Summary
Varroc Engineering Limited - Q3 FY 2026 Earnings Call Summary Thursday, February 5, 2026, 5:00 PM IST
Event Participants
Executives 6 Arjun Jain (Whole-Time Director & CEO, BU 1), Bikash Dugar (Head IR & Finance Controller, BU 2), Dhruv Jain (Whole-Time Director & CEO, BU 2), Mahendra Kumar (Group CFO), Tarang Jain (Chairman and Managing Director), Vishal Rawal (Head, Financial Controller, BU 1)
Analysts 8 Aditya Jhawar (Investec), Ankur Poddar (Svan Investments), Avnish Tiwari (Vaikarya Change LLP), Harshil (AM Investment), Mihir Vora (Equirus Securities), Preet (InCred AMC), Priyaranjan (HDFC AMC), Ritik Chopra (Buoyant Capital), Ronak Jain (Equirus Securities), Sachin Kasera (Svan Investment Managers)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | ₹2,288 crores | +10.2% YoY; India operations grew 12.3% YoY, offset by sluggish overseas performance. |
| EBITDA | ₹213 crores | 9.3% margin vs 9.2% YoY; Driven by strong cost controls and operating leverage in India. |
| PBT (Before JV) | ₹101 crores | 4.4% margin vs 3.2% YoY; Increased 53% YoY due to lower interest costs and capital discipline. |
| EV Revenue Share | 14.3% | Grew 53% YoY; Now represents a significant portion of the mix (9M FY26 at 12.1%). |
| Net Debt | ₹441 crores | Increased from previous quarters; Impacted by ₹80 crore one-time VSS cash outflow. |
| Order Wins (9M) | ₹2,064 crores | Annual peak revenue potential; 74% of new wins relate to EV components. |
| Net Debt to Equity | 0.26x | Remains at comfortable levels despite the slight uptick in absolute debt. |
Geographic & Segment Commentary
- India Operations: Strategic focus on cost optimization led to 11.9% EBITDA and 7.6% PBT margins. Growth was driven by the EV segment (+53% YoY) and strong performance in the 2-wheeler/3-wheeler space following GST reductions.
- Overseas Electronics & Lighting: Currently facing challenges due to low capacity utilization in Romania and Thailand. Management expects a turnaround from H2 FY27 as significant new order wins for global EV OEMs move into Series Production (SOP).
- E-Mobility & HMI: Segment growth driven primarily by the resolution of rare-earth magnet supply issues and backlog clearance. Currently dominated by Bajaj, but new business wins with two additional OEMs (one incumbent, one new entrant) are slated for FY27 SOP.
Company-Specific & Strategic Commentary
- Operational Restructuring: Launched a Voluntary Separation Scheme (VSS) impacting 400+ employees (mostly in ICE powertrain), costing ₹799 million. This initiative targets annual savings of ~₹20+ crores with a 4-year payback period.
- Global R&D Investment: Investing ~₹25-28 crores per quarter in specialized engineering teams in China and Poland. This is viewed as a “growth enabler” to win high-tech 4-wheeler lighting and electronics contracts globally.
- Asset Monetization & Deleveraging: Planned land purchase of ₹150 crores in Pune for a greenfield facility. Management reiterated the goal of reaching a zero-net-debt status by the end of FY2027 through cash flow accruals and disciplined CAPEX.
- Non-Automotive Entry: Actively pursuing non-auto business (low-voltage motors and plastics) to utilize existing ICE powertrain capacities. First SOPs for this segment are expected in FY27.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Growth | 15% - 20% | Target to outperform the market by 400-500 bps driven by new EV order SOPs. |
| Overseas Turnaround | H2 FY 2027 | High-voltage electronics in Romania and 4W lighting in Thailand to drive volume recovery. |
| CAPEX | ₹300 - ₹350 crores (FY27) | Includes land acquisition and equipment for new program wins; moderating to ₹250cr thereafter. |
| Debt Profile | Zero Net Debt by FY27-end | Gradual reduction expected to accelerate between Q2 and Q4 of FY2027. |
Risks & Constraints
| Risk | Context |
|---|---|
| Customer Concentration | Bajaj still accounts for 46% of total revenue. Efforts to diversify via new EV client wins in FY27 are critical. |
| Geographic Drag | Overseas subsidiaries (Romania/Thailand) are currently diluting consolidated margins. Success depends on the timely ramp-up of SOPs in H2 FY27. |
| Regulatory/Litigation | Ongoing arbitration with OPmobility (claims of ~€66 million). Management views claims as frivolous, but the legal process may last 2-3 years. |
Q&A Highlights
Restructuring & Savings
- Question: What is the financial impact of the VSS scheme? (Ankur Poddar)
- Answer: The ₹80 crore cost will lead to annual savings of approximately ₹20+ crores in employee expenses. 95% of the impacted headcount was from the ICE powertrain group (Tarang Jain).
Overseas Recovery
- Question: When will the Overseas business reach breakeven? (Preet)
- Answer: Romania is expected to reach cash breakeven by next year; 2-wheeler lighting is already profitable. A significant turnaround is expected in H2 FY27 as new 4W lighting and HV electronics orders ramp up (Mahendra Kumar).
EV Component Strategy
- Question: Is the E-Mobility growth purely from Bajaj? (Ronak Jain)
- Answer: Currently yes, but we will SOP with one new customer early next year and are in advanced discussions for e-Powertrain with a premier incumbent OEM (Arjun Jain).
Non-Core Assets
- Question: What is the plan for the IMES forging business? (Avnish Tiwari)
- Answer: It is currently a non-core area. We are working to make it profitable first but remain open to all strategic options, including a potential exit (Tarang Jain).
Key Takeaway
Varroc Engineering delivered a resilient Q3 FY26 with 10.2% revenue growth, underpinned by a 53% surge in EV-linked revenues which now comprise over 14% of the mix. While India operations remained highly profitable (11.9% EBITDA), consolidated performance was weighed down by strategic R&D investments and low utilization in overseas 4-wheeler plants. The company executed a major restructuring via a ₹80 crore VSS program to lean out its ICE-related cost structure, aiming for a 4-year payback. With record 9M order wins of ₹2,064 crores (75% EV-related), management is positioning for a significant turnaround in global operations starting H2 FY27. Although net debt saw a temporary uptick due to one-time separation costs, the company maintains its trajectory toward becoming debt-free by FY27-end while pivoting toward high-growth high-voltage electronics and global lighting segments.
Want more insights like this?
Subscribe to get deep dives delivered to your inbox.
More Earnings Summaries
Explore more Q3 FY26 earnings call analyses: