already make money. We are on the positive side already.
Speaker #3: Two wheeler overseas. Only in Romania, we have been having challenges. So earlier also we explained that by end of this year or by Q4, in Romania, we will reach EBITDA break even.
Speaker #3: Coming to the overall guidance, we generally go by PBT targets or long-term strategies to take it to 10% PBT in the next three to four years.
Speaker #4: All right. Thank you.
Speaker #1: Thank you. The next question comes from the line of Mihir Vora from Aquarius Securities. Please go ahead.
Speaker #4: Yeah. Hi. So so my question was basically on the EV power train products. Here, if we see the revenue as we around 56 odd percent on a year-on-year basis.
Speaker #4: But if you see the industry volume growth has been in the range of 80 to 90 odd percent kind of a range. So so just breaking it into what kind of ASP decline are we seeing because of the scales increasing and, you know, throw some light here whether what is happening in terms of volume growth and ASP growth.
Speaker #3: Yeah. So I would say okay. So I would say a couple of things here. I think one definitely I think ASPs have have have declined.
Speaker #3: But I would say this is really driven by improvement in the product composition. Honestly, I don't know the exact number of the top of my head versus the comparable period.
Speaker #3: But but I would imagine maybe high single digit kind of decline in ASPs. The second topic also that we have here is especially through the early part of the quarter, due to due to due to labor challenges both in our own plants and also in our and also in our supply chain.
Speaker #3: We were definitely challenged for April and also maybe a little bit of May. But that is now really fully recovered. So I think that is also probably contributed that is also probably contributed slightly lower number over there.
Speaker #4: Right, sir. And just to follow up here, sir, that going ahead, we know EV volumes are expected to grow at a good 30, 35 percent kind of a cage for next five years.
Speaker #4: But here, given the volumes increasing, what kind of, you know, ASP because of product engineering or, you know, because OEMs also will be pressurizing you in terms of, you know, reducing the cost or some sort of stuff.
Speaker #4: So in terms of this, what could be you know, a sort of a trajectory here wherein, you know, I I definitely think revenue growth will not align with the volumes.
Speaker #4: But some color on how this OEM contracts happen or whether in terms of the costing of the product.
Speaker #3: So yeah, I mean, you ask me, I don't think I don't think OEMs anymore are really insecure about what is the cost of their product.
Speaker #3: I think there's a fair amount of work that has gone in over the last five years to really bring product to a far more cost optimal level.
Speaker #3: Now, of course, there will be there is there is always scope for improvement and opportunities for improvement. And I think that will continue to happen.
Speaker #3: But but I don't expect I mean, I wouldn't expect some very material change in terms of what or when I say material, I mean, I won't expect some double digit changes in ASPs that will take place.
Speaker #3: In fact, I think potentially the opportunity for us is really come through, let's say, more integration of components into into smaller boxes. And that is actually an ASP increase opportunity.
Speaker #3: So you know, I think the end answer will be a will be a balance in between both somewhere. So I don't so to cut it short, there's a few different trends running, but I wouldn't expect significant ASP decreases taking place.
Speaker #4: Okay. All right. Sir, and lastly, given the speed at which the electric vehicle growth is increasing right now, so what would be the capex strategy here?
Speaker #4: Are we you know, increasing the allocation here some color on that?
Speaker #3: Yeah. So this year will definitely see significant this this year will definitely see higher capex expenditure than what we've seen over the last two, three years.
Speaker #3: And a large portion of that is yes, in terms of our e-mobility capacity expansion. And also capacity expansion to service the EV models that we're supplying to even with our engine agnostic product.
Speaker #4: And that's the reason we front loaded also the capex. All right. So so can you quantify the capex guidance for this year and next year?
Speaker #3: We 500 to 550 crores in that range. This includes both India and overseas also.
Speaker #4: Okay. Okay, sir. Thank you.
Speaker #1: Thank you. The next question comes from the line of Aditya Jhavar from Investec. Please go ahead.
Speaker #4: Yeah. Hi. Thanks for the opportunity and congrats on great set of numbers. My first question is, you know, on our customer split. So what is the understand that Bajaj volume has grown?
Speaker #4: Does the content in Bajaj is also grown for us? How should we assess our progress in other OEMs? In the past, you had mentioned that there is a possibility of, you know, further acquisition of land to support Japanese OEM and Southern South India based OEM.
Speaker #4: How should we assess our progress growth in ICE as well as, you know, EV power train product in non-Bajaj customers?
Speaker #3: Yeah. So there is definitely you know, I think if you look at the progression of our order book, there is definitely a very large amount of outside of Bajaj Auto business wins that have taken place.
Speaker #3: Right. Even today we see, I think, also given the fact that the market is growing, even today we see significant demand for product lines across our product categories.
Speaker #3: Taking place taking place outside of outside of Bajaj Auto as well. Having said that, having said that, I would definitely say given the content we have in EVs and given the fact that we are a primary source at Bajaj Auto for EV and the growth rate of EV, I would expect that I would expect that the absolute revenue there also would continue to grow and grow fairly quickly.
Speaker #3: So you know, where we end up as a percentage honestly is hard to predict past a point. But but yeah, I would I mean, the the the expectation is that we grow whether with Bajaj Auto whether outside of Bajaj Auto also.
Speaker #4: That's helpful, Arjun. But if we can help us understand that say X number of products you are supplying to Japanese OEMs and there the share of business of Varroc went from A to B, some quantification and, you know, is there a necessity of setting up a manufacturing facility in Southern India for supporting these?
Speaker #4: So any, you know, quantification you can do in terms of number of products or how we have grown in few OEMs whether Japanese or, you know, the South India or the new OEMs that we have entered.
Speaker #4: Some quantification would be helpful, Arjun.
Speaker #3: So having the simplest quantification, I could probably give you right now is is in terms of maybe what we've done in Q1, right, where if we look at our India business, we've grown, let's say, I think 30 percent and we've seen the phenomenal the phenomenal growth in e-mobility.
Speaker #3: But I would not say that our customer mix percentage is really changed too dramatically. Right. So I think the easiest way to put it is, you know, we we're growing fast, but we're growing fast in Bajaj Auto, but also outside of Bajaj Auto.
Speaker #4: Sure. Sure. Fair enough. My second question is on, you know, margin. Now, when we look at, you know, EV business. Now, it has come to a scale where possibly we can assume or you can correct me that if the margin could be sustainable, so how different are EV margins versus ICE margins?
Speaker #4: And considering you have a strong line of sight with customers, you know, considering the pricing dynamics that are expected to play out when customers come down the pricing curve on EVs, how should we expect, you know, the margin target free to change?
Speaker #3: So again, you know, I would say from a pricing and margin standpoint, right, I think the right metric to look at is not necessarily EBITDA because EBITDA even within within different product lines we do for ICE is very different based on the capital intensity of the product.
Speaker #3: Right. But really I would say at a PBT level, I would imagine I would imagine today ICE as well is EV to be comparable because you know, ultimately I mean, again, you know, we've talked about this before, but ultimately pricing even for an EV needs to be sustainable and OEMs recognize that because otherwise how do you drive capacity increases in a growing market?
Speaker #4: Yeah. Yeah. Final question for Taran. Taran, you know, looking at a balance sheet, does, you know, significantly improve over a period of time? Now, clearly, you know, possibly we can become net cash next year.
Speaker #4: So keeping that in backdrop, are we, you know, considering expanding into newer grade growth avenues looking at inorganic opportunities? What are the areas that we are considering to expand inorganically?
Speaker #3: See, inorganically, honestly, we would be more keen on either it could be electronics or e-power train. These areas and also in the area of aftermarket.
Speaker #3: Aftermarket also we are experiencing a strong growth. So and I would say more on the four-wheeler or the exports front. So aftermarket, we are more keen over there if we get a if we get an opportunity with a with the right company.
Speaker #3: And otherwise, we're very keen, of course, of any acquisition opportunity or a joint venture where it comes to e-power train or or the kind of electronics, you know, where which could be for e-power, it could be for it could be e-electronics or it could be also other electronics where where where we are playing even for the ICE engine.
Speaker #3: So it all depends where there could be some customer acquisition also. And and yes, exports focus is definitely there, you know, where we're making an acquisition, we should be able to get also into some export markets.
Speaker #3: So this would be a critical for us. But but that is only I mean, that's something we are very open to, you know, whether JVs in India or it could be some acquisition where there's an export opportunity in these areas.
Speaker #3: But what we see also is a lot of opportunities on, you know, organic growth. Whether it's in India or our plants abroad. You know, so we'll be focusing because nowadays it's pretty expensive also to go in for acquisitions.
Speaker #3: It's pretty expensive, you know. When you already looking at a 20, 25 percent growth organically, then, you know, we have to like see whether, you know, inorganic makes sense.
Speaker #3: You know, so so we'll have to we'll have to weigh in. We have to have a balancing approach. We'll only go for something inorganic which makes sense financially.
Speaker #3: Where we can see that exponentially grow that already existing business into a good level. So unless that is there, you know, we will not go into any inorganic.
Speaker #3: Organic definitely there is a strong focus to to grow strongly year on year.
Speaker #4: Yeah. Yeah. And largely acquisition would be in India.
Speaker #3: Yeah. Yeah. We are interested largely in acquisition in India.
Speaker #4: Yeah. Final question to NK. Sir, you used to give us, you know, some PBT margin kind of a number that we can expect by end of the year.
Speaker #4: Any sense you can give on that one?
Speaker #2: Yeah. There were, you know, we don't give that kind of guidance, but we have this medium term to yeah, medium term target of touching 10 percent soon.
Speaker #2: So that one holds good. Anyway, you can extrapolate based on the current performance.
Speaker #4: Sure. Sure. Medium term would be two years.
Speaker #2: Okay. That's a wish.
Speaker #4: Yes. Yes. Yes. Yes. Yes. Yeah. Thank you so much. All the best to you.
Speaker #2: Thank you.
Speaker #3: Thank you.
Speaker #2: Thank you.
Speaker #1: The next question comes from the line of Nehagar from Zenflow Finance. Please go ahead.
Speaker #5: Yeah. Hello, sir. Good evening. Thanks for taking up my question. Hello.
Speaker #1: Good evening.
Speaker #5: I'm audible?
Speaker #2: Yeah. Yeah.
Speaker #3: Yes. Please.
Speaker #5: Yeah. Okay. So my question is on the working capital. Like it's you have mentioned that it has increased. So has there any change in the receivable days from OEM customers or it's mainly from the inventory side?
Speaker #2: Yeah. No. There's no change in the inventory sorry, receivable days. Yes. Inventory went up to some extent. Largely in preparation to the peak season which is coming up.
Speaker #2: Second thing is this war-related recoveries which we just spoke about. So they need to be now converted into invoices and they need to be collected.
Speaker #2: So it's a temporary increase which we see because of that.
Speaker #5: Oh. Okay. Okay. And so like earlier you have guided that the company is going to achieve a zero debt in FY28 I mean, so with the debt increase, so it's the target being still I mean, we can can we see that it will be still be pushed a little further?
Speaker #2: No. No. We'll we'll stay with that for now. But yeah, we will always try to do it as soon as possible.
Speaker #5: Yeah. Okay. Okay. And sir, can you please just specify on what I mean, if you can, how much has like mean 360 CR that you have spent so far?
Speaker #5: So can you just split like where have you spent like new capacities or any like new EV lines? Can you please just specify?
Speaker #2: 350. You're talking about what, last year or?
Speaker #5: No, no, no. No, no. The the capex the the debt that has been increased due to capex. 316 CR.
Speaker #2: No, no, no. Yeah, it's not entirely because of I mean, capex spending. So capex spending during quarter one was about 160 gross. Most of it went into the capacity increases.
Speaker #3: And that number is in billion, not in gross. The debt increase of 316.
Speaker #5: Oh. Okay. Okay. Okay. Sorry. So I'll okay. Thank you very much, sir. Thank you.
Speaker #2: Thank you.
Speaker #1: Thank you. The next question comes from the line of Apurva Mehta from AM Investment. Please go
Speaker #4: Congratulations on a good set of numbers. Just wanted to hello.
Speaker #2: Yeah. Yeah. Please go ahead.
Speaker #4: Yeah. Yeah. Just wanted to know your, you know, next two, three years of overseas you know, how do you leak overseas turnover and can you just split the margins of how can the margins directionally be in, you know, Romania, kind of thing and the two-wheeler which we are profitable.
Speaker #4: But on the Thailand four-wheeler, I think. And where do we see this journey happening in next two, three years? What kind of orders, you know, we are bidding?
Speaker #4: It's our larger orders we are bidding going ahead. Or, you know, just, you know, we can get some sense how big this overseas business can become.
Speaker #2: Yes. So I'll I'll I'll try to answer your question. So if you compare to last year, we believe that this year the overs our revenue in the overseas business can be and and here I'm referring to the overseas electronics and and lighting business.
Speaker #4: Yeah.
Speaker #2: This can be double. So this is something that that that that I that something that we can say. In terms of, let's say, if you talk about, let's say, margins, here I believe our CFO already mentioned that in three to four years, yes, we are targeting also to to get to a 10 percent PBT.
Speaker #2: Number in our overseas business. So that's what we can say as of right now. In terms of what our strategy is for overseas, here, of course, the focus is on on electronics particularly on the passenger vehicle side.
Speaker #2: And also on lighting. This would be both a passenger car as well as for for two-wheelers. And where we're expecting the biggest growth is going to be when it comes to passenger car electronics and passenger car lighting.
Speaker #2: When it in terms of why do we feel this will happen, it's mainly because in passenger car electronics today, there is a big change in the or there is a lot of evolution in the electronics architecture.
Speaker #2: There's a lot of there's a lot more electronic content in vehicles both when it comes to high voltage parts, you know, more to do with the of course, the the electric powertrain.
Speaker #2: Or low voltage parts such as body controllers, ADAS, infotainment, et cetera. This is a space that we are trying to play in. We've already announced certain large orders in past quarters.
Speaker #2: And we believe this will continue. So yes, there is we we're not giving you an exact number right now in terms of, you know, how how big this business can become in the in the in the next three to four years.
Speaker #2: But certainly we're expecting to grow significantly compared to where we are today.
Speaker #4: But what kind of aspiration do you have by, you know, by FY30 this number can be, you know can be close to 3,000, 4,000 crore kind of thing or or, you know, just a ballpark number?
Speaker #2: I think our CMD also explained earlier that by FY31 our intention is to double our overall revenue to 20,000 crores from around 10,000 crores that we do this year.
Speaker #4: Yeah. But in that overseas would be how much?
Speaker #2: Yeah. Yeah. I'm coming to that. I'm coming to that. So out of that, maybe around 25 to 30 percent could be the overseas part.
Speaker #4: Okay.
Speaker #2: It's 20 percent, I would say. Yeah. 20 percent would be overseas. 80 percent would be here.
Speaker #4: Okay. Okay. Okay. Okay. And and this this quarter we had tooling revenues which we were, you know, what what was the revenue of tooling revenues this quarter?
Speaker #2: 60. It's about 70 crores.
Speaker #3: 70 crores.
Speaker #4: And that impacted 0.8 percent of your margins?
Speaker #2: Correct.
Speaker #4: That's oh, that means the it's it's how how does it means 0.8 is is on that that means there is a loss on this tooling revenues.
Speaker #2: No, no, no. 0.8 percent on the overall impact. See, compared to the normal business, there is a significant lower margin which we make on tools because this is basically to generate part revenue in the future.
Speaker #2: So these are like one-time things which come every now and then in one or two quarters.
Speaker #4: Okay. Okay. Okay. But ballpark the the 12 percent margin which normally we do in the India business is is is likely that Q2 we can see that coming.
Speaker #2: Yeah. It has basically a couple of parts. The one-time was like tools and all, of course, should not come to this extent in the the subsequent quarters or at least in Q2.
Speaker #4: Yeah. Yeah.
Speaker #2: But there are things like the inflation recovery which is more like an arithmetical impact because the same number goes up in numerator and denominator.
Speaker #2: So to recover that disadvantage, it may take maybe one or two quarters. But otherwise, the other impacts we should be able to see a recovery in the in Q2.
Speaker #2: Most of it in Q2.
Speaker #4: Sir, one of one request is there. Why can't we provide, you know, breakup of number of clients which we are we are only showing Bajaj and rest of Bajaj.
Speaker #4: Is there anything which is most of the auto ancillaries if you see they would be showing us, you know, the kind of client breakup is there.
Speaker #4: And and this would help us to know that how the how the pie is moving, you know. This becomes very difficult for us to judge that where the pie is moving.
Speaker #4: Which client we are concentrating, which client we are gaining market share or something like that. It would be really helpful to us.
Speaker #2: We'll look into that. We understood.
Speaker #4: Okay. Thanks a lot and wish you all the best.
Speaker #2: Thank you.
Speaker #1: Thank you. The next question comes from the line. Of Namman Maheshwari from Sanghvi Family Office. Please go ahead.
Speaker #2: Hi. So so just came back into the queue. Is it this time the balance sheet was are the annual report was very well articulated, right?
Speaker #2: It definitely gives a direction of a 20,000 crore ballpark revenue, right? In FY31. That that number just 21 clarification, that is solely based on the current product profile and the organic business growth, correct?
Speaker #2: Any any inorganic would be on top of this? Is that the right understanding?
Speaker #3: No. There will be about maybe 10 percent of that which will come from inorganic root also. And maybe a few maybe something from non-auto also.
Speaker #2: Okay. And and and so if if I understand just join the connected thoughts together. So 10 percent PBT as a 20,000 crores revenue FY31 is is probably the the management vision to grow grow.
Speaker #2: Right? In in action. Okay. Okay. Okay. And and we'll invest for for preparing for FY31 revenue the order book has to get built probably say by FY28, FY29, right?
Speaker #2: Is that the right understanding?
Speaker #3: Correct.
Speaker #2: A large extent. So that means that we are we are working in that direction to fill up the fill up and we are that close to the customers that we will be able to fill up and deliver on this guidance.
Speaker #2: So in a nutshell, what I'm trying to imply is that there is a very solid customer relationship that's getting built right now. And we are getting the right traction from the the targeted clientele.
Speaker #2: Is is is that the right implication of all of these things?
Speaker #3: Yeah. That's true. But it also includes the organic growth on the existing business also. So which is already good.
Speaker #2: Okay.
Speaker #3: Plus the inorganic things based client. Yeah. But you're right.
Speaker #2: Fantastic.
Speaker #3: That's the that's the intention.
Speaker #2: Fantastic. Fantastic. So congratulations, sir. Right. Right. And we'll talk again probably next quarter. Thank you so much.
Speaker #3: Thank you.
Speaker #2: Thank you.
Speaker #1: Thank you. The next question comes from the line of Rahul Kumar from Vaikarya Fund. Please go ahead.
Speaker #4: Yeah. Actually, just a data-keeping question. But out of this EV revenue of 16 percent, you know, which we had disclosed, how much is that from Bajaj?
Speaker #4: And how much is that from non-Bajaj? And what was it last quarter?
Speaker #3: Yeah. So I would imagine three quarters would be from three quarters would be from Bajaj Auto, yeah. And honestly, last quarter I will not know of the top of my head.
Speaker #3: But I would imagine a similar-ish kind of pattern, right? Few percentage points here and there.
Speaker #4: Okay. Got it. Thank you.
Speaker #1: Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Thank you and over to you.
Speaker #3: Yeah. Thank you, everyone. I would like to again reiterate that the journey ahead is filled with opportunity. Backed by strong capabilities, strategic clarity, and the passion of our people, we are confident of achieving our aspirations while creating lasting value for every stakeholder associated with Verrock.
Speaker #3: Thanks again for joining the call and and for your continuing support.
Speaker #2: Thank you.
