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Varroc Engineering Limited Earnings Release 2019
61938_rns_2019-11-12_76399bf0-f8a6-45d7-a58a-3c02afd6a8c4.pdf
Earnings Release
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Varroc Engineering Limited
Rttd. & Corp. Offlct
l-4, MIDC, Industrial Nea I Ttl + 91 240 6653600 W1luj, Auran9abad 431136 fH +91 240·2564540 M1htruht,., India
email: [email protected] www.varrocgroup.com CIN: l28920Mll1988PLCOl\7335
VARROC/SE/INT /2019-20/58
To,
(1) The Manager - listing The Listing Department, National Stock Exchange of India Limited Exchange Plaza, Plot No. C/1, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai-400051.
NSE Symbol: VARROC
November 12, 2019
(2) The Manager - Listing l he Corporate .Relation Department, BSE Limited Phiroze Jeejeebhoy Towers, DalaO Street, Fort, Mumbai-400001.
BSE Security Code: 541578 Security ID: VARROC
Dear Sir/Madam,
Sub: Press Release- Financial Results Q2 2019-20
Please find enclosed herewith a copy of Press Release with respect to the Unaudited Standalone and Consolidated Financial Results of the Company for the Quarter and Half year ended 3othseptember, 2019.
Kindly take the same onrecord and note the compliance.
Thanking you,
Yours faithfully, For Varroc Engineering Limited
Chetan Sr. Manager (Legal & Secretarial) & Compliance Officer
Encl: a/a
### **Varroc Engineering Limited**
L-4, MIDC, Industrial Area Waluj, Aurangabad 431 136 Maharashtra, India CIN: U28920MH1988PLC047335 | Tel + 91 240 6653700 | www.varroc.com
## **Press Release**
- **Revenue from Operations on a like-for-like basis for Q2 FY20 declined by 9.9% YoY amidst challenging market conditions for both India and VLS business**
- **VLS EBITDA on a like-for-like basis impacted by revenue decline and operating losses at the new facilities during the ramp-up phase. India EBITDA margins declined over Q2FY19 but improved sequentially over the previous two quarters**
- **PAT at Rs 229 million also impacted by losses in China JV, higher depreciation and finance costs (partly due to Ind AS 116 adoption)**
**Mumbai, November 12, 2019:** Varroc Engineering Ltd. (Varroc), a global tier-I auto component group, today announced its results for the quarter ended September 30, 2019
| | | | | | | (Rs million) |
|-------------------------------------------------|---------|----------|----------|---------|---------|--------------|
| | Q2 FY20 | Q2 FY19* | % Change | H1 FY20 | H1 FY19 | % Change |
| Revenue from Operations - Reported | 27032.3 | 30010.5 | -9.9% | 55733.1 | 59280.8 | -6.0% |
| Revenue from Operations : like-for-like | 27032.3 | 29923.0 | -9.7% | 55579.5 | 59198.2 | -6.1% |
| Other Income - Operating | 87.8 | 163.4 | | 368.2 | 328.9 | |
| Other Income - non-Operating | 26.2 | 19.7 | | 37.5 | 115.7 | |
| | | | | | | |
| EBITDA : Reported | 2311.2 | 3201.9 | -27.8% | 5281.6 | 5613.4 | -5.9% |
| EBITDA : like-for-like | 2201.6 | 2968.7 | -25.8% | 4990.5 | 5772.7 | -13.6% |
| EBITDA % | 8.1% | 9.9% | | 9.0% | 9.8% | |
| | | | | | | |
| Depreciation & Amortisation | 1664.0 | 1664.5 | 0.0% | 3310.2 | 2728.5 | 21.3% |
| Finance Cost | 351.3 | 208.0 | 68.9% | 663.8 | 437.0 | 51.9% |
| Share of net profits of JVs under equity method | -65.8 | 73.4 | -189.7% | -67.3 | 201.9 | -133.3% |
| PBT - Reported | 256.3 | 1422.4 | -82.0% | 1277.7 | 2765.5 | -53.8% |
| Tax | 27.0 | 430.6 | | 173.4 | 769.3 | -77.5% |
| Tax rate | 8.4% | 31.9% | | 12.9% | 30.0% | |
| PAT - Reported | 229.4 | 991.8 | -76.9% | 1104.3 | 1996.2 | -44.7% |
#### **Summary Consolidated Financials**
*\*Restated*
Consolidated Financial Performance for the quarter
• Reported revenue from operationsfor the quarter was Rs 27,032 million, a decline of 9.9% over Q2 FY19.
The India Business revenue declined by 12.0% against a decline of 14.9% in the two-wheeler industry volumes. The Global Lighting Business (VLS) revenue declined by 4.9% in Euro terms.
• The reported EBITDA for the quarter was Rs 2,311 million, a decline of 27.8% YoY.
The Reported EBITDA for India Business was at Rs 1,076 million while the like-for-like EBITDA was at 1,024 million. The EBITDA margin was at 10.2%, a sequential improvement over the previous two quarters.
The reported EBITDA of VLS was at Rs 1,239 million, a decline of 29.2% YoY. On a like-for-like basis, the VLS EBITDA was at 1,181 million, a decline of 22.1% YoY.
• The PAT for the quarter was at Rs 229 million, as compared to Rs 992 million for Q2 FY19, a decline of 76.9%. The profit for the quarter was impacted negatively by lower revenues which is largely driven by market decline, operating losses at new facilities during the ramp-up phase, higher interest and depreciation & amortisation costs and losses in China JV.
### Depreciation and amortisation
• Depreciation and Amortisation expenses were higher, largely driven by the adoption of Ind AS115 and Ind AS116, and capitalisation of new facilities.
### Finance Costs
• Finance costs were higher due to higher borrowings for new capital investments to support new orders and adoption of Ind AS116.
### China
• EBITDA in China decreased 96.9% to Rs 5 million due to decrease in automobile production volume for our key customers. The JV reported a PAT loss of 64 Rs million as against a profit of Rs 71 million in Q2 FY19.
Mr. Tarang Jain, MD, Varroc Engineering Ltd. commented,
"*The profitability of both our businesses suffered due to a challenging external environment as well as the cost/ investments associated with the new facilities to support the next phase of growth.*
*We will continue our focus on rationalising costs as well as optimising capex and capacity utilisation over the next few quarters."*
### **About Varroc Engineering Ltd.**
Varroc Engineering Ltd is a global tier-1 automotive component group and it was incorporated in 1988. We design, manufacture and supply exterior lighting systems, plastic and polymer components, electricalselectronics components, and precision metallic components to passenger car, commercial vehicle, twowheeler, three-wheeler and off-highway vehicle OEMs directly worldwide. The group revenue was close to Rs 12,500 crore (USD 1.8 Billion) in FY19, including share of revenues from the China JV. The group employs more than 13,800+ employees, has 41 global manufacturing facilities and has 185 patents.
Varroc Engineering Limited's shares are listed on the National Stock Exchange (VARROC) and the Bombay Stock Exchange (541578).
## **Q2 FY20 Results Presentation**
## **Disclaimer**
This presentation may include statements which may constitute forward-looking statements. 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. Forward looking statements are based on certain assumptions and expectations of future events and involves known and unknown risks, uncertainties and other factors. The Company cannot guarantee that these assumptions and expectations are accurate or exhaustive or will be realised. The actual results, performance or achievements, could thus differ materially from those projected in any such forward-looking statements. No obligation is assumed by the Company to update the forward-looking statements contained herein.
The information contained in these materials has not been independently verified. None of the Company, its Directors, Promoter or affiliates, nor any of its or their respective employees, advisers or representatives or any other person accepts any responsibility or liability whatsoever, whether arising in tort, contract or otherwise, for any errors, omissions or inaccuracies in such information or opinions or for any loss, cost or damage suffered or incurred howsoever arising, directly or indirectly, from any use of this document or its contents or otherwise in connection with this document, and makes no representation or warranty, express or implied, for the contents of this document including its accuracy, fairness, completeness or verification or for any other statement made or purported to be made by any of them, or on behalf of them, and nothing in this document or at this presentation shall be relied upon as a promise or representation in this respect, whether as to the past or the future. The information and opinions contained in this presentation are current, and if not stated otherwise, as of the date of this presentation. The Company relies on information obtained from sources believed to be reliable but does not guarantee its accuracy or completeness. The Company undertake no obligation to update or revise any information or the opinions expressed in this presentation as a result of new information, future events or otherwise. Any opinions or information expressed in this presentation are subject to change without notice.
This presentation does not constitute or form part of any offer or invitation or inducement to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of Varroc Engineering Limited (the "Company"), nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or to be relied in connection with an investment decision in relation to the securities of the Company therefore any person/ party intending to provide finance / invest in the shares/businesses of the Company shall do so after seeking their own professional advice and after carrying out their own due diligence procedure to ensure that they are making an informed decision. Neither the delivery of this document nor any further discussions by the Company with any of the recipients shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since that date. This presentation is strictly confidential, unless distributed via a public forum, and may not be copied or disseminated, in whole or in part, and in any manner or for any purpose. No person is authorized to give any information or to make any representation not contained in or inconsistent with this presentation and if given or made, such information or representation must not be relied upon as having been authorized by any person. Failure to comply with this restriction may constitute a violation of the applicable securities laws. The distribution of this document in certain jurisdictions may be restricted by law and persons into whose possession this presentation comes should inform themselves about and observe any such restrictions. By participating in this presentation or by accepting any copy of the slides presented, you agree to be bound by the foregoing limitations.
## **Industry Trends in Q2 FY20**
*Sources: India Data - SIAM, Global Data – Production volume, © IHS Markit, October 2019. All rights reserved.*
## **Business Highlights: Q2 FY20**
- **Revenue from Operations for the quarter declined by 9.7% YoY\***
- **Consolidated EBITDA for the quarter at INR 2,202 Mn\*; EBITDA margins at 8.2%**
- **India Business:** Revenue declined by 12.0% as against 14.9% decline in 2W industry volumes; EBITDA margin at 10.2%\* improved sequentially over the previous two quarters but were lower than Q2 FY19
- **VLS:** Revenue declined by 4.9% in Euro terms; EBITDA margin declined by 130bps YoY to 7.2%\* due to negative margin (-24.5%) from new operating facilities; margin excluding new facilities at 9.6%
- **PAT for Q2 declined as a result of:**
- Lower revenue, largely driven by market decline
- Operating losses at new facilities during the ramp-up phase
- Losses in China JV
- Higher interest and depreciation costs
- **VLS business wins of Euro 262 Mn in the first 7 months; on track for another strong year**
- **Cost reduction/ rationalization initiatives rolled out in India as well as in VLS**
### **Definitions:**
**Upcoming facilities = Poland, Chennai & VEE JV; Not a part like-for-like numbers, termed as Start-up costs New Operating Facilities = Morocco, Brazil, Halol and H8 line in Czech; all part of like-for-like numbers Other Business= All other business; part of like-for-like numbers**
# **Summary of Key Financials for Q2 FY20**
| | | | | | | | | | | (INR Mn) |
|---------------------------------------------------|---------------------------------|-------------------|--------------|--------------|------------------------------|---------------------------------|-------------------|--------------|--------------|-------------------|
| Particulars | | Q2 FY20 | | Q2 FY19 | Growth<br>H1 FY20<br>(Y-o-Y) | | | | H1 FY19 | Growth<br>(Y-o-Y) |
| | New<br>Operating<br>Facilities# | Other<br>business | Total<br>(A) | Total<br>(B) | (A) over<br>(B) | New<br>Operating<br>Facilities# | Other<br>business | Total<br>(C) | Total<br>(D) | (C) over<br>(D) |
| Revenue from Operations -<br>Reported | 863 | 26,170 | 27,032 | 30,011 | -9.9% | 1,230 | 54,503 | 55,733 | 59,281 | -6.0% |
| Revenue from operations : like-for-like | 863 | 26,095 | 26,958 | 29,923 | -9.9% | 1,230 | 54,350 | 55,579 | 59,198 | -6.1% |
| Other income -<br>Operating | 52 | 36 | 88 | 163 | | 90 | 278 | 368 | 329 | |
| Other income -<br>Non operating | - | 26 | 26 | 20 | | - | 37 | 37 | 116 | |
| | | - | | | | | - | | | |
| EBITDA -<br>Reported * | (184) | 2,495 | 2,311 | 3,202 | -27.8% | (270) | 5,552 | 5,282 | 5,613 | -5.9% |
| EBITDA : like-for-like \$ | (184) | 2,386 | 2,202 | 2,969 | -25.8% | (270) | 5,261 | 4,990 | 5,773 | -13.6% |
| EBITDA Margins (%) \$ | -21.3% | 9.1% | 8.2% | 9.9% | | -22.0% | 9.7% | 9.0% | 9.8% | |
| Depreciation Reported | 73 | -<br>1,591 | 1,664 | 1,646 | 1.1% | 131 | -<br>3,180 | 3,310 | 2,729 | 21.3% |
| Interest Reported | 91 | 261 | 351 | 313 | 12.4% | 129 | 535 | 664 | 437 | 51.9% |
| Share of net profits of JVs under equity method | - | (66) | (66) | 73 | -189.7% | - | (67) | (67) | 202 | -133.3% |
| PBT -<br>reported | (347) | 604 | 256 | 1,422 | -82.0% | (530) | 1,807 | 1,278 | 2,765 | -53.8% |
| PAT -<br>reported | (347) | 577 | 229 | 992 | -76.9% | (531) | 1,635 | 1,104 | 1,996 | -44.7% |
| Net Debt (Excl. Debt due to Impact of Ind AS 116) | | | 25,207 | 20,750 | | | | 25,207 | 20,750 | |
| Net Debt to Equity (Excl. Impact of Ind AS 116) | | | 0.8 | 0.7 | | | | 0.8 | 0.7 | |
\$ Like-for-like numbers at consolidated level include both old and new operating facilities but are adjusted for items such as start-up costs for facilities which are not yet operational, differential launch costs etc.
**\*EBITDA = Profit before share of net profits of JVs** *plus* **depreciation** *plus* **finance cost less non-operating portion of other income # Morocco, Brazil, Bulgaria, Czech - new line and Halol in India; Interest includes only specific borrowings for new plants; non-specific interest is over and above**
# **Outlook for New Operating and Upcoming facilities\***
| Facility | Revenue<br>potential @<br>full capacity<br>(Eur Mn) | Full potential<br>sales year | Target Break<br>even | Confirmed orders as of Oct 2019 as a<br>% of planned capacity |
|------------------------|-----------------------------------------------------|------------------------------|----------------------|---------------------------------------------------------------|
| Brazil | 30 | FY22 | Q4 FY21 | 100% sourced business |
| Morocco | 180 | FY23 | Q2 FY21 | ~70% sourced business |
| Poland | 200 | FY23 | Q4 FY21 | ~55% sourced business |
| Chennai | 30 | FY24 | Q4 FY21 | ~60% sourced business |
| VLS-ELBA JV# | 85 | FY24 | Q3 FY21 | To reduce sourcing cost of<br>Electronics |
| Czech New<br>Line (H8) | 90 | FY22 | Q2 FY21 | 100% sourced business |
| Bulgaria | 10 | FY22 | Q2 FY21 | 100% Sourced Business |
| Total | 625 | | | |
# **Varroc Group: Business Wise Performance Q2 FY20**
(INR Mn) **SBU Q2 FY20 Q2 FY19** Revenue **Revenue** Growth YoY **Revenue like-forlike\* EBITDA EBITDA # Like-for-like % EBITDA Revenue Revenue like-forlike\* EBITDA EBITDA # Like-for-like % EBITDA** India Business 10,058 10,058 1,076 1,024 10.2% 11,430 11,430 1,394 1,394 12.2% -12.0% VLS (Incl TRIOM) 16,373 16,299 1,239 1,181 7.2% 17,917 17,830 1,750 1,517 8.5% -8.6% Others (IMES) 620 620 11 11 1.8% 703 703 31 31 4.5% -11.8% Elimination (19) (19) (15) (15) (40) (40) 27 27 **Total 27,032 26,958 2,311 2,202 8.2% 30,011 29,923 3,202 2,969 9.9% -9.9%** China JV - 50% 1,093 1,093 5 5 0.4% 1,122 1,122 150 150 13.4% -2.5%
### **Euro Performance for VLS**
| | Q2 FY20 | | | | | | | | | | |
|---------------------|---------|------------------------------|--------|---------------------------|----------|---------|------------------------------|--------|---------------------------|----------|-----------------------|
| SBU | Revenue | Revenue<br>like-for<br>like* | EBITDA | EBITDA #<br>Like-for-like | % EBITDA | Revenue | Revenue<br>like-for<br>like* | EBITDA | EBITDA #<br>Like-for-like | % EBITDA | Revenue<br>Growth YoY |
| VLS (Incl<br>TRIOM) | 209 | 208 | 15.8 | 15.1 | 7.2% | 220 | 219 | 21.5 | 18.7 | 8.5% | -4.9% |
Exchange rates : INR/Euro Average for Q2 FY20 = 78.20; INR/Euro Average for Q2 FY19 = 81.49
• *\*Q2 FY19 numbers exclude impact of Ind AS 115 for Q1 FY19 which was accounted in Q2 on a cumulative basis last year. This is to make results comparable*
• *#***EBITDA : like-for-like is as explained in next few slides**
# **India Business : Financial Performance**
#### **Revenue declined in a tough external environment**
### **EBITDA variation analysis**
#### **Revenue decline impact seen on operating profits**
#### **1,394 889 1,050 1,024** Q2 FY2019 Reported/like-forlike Q4 FY2019 like-for-like Q1 FY2020 like-for-like Q2 FY2020 Adjusted (INR Mn) Margin 12.2% 10.2% 8.7% 10.1%
### **EBITDA margin improved sequentially over last two quarters**
### *Note: (1) Based on management information system database*
*Non-operating portion of other income not considered while calculating EBITDA* 7
### **EBITDA trend**
# **Global Lighting Business (VLS): Financial Performance**
**4.9% YoY revenue decline in Euro terms**
### **EBITDA (1) & like-for-like EBITDA (2)**
#### **19% YoY EBITDA decline in Euro terms**
### **VLS Revenue Split by Customer Q2 FY20 vs Q2 FY19 (2)**
Revenue in Europe grew by 7.6% YoY Revenue in Americas declined by 24.9% YoY Revenue in India declined by 29.9% YoY
**VLS EBITDA margin variation**
*Note: (1) China JV revenue and EBITDA not included in the reported numbers; (2) Total Revenue break-up in Euro for Q2 FY20 excl VTYC; Customer A is an American multinational car manufacturer, Customer B is a large British car manufacturer, Customer C is an American electric car manufacturer, Customer D is an international automotive manufacturer, customer E is a large European car manufacturer & customer F is a global automotive manufacturer headquartered in Europe. (2) Adjusted for Ind AS 115 impact for Q1FY19 as entire H1FY19 impact was taken in Q2FY19, start-up costs and differential launch cost. Ind AS 116 impact excluded from Q2FY20 like-for-like EBITDA but it includes Turkey.* 8
# **Global Lighting Business (VLS): EBITDA variation analysis**
- RM costs lower due to purchasing efficiencies and customer/product mix change
- Overheads higher due to new locations and infrastructure being built to support future revenue growth
- Launch activity during the quarter was slightly lower as compared to Q2 FY19
# **Varroc Group: Business Wise Performance H1 FY20**
(INR Mn) **SBU H1 FY20 H1 FY19 Revenue Revenue Growth YoY Revenue like-for-like EBITDA EBITDA # Like-for-like % EBITDA Revenue Revenue like-for-like EBITDA EBITDA # Like-for-like % EBITDA** India Business 20,417 20,417 2,142 2,074 10.2% 21,861 21,861 2,457 2,457 11.2% -6.6% VLS (Incl TRIOM) 34,214 34,060 3,098 2,874 8.4% 35,964 35,881 3,014 3,173 8.8% -5.1% Others (IMES) 1,197 1,197 45 45 3.7% 1,539 1,539 129 129 8.4% -22.2% Elimination (95) (95) (3) (3) (83) (83) 13 13 **Total 55,733 55,579 5,282 4,990 9.0% 59,281 59,198 5,613 5,773 9.8% -6.1%** China JV - 50% 2,102 2,102 68 68 3.2% 2,727 2,727 364 364 13.4% -22.9%
### **Euro Performance for VLS**
| | H1 FY20 | | | | | | H1 FY19 | | | | | |
|---------------------|---------|--------------------------|--------|---------------------------|----------|---------|--------------------------|--------|---------------------------|----------|-----------------------|--|
| SBU | Revenue | Revenue<br>like-for-like | EBITDA | EBITDA #<br>Like-for-like | % EBITDA | Revenue | Revenue<br>like-for-like | EBITDA | EBITDA #<br>Like-for-like | % EBITDA | Revenue<br>Growth YoY | |
| VLS (Incl<br>TRIOM) | 437 | 435 | 40 | 37 | 8.4% | 446 | 445 | 37 | 39 | 8.8% | -2.1% | |
Exchange rates : INR/Euro Average for H1 FY20 = 78.27; INR/Euro Average for H1 FY19 = 80.68
# **Highlights of Major Order Wins and Near Term Potential**
| | BusinessNew Business wins: VLS / Recent orders: India | Near term potentials | | | | |
|-----------------------------------|--------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|--|--|--|--|
| VLS<br>(YTD<br>Oct) | Overall Net Business Wins of Eur 262 Mn (68% of target for | North America: 50%+ Business wins are in North<br>Americas where revenue has de-grown in last<br>quarter. | | | | |
| | FY20)<br>-<br>New Business wins -<br>Eur 145 Million<br>-<br>Re-wins (net) -<br>Eur 117 Mn | Europe: Exploring major orders with PSA/FCA.<br>Believe that the deal to be positive for Varroc | | | | |
| | | China: Focus on locally strong players to<br>continue | | | | |
| | Bajaj: New business of INR 122 Mn/ re-wins INR 68 Mn in Q2<br>FY20. | Traction Motor & Controller: In discussion with a<br>few customers | | | | |
| | TVS:<br>Won business with TVS for BSVI Magneto worth about<br>250 Mn per annum. | In discussion with RE for more product | | | | |
| | HMCL: INR 70 Mn wins for Metallic & Electrical products | categories in Metallic and Electrical business. | | | | |
| India<br>Business<br>(Q2<br>FY20) | M&M: won our first IP FSS (Full System Supplier) design<br>program within polymer BU | TVS: In discussion for more Electrical products | | | | |
| | CNH: Body parts business of INR 120mn | Hero: In discussion for more Electrical and<br>Lighting products | | | | |
| | Yamaha: New order for polymer body parts and metallic parts<br>INR 180 Mn | VW: In discussion with VW for Polymers business | | | | |
| | Polymer Tools Business of INR 200mn from various customers | | | | | |
# **R & D / Business Updates – Q2 FY20**
## **Global Lighting Business**
- **VLS participated in the International Symposium on Automotive Lighting (ISAL) in Germany which is the largest conference held worldwide dedicated to automotive lighting. During this event :**
- Presented various new technologies, and unveiled its latest innovations on Surface-LED which provides the appearance of OLED, utilizing traditional LED's for improved cost and reliability
- demonstrated a technical solution for DRL by making significant improvements in optical efficiency, with very low power consumption and ultra homogeneous appearance using this new patented technology. This now allows VLS to offer Surface-LED technology for all signal functions for both headlamps and rear lamps.
- **Morocco Plant Phase 2 work complete.** Launched one more program this quarter from this plant
- **Brazil** two new programs launched with no quality or launch issues. Second program to start shipments in Q3
## **India Business**
• **EBU**:
**Traction Motor:** Specification change to current traction motor version to accommodate a potential customer; new version of the prototype to be ready by Dec'19.
**Telematics –** First prototype will be ready by end of Feb 2020
**Developing integrated handle bar assembly** with single ECU. Expected date completion March 20 **Instrument Cluster for two wheeler with Turn by Turn navigation** likely to be ready by March 20
