Varroc Engineering Limited IPO

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Varroc Engineering Limited IPO

(i) Varroc Engineering Limited is a global tier-1 (tier-1 companies are companies that directly supply to original equipment manufacturers (“OEMs”)) automotive component group. They design, manufacture and supply exterior lighting systems, plastic and polymer components, electricals-electronics components, and precision metallic components to passenger car, commercial vehicle, two-wheeler, three-wheeler and off-highway vehicle (“OHV”) OEMs directly worldwide.

(ii) The company is 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) . From FY2015 to FY2017 they had a compound annual growth rate (“CAGR”) of 17.57% in terms of revenue.

(iii) They commenced operations with their polymer business in 1990. They initially grew organically in India by adding new business lines, such as electrical division and metallic division. Subsequently, they diversified their product offerings and expanded their production capacity through various investments, joint ventures and acquisitions.

iv) Company’s Aquisition
a) In 2007 they acquired I.M.E.S (a manufacturer of hot steel forged parts for the construction and oil and gas industries) in Italy.
b)In 2011 they acquired Triom (a manufacturer of high-end lighting systems for global motorcycle OEMs) with operations in Italy, Romania, and Vietnam. 
c) In 2012 they have done acquisition of Visteon’s global lighting business, now known as Varroc Lighting Systems.
d) In 2013, they expanded their global lighting business by acquiring Visteon’s holding in a 50/50 joint venture with Beste Motor Co. Ltd. (“TYC”) to manufacture automotive lighting in China, namely Varroc TYC (which wholly owns Varroc TYC Auto Lamps, which in turn wholly owns Varroc TYC Auto Lamps (CQ) (their “China JV”).
d) On February 13, 2018, they entered into a joint venture with Dell’Orto S.p.A., one of our customers, in India, for the development of electronic fuel injection control systems for two-wheelers and three-wheelers.

v) Financials
For FY17, their consolidated revenue from operations was ₹96.1 billion with ₹61.2 billion from our Global Lighting Business, ₹31.7 billion from our India Business (₹14.8 billion for polymers/plastics, ₹9.0 billion from electrical/electronics/lighting, ₹5.4 billion for metallic components and the remainder from other sources) and ₹3.2 billion from our Other Businesses.

Objects of the Varroc Engineering Limited IPO:

Offer for Sale The objects of the Offer are to achieve the benefits of listing the Equity Shares on the Stock Exchanges and to carry out the Offer for Sale by Selling Shareholders.

Varroc Engineering Limited IPO Details:

Current GMP: 62-65
Open Date: Jun 26 2018
Close Date: Jun 28 2018
Total Shares: 20,221,730
Face Value: ₹ 1 Per Equity Share
Issue Type: Book Building Issue
Issue Size: 1955.44 Cr.
Lot Size: 15 Shares
Issue Price: ₹ 965-967 Per Equity Share
Listing At: NSE,BSE
Listing Date: Jul 06 2018

Promoters And Management:

Promoters of Varroc Engineering Limited Company are: (i) Naresh Chandra is the Chairman and Non-Executive Director of our Company. He holds a bachelor’s degree in economics and a master’s degree in history from the University of Delhi. He also holds a diploma in business administration from the City of Birmingham College of Commerce, United Kingdom. He has over 50 years of work experience, with over 35 years experience in the automobile industry and has previously been associated with Kaycee Industries Limited. He has been associated with our Company since incorporation and became the Chairman of our Company in 1997. (ii)Tarang Jain is the Managing Director of our Company. He holds a bachelor’s degree in commerce from Sydenham College of Commerce and Economics, University of Bombay and a diploma in business administration from University of Laussane, Switzerland. He has approximately 30 years of experience in the automotive industry. He has been associated with our Company since incorporation and was appointed as the Managing Director in 2001. (iii) Ashwani Maheshwari is a Whole-time Director of our Company. He is also president of the metallic division of our Company. He holds a bachelor’s degree in engineering (mechanical engineering) from the Indian Institute of Technology, Roorkee (formerly University of Roorkee) and a master of science degree in leadership and strategy from the London Business School, London, United Kingdom. He has also successfully completed the executive development program at the Wharton School, University of Pennsylvania, USA. He has previously worked with The Tata Iron and Steel Company Limited as a graduate trainee, as a senior vice president – India business division in ITC Infotech India Limited and as the president – Birla tyres at Kesoram Industries Limited. He has been on our Board since March 2016.

Capital Structure:

(i) Authorized Share Capital a) 250,000,000  Equity shares at FV@1 25 Cr
b) 250,000,000 Preferential shares FV@1 25 Cr
(ii) Issued, Subscribed,& Paid-up Share Capital Before Issue a) 123,127,760  Equity shares at FV@1 12.3 Cr
b)11,683,770 Preferential shares FV@1 1.168 Cr
(iii) Present Issue OFS to public (  201,21,730 Shares at FV@1) 2.012 Cr
(iv) Present Issue OFS to Employees (  1,00,000 Shares at FV@1) 1 Lac
(v) Reservation for QIB [4,024,346] 50%
(vi) Reservation for HNI[3,018,260] 15%
(vii) Reservation for Retail[7,042,606] 35%
(viii) Paid Up Share Capital after the issue 13.468 Cr
  Detail of Promoters selling their shares via OFS 
Sr.no  Name of the Promoter No. of shares
1 Tarang Jain 1752560
2 Omega TC Holding Pte lt. 15373608
3 Tata Capital Financial Services Limited 1410432
TOTAL 18536600

Financials of Varroc Engineering Limited IPO:

1. Assets and Liabilities Key Parameters
Year Asset(Cr) Liabilities(Cr) Net Worth(Cr) Book Value D/E [<1.5] RONW debtor days
FY15 4428.5 3324.5 1103.9 114.8 3.0 2% 56
FY16 5245.9 3462.7 1783.2 68.0 1.9 21% 53
FY17 5860.4 3654.8 2205.5 163.6 1.7 14% 43
9MFY18 6510.5 3878.1 2632.5 195.3 1.5 17% 56
2. Profit n Loss Key Parameters
Year Revenue(Cr) PAT(Cr) EBITDA Margins Profit Margins Equity Capital EPS
FY15 7038.464 16.809 10% 0.2% 9.614 1.7
FY16 8239.52 369.823 7% 4.5% 26.237 14.1
FY17 9702.269 303.389 7% 3.1% 13.481 22.5
FY18 10417.06 450.77 9% 4.3% 13.481 33.4
3. Cash Flow Statement(all figures in Cr)
Particulars FY17 FY16 FY15
(i) Net Cash Generated from Operation 676.50 290.49 128.34
(ii) Net Cash Generated from Investment -565.44 -578.52 -245.39
(iii) Net Cash Generated from Financing Activity 93.652 386.08 70.309
(iv) Total[ (i)+(ii)+(iii) ] 204.72 98.05 -46.74
Key Parameter  a) The Revenue is growing at CAGR of 13.96% from FY15 to FY18. b) The PAT is growing at CAGR of 10.43% from FY14 to FY18. c) The EPS for FY18 is be 33.4 d) P/E= 28.95 at Cutoff price of 967. e) P/B= 4.7 at cutoff price of 967. f) The company is has total debt of around 1390 Cr on books as on 9MFY18. g) Mcap/Sales(ideally <2)= 1.25 on FY18 sales( ideal). h) The Company’s EBITDA Margins are in the range of 6-10% in last 4 years. i) The Company is generating positive cash flows from operations from FY15-17- Big Positive.

Comparison With Peers:

Name of the Company FV Mcap(cr) P/E RONW Mcap/sales
Mothersome sumi 1 63226.9 41 18% 8.10
Bharat Forge 2 28626.8 39 17% 5.21
Endurance Technology 10 17872.6 46 20% 3.73
Varroc Engineering 1 13036.3 29 17% 1.25

Recommendation on Varroc Engineering Limited IPO:

Varroc Engineering Limited IPO Rating by InvestorZone team => 6/10 1-5: Fair 5-7: Good 7-10: Excellent => Click here to check what brokerage houses had to say about Varroc IPO subscription

Registrar of Varroc Engineering Limited IPO:

  1. Link Intime India Private Limited

Company Address:

Varroc Engineering Limited L-4, MIDC Area, Waluj, Aurangabad 431 136, Phone No. +91 240 6653 700/6653 699 Fax No. +91 240 2564 540 E-mail: investors@varroc.com Website: www.varrocgroup.com Next IPO => IRCON IPO

25th Sep 2018 - 27th Sep 2018 => Aavas Financiers IPO

Bid Details of Varroc Engineering Limited IPO as on
28-Jun-2018 21:30:00 IST

No.of shares offered No. of shares bid No. of total times
4,024,346 36,854,145 9.16
3,018,260 7,406,715 2.45
7,042,606 6,659,190 0.95
100,000 64,530 0.65
- - -
14,185,212 50,984,580 3.59
No.of shares offered No. of shares bid No. of total times
4,024,346 10,354,170 2.57
3,018,260 2,058,225 0.68
7,042,606 4,906,575 0.70
100,000 32,805 0.33
- - -
14,185,212 17,351,775 1.22
No.of shares offered No. of shares bid No. of total times
4,024,346 26,499,975 6.58
3,018,260 5,348,490 1.77
7,042,606 1,752,615 0.25
100,000 31,725 0.32
- - -
14,185,212 33,632,805 2.37

Discussion on Varroc Engineering Limited IPO:

    It is available around issue price. Good chance for long term investor to pick this gem for long term. It can give great rewards for investors who have patience to hold for long term. Endurance technology start rising after few months. This will follow same trend .

    Firm allotment for retailers in Varroc. Good demand from QIBs. Hope we can have a good listing gain.

    Out of the 50% quota reserved for QIBs, 60% i.e 60,36,518 have been allotted yesterday to 30 anchor investors. The Anchor has impressive list of 18 Mfs, 8 FPI(Foreign Portfolio Investment ), 2 Insurance companies, and 2 AIFs( Alternate Investment funds). It is has some big names like DSP Blackrock, Axis Multicap, Kotak Small Cap, Kotak Equity etc.. So overall we can say the brand name of the Indian Equity Market has given up thumbs to this IPO.

    RITES- 33-35
    Fine- 36-38
    Varroc- 65-70
    App-400
    ETF-2100-2300

    As per new SEBI guidelines, the company coming up with an IPO now have to show only 3 years Financial statements in the DRHP. This will lead more companies to raise funds via IPO. However, this will have negative from the perspective of the investor as less numbers means less interpretation about the company’s performance.

    SEBI has reduced the no. of days from 5 to 2 to announce the price band of IPO. Previously it was announced 5 days prior to opening of IPO for Public subscription which has now reduced it to 2. We will have to see how it will impact the grey market as now we have only 2 days to do all the grey business.

    This is a big IPO. Total Issue size is around 2000 Cr. Retail quota is around 700 Cr. So we can accept a firm allotment for retail investor here.

    Varroc Engg CFO to BTVI :

    To Issue IPO In Range Of Rs 965-967/shr; To Raise About Rs 1,955 Cr From IPO
    IPO Will Ipen On June 26
    Have 26 Manufacturing Plants Across India
    Will Look To Grow 4-wheeler Components Business From Current 10%
    Will Look at Strengthening Current Customer Relationships
    Co Supplies To OEMs Which Account For 85% Market Share In 2-wheeler Segment
    Auto Components Business For 2 & 3 Wheelers Was 35% Of Total Revenue
    Fy18 Turnover at Rs 10,300 Cr; Global Lighting Business Was 60% Of Revenue
    Initial Feedback From Institutional Investors For IPO Is Encouraging

    Revenue Break up Sector wise(FY18)
    1. Global lightning Business= 60.8%
    2. Indian Business= 35.1%
    3. Other Business= 4.1%

    Revenue break up product wise(FY18)
    1. Lighting = 60.8%
    2. Polymer= 16%
    3. Electrical= 10.2%
    4. Metallic= 6.3%
    5. Others= 6.7%

    The company’s total Profit for FY18 is 450 Cr and total outstanding shares 13.4 Cr, so EPS
    comes out to be 33( 450/13.4). The Price to Earning ratio is 965/33= 29. If we take 10%
    growth in PAT , the PAT for the year FY19 would be around 500 Cr, then EPS would be 37
    and at current P/E of 30, the Price of share would be around 1110 which is 15% up from
    current price. So we can expect a good listing gain in it.

    The Company has M.cap of 13,036 Cr and a sales of 10417 Cr , so Mcap/sales is around 1.5 which is highly undervalued as compared to its peers like Mothersome sumi, Bharat Forge and Endurance Tech.

    The industry PE is around 42 and Varroc is coming at P/E of 29.So it is fairly priced.

    Post IPO, the Promoter and Promoter Group will hold approximately 84.99% of our outstanding Equity Shares.

    #Page 21 DRHP says the operations of the company requires lot of environmental and safety regulations . In the past they have received following notices from Govt for polluting the environment.

    1. Company received a letter dated July 21, 2015 from the Maharashtra Pollution Control Board (“MPCB”) in relation to its manufacturing facility located at Waluj (Plant VII) to pay 2 Cr as a fine which was later reduced to 2 lacs for remediation of ground water contamination.

    2. Their environmental license for Varroc TYC Auto Lamps’Pollutant Discharge Permit issued by the Environmental Protection Department of Xinbei District, Changzhou, China expired on March 16, 2017 and the new policy formulation is in the process and they have yet to receive permit. Any adverse policy changes in China will severely affects the company’s performance. In past we have seen how China has shutdown many industries due to pollution issues.

    The company has good set of clients like Bajaj, Honda and India Yamaha in India and Ford, Jaguar Land Rover, Fiat Chrysler Automobiles(“FCA”), Groupe PSA, an American electric car manufacturer and a European multinational car manufacturer.

    Mr. Tarang Jain is the brother of Anurag Jain the promoter of Endurance technology. The Endurance Tech. came up with the IPO last year at around 472 and already has given more than 100% in less than a year. The future of automobile sector is very bright. We can hope the same with Varroc Engineering too.

    The IPO comprises sale offer of up to 18 lakh shares by promoter Tarang Jain, about 1.69 crore shares by Omega TC Holdings Pte Ltd and up to 16 lakh shares by Tata Capital Financial Services Ltd.

    Founded in 1988, Varroc group is a global tier-1 automotive component manufacturer and supplier of exterior lighting systems, plastic and polymer components, electricals-electronics components, and precision metallic components to passenger car, commercial vehicle, two-wheeler, three-wheeler and off highway vehicle (“OHV”) OEMs directly worldwide.With 36 world-class manufacturing facilities and 16 R&D centers in 10 countries, Varroc group is on an exponential growth trajectory clocking a sale of 1.5 billion USD in 2016-17. The company is one of the leading global passenger car lighting suppliers and amongst the top 2-wheeler automotive component supplier in India. Varroc offers best design solutions that give customers a competitive edge in their markets.

    Very good company…owned by Tarang Jain …
    Anurang Jain of Endurance systems is elder brother of Tarang Jain, last year Endurance systems limited listed at 650/- and now it’s at @1200/- .
    Both companies are automotive ancillary companies. Rahul Bajaj is uncle of Tarang Jain. It has 07 plants in Aurangabad…

    Invite: Mr. Tarang Jain, MD, Varroc Engineering Limited cordially invites you to a Brokers/ Analyst Conference in connection with the proposed Initial Public Offer on Tuesday, June 19, 2018 at 04:00 PM at Crystal Room, Hotel Taj Mahal Palace, Colaba, Mumbai.