Varroc Engineering Ltd (VEL) is a tier-1 automotive component group. It designs, manufactures and supplies exterior lighting systems, plastic & polymer components, electricals-electronics components and precision metallic components to passenger cars, commercial vehicles, 2W, 3W and off highway vehicle OEMs directly worldwide. VEL has a global footprint of 36 manufacturing facilities spread across seven countries, with six facilities for its Global Lighting business, 25 for India business and five for Other businesses. Currently, VEL’s ~34.7% of revenue comes from india and balance from Europe (41.8%), North America (22.3%), Asian
pacific (0.7%) and others (0.5%).

Outlook & Valuation: In terms of valuations, the pre-issue P/E works out to 28.9x FY2018 earnings (at the upper end of the issue price band), which is high considering VEL’s historical two year CAGR top-line & bottom-line growth. Further the company’s return ratios are also low compare to its other peers. Thus, we recommend NEUTRAL rating on the issue.

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