Varroc Engineering Limited — Interim / Quarterly Report 2021

Aug 14, 2020

Varroc Engineering Ltd.

Regd. & Corp. Office

L-4, MIDC, Industrial Area Tel + 91 240 6653700 Waluj, Aurangabad 431 Fax + 91 240 2564540 136, Maharashtra, India

email : varroc.info@varroc.com www.varroc.com CIN: L28920MH1988PLC047335

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VARROC/SE/INT/2020-21/33

August 14, 2020

To,

(1) The Manager – Listing The Listing Department, National Stock Exchange of India Limited BSE Limited Exchange Plaza, Plot No. C/1, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai-400051. NSE Symbol: VARROC

(2) The Manager - Listing The Corporate Relation Department, Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai-400001. BSE Security Code: 541578 Security ID: VARROC

Dear Sir/Madam,

Sub: Press Release and Investor Presentation - Financial Results Q1 FY 2020-21

Please find enclosed a copy of Press Release and Investor Presentation on the Unaudited Financial results (Consolidated & Standalone) for the quarter ended on June 30, 2020.

Kindly take the same on record and note the compliance.

Thanking you,

Yours faithfully, For Varroc Engineering Limited

Digitally signed by AJAY KUMAR SHARMA DN: c=IN, o=Personal, 2.5.4.20=8e394f0b54df7a428a2c5037cce4c75628f0ab AJAY KUMAR 036b8fe3c204ae92155ac8623d, postalCode=121004, st=HARYANA, serialNumber=6874ec243b772feb55e68c4ac7af69e44 bded0b2f83f14b155f3058c5ed4b3ae, cn=AJAY SHARMA KUMAR SHARMA Date: 2020.08.14 14:48:58 +05'30' ________ Ajay Sharma Group General Counsel and Company Secretary

Encl: a/a

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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

• Consolidated Revenue from operations for Q1 FY21 declined by 56% YoY due to the impact of the COVID-19 pandemic on business operations

• EBITDA loss for the quarter was Rs 1.8 billion; several cost rationalization initiatives rolled out to reduce fixed cost base by more than 20%

• Resumption of the regular working capital cycle, improved profitability and reduction in capex expected to lead to positive cash flows going forward

Pune, August 14, 2020: Varroc Engineering Ltd. (Varroc), a global tier-I auto component group, today announced its results for the quarter ended June 30, 2020

Summary Consolidated Financials

(Rs million)

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Q1 FY21 Q1 FY20 % Change
Revenue from Operations - Reported 12746.9 28700.8 -56%
Other Income - Operating 110.0 280.4
Other Income - non-Operating 390.0 11.3
EBITDA : Reported -1794.3 2970.3 -160%
EBITDA % -14.1% 10.3%
Depreciation & Amortisation 2069.0 1646.3 26%
Finance Cost 431.5 312.5 38%
Share of net profits of JVs under equity method 109.7 -1.5
PBT - Reported -3795.1 1021.4
Tax -709.2 146.4
Tax rate 18.2% 14.3%
PAT - Reported -3085.9 875.0
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Consolidated Financial Performance for the quarter

• Revenue from operations for the quarter was Rs 17,747 million, a decline of 56% over Q1 FY20, mainly due to plant shutdowns caused by the COVID-19 pandemic.

• The Global Lighting Business (VLS) revenue declined 50% YoY in Euro terms. The India Business revenue declined by 71%.

• The reported EBITDA loss for the quarter was Rs 1,794 million.

• The EBITDA loss for India business was at Rs 251 million while VLS reported EBITDA loss of Rs.1,547 million.

China JV

• China JV recovered quickly from the Covid-19 impact and performed strongly in this quarter. Revenue grew by 30.5% YoY and EBITDA margin was (+)16.5% for the quarter as against (+)6.3% in Q1 FY20. Our share of the JV profit was Rs.110 Mn as against a marginal loss in Q1 FY20.

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Depreciation and amortisation

• Depreciation and Amortisation expenses were higher due to capitalisation of new facilities.

Finance Costs

• Finance costs were higher due to higher average borrowings during the period, caused by the disruption to the working capital cycle.

Mr. Tarang Jain, MD, Varroc Engineering Ltd. commented,

“As is required of any prudent business, we initiated a number of steps to mitigate the impact of the Covid-19 impact on the business. We are limiting capital expenditure in line with revised demand expectations, and it will be only about 60% of the capex incurred last year. We have also taken steps to reduce the fixed cost base through various measures, resulting in savings of about 20% overall. We have also prioritised securing and preserving liquidity till the operations have fully stabilised and visibility on business prospects has improved. These measures helped us weather the storm and navigate our way through the crisis and emerge stronger with a lower cost base and more efficient operations.

Going forward, our key areas of focus would be optimisation of cost structure, maximising capacity utilisation of investments made and cash flow generation.”

About Varroc Engineering Ltd.

Varroc Engineering Ltd is a global tier-1 automotive component group, ranked 124[th] in the 2019 Fortune India 500 list. It was incorporated in 1988. The group designs, manufactures and supplies 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 OEMs directly worldwide. The group revenue was close to Rs 11,200 crore (USD 1.5 Billion) in FY20. The group employs more than 14,300+ employees, has 43 global operating 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).

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VARROC Financial Results Q1 FY21

::14[th] August 2020::

Disclaimers Click to edit Master title stylemay include statements which may constitute forward-looking statements. All statements that address

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 Q1 FY21 YOY

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+5%
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5.62m
-65%
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5.76m

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5.50m

4.24m

1.97m

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1.22m
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E UROP E
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NORT H A ME RIC A

GRE A T E R C H INA

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5.81m
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Q1 FY20
-84% Q1 FY21
0.14m
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0.90m
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-78%
1.25m
2W
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0.27m
-77%
0.06m
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P A S S E NGE R VE H IC LE S

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3W
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• Passenger Vehicle volumes in Q1 FY21 declined drastically significantly across all regions (except China) as lockdowns in place globally for a major part of the quarter

• China PV volumes recovered quickly as the Novel Coronavirus impact gradually subsided and lockdowns were lifted.

• Domestic sales volumes declined drastically; 2W volume declined 74%, PV by 78% and 3W volumes were down by 91% YoY

• Exports for 2Ws showed YoY decline of 62%YoY. PV and 3W exports declined by 75% & 60% YoY, respectively.

Business Highlights: Q1 FY21

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• All of the Global and Indian plants were closed in April and most of May. Volumes ramped up gradually post re-opening.

June 20 revenues were 80% of June 19 revenues

• Reported Revenue from Operations for the quarter declined by 55.6% YoY

• Consolidated EBITDA loss for the quarter was Rs 1.8 Bn

• India Business: Revenue declined by 71.3%; EBITDA loss at Rs 251 Mn

• VLS: Revenue declined by 50.4% YoY in Euro terms; EBITDA loss at Rs 1.5 Bn

• China JV performance strong as revenue grew by 30.5% YoY and EBITDA margin was (+)16.5% for the quarter as against (+)6.3% in Q1 FY20

• Several cost rationalization initiatives rolled out to reduce fixed cost base by ~20%; full benefits to be seen in the second half of FY21

• Increase in net-debt levels due to disruption in working capital cycle, continuing fixed costs, capex payments and adverse currency movement; cash drawn down in March 20 helped in meeting the liquidity requirements

• Positive cash flows expected in rest of FY21 due to resumption of the regular working capital cycle, improved profitability and lower capex; target to end FY21 debt closer to FY20 levels

• Both cashflow and profitability have turned positive in July. Expect to sustain the same going forward

Varroc Group: Financial Performance ~~Click to edit Master title style~~

Particulars	~~y~~ Q1 FY21	Q1 FY20	Growth (Y-o-Y)
Revenue from Operations - Reported	12,747	28,701	-56%
Other income - Operating	110	280
Other income - Non operating	390	11
EBITDA - Reported *	(1,794)	2,970	-160%
EBITDA Margins (%)	-14.1%	11.0%
Share of net profits of JVs under equity method	110	(1)
PBT - reported	(3,795)	1,021
PAT - reported	(3,086)	875

~~Clik t dit Mt titl tl~~ Varroc Group: Business Wise Performance Q1 FY21	~~Clik t dit Mt titl tl~~ Varroc Group: Business Wise Performance Q1 FY21	~~Clik t dit Mt titl tl~~ Varroc Group: Business Wise Performance Q1 FY21	~~Clik t dit Mt titl tl~~ Varroc Group: Business Wise Performance Q1 FY21	~~Clik t dit Mt titl tl~~ Varroc Group: Business Wise Performance Q1 FY21	~~Clik t dit Mt titl tl~~ Varroc Group: Business Wise Performance Q1 FY21	~~Clik t dit Mt titl tl~~ Varroc Group: Business Wise Performance Q1 FY21	~~Clik t dit Mt titl tl~~ Varroc Group: Business Wise Performance Q1 FY21
~~c~~ SBU	~~o e aser~~ Q1 FY21			~~e sye~~ Q1 FY20			Revenue Change YoY
	Revenue	EBITDA	% EBITDA	Revenue	EBITDA	% EBITDA
India Business	2,977	(251)	-8.4%	10,359	1,066	10.3%	-71.3%
VLS (Incl TRIOM)	9,463	(1,547)	-16.3%	17,840	1,859	10.4%	-47.0%
Others (IMES)	402	(11)	-2.7%	577	33	5.7%	-30.3%
Elimination	(95)	14		(76)	12
Total	12,747	(1,794)	-14.1%	28,701	2,970	10.3%	-55.6%
China JV - 50%	1,317	217	16.5%	1,009	64	6.3%	30.5%

Euro Performance for VLS

SBU	Q1 FY21	Q1 FY21	Q1 FY21	Q1 FY20	Q1 FY20	Q1 FY20	Revenue Change YoY
	Revenue	EBITDA	% EBITDA	Revenue	EBITDA	% EBITDA
VLS-Euro	113	(18.5)	-16.3%	228	23.8	10.4%	-50.4%

Exchange rates : INR/Euro Average for Q1 FY21 = 83.67; INR/Euro Average for Q1 FY20 = 78.20

Revenue by Customers and Order Wins India Revenue Split by Customer[(1)] Click to edit Master title style

VLS Revenue Split by Customer[(2)]

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Q1 FY21 % Q1 FY 21 %
21.5%
Bajaj 25.4%
30.2%
Honda
Royal Enfield 9.8%
1.7% 58.3% Yamaha
2.3%
Mahindra & Mahindra
4.7%
2.8% 24.1% 5.5% 6.3%
Others
7.5%
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Revenue in Europe
declined by 46% YoY
Customer A
Customer B Revenue in Americas
declined by 55% YoY
Customer C
Customer D Revenue in China
Customer E increased by
+31%YoY as
Customer F
lockdowns were
Others lifted by the Govt.
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Highlights of major order wins and near-term potentials (Order value in terms of average annual revenue) – till July 20

Business New wins: VLS / Recent orders: India Near term potentials	Business New wins: VLS / Recent orders: India Near term potentials	Business New wins: VLS / Recent orders: India Near term potentials
VLS	Overall net business wins of ~Eur 14 Mn; pipeline of >Eur 100 Mn - New Business wins - Eur 22 Mn including EV programs in China and further wins in Americas - Re-wins - Eur 28 Mn and losses Eur 36 Mn	Some of the key orders out of the pipeline of >Eur100 million, if won, will likely provide further boost to our new facilities
India Business	Overall net business wins of ~Rs 1.6 Bn Bajaj:Order of Rs 667 million for various products including EV products HMCL:Various orders for polymer and electrical products for Rs 192 million MG Motors:Order for polymer products for Rs 220 million VW:Various orders for polymer products for Rs 108 million Mahindra:Various orders for polymer products for Rs 100 million HMSI:Various orders for polymer products for Rs 82 million Other Customers:Various orders for Rs 258 million in annual revenuepotential	In discussion with major customers for Electrical products, Traction Motor and Controller, Telematics, lighting, Catalytic Convertor and Polymer products. Active engagement with new customers for couple of more product categories for BSVI engine

Billion Rs

D/E

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Billion Rs
Debt Situation Update and Outlook for FY21
Click to edit M aster tit investments in Intangibles , 0.5
le style
Capex paid,
1.8
34.1
32
Working capital
change, 4.6 29 ~0.8x
9.4
0.8x
26
24.7 Op. loss bef. WC chg. +
tax paid + int. paid, 2.2
March 2020 June 2020 December 2020 March 2021
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September 2020 Forecast

December 2020 March 2021 Forecast Forecast

Debt Reduction by March 21 to happen through -

• Restoration of normal working capital cycle

• Improved profitability

• Significant reduction in Capex and other initiatives

Updates for FY21 – Current Situation (Q2) and Outlook (rest of the year) Click to edit Master title style

– Current Situation Q2 FY21

• Substantial improvement in performance as compared to Q1

• July – Good ramp-up in volumes from June levels; Revenue at 92% of July 19 levels. Profitability and cashflows turned positive.

• August and September – strong supply schedules from all key customers both in India and VLS

Outlook for H2

• Confident of building on the turn around in Q2 as a result of various initiatives already rolled out in Q1

• Focus on cash conservation and cost optimization in VLS

• Recurring SG&A and Engineering costs reduction measures completed; savings visible in monthly run-rate

• Reduction in full year capex

• Working capital improvements, especially inventory, through process and system changes

• Reiterate target of positive Free Cash Flow on full year basis

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