Varroc Engineering Limited — Investor Presentation 2019

Aug 10, 2019

Varroc l:ngineering Limit9d

Regd. & Corp. Office

L-4, MIDC, Industrial Area Waluj, Aurangabad 431 136 Maharashtra, India

Tel +91 240 6653600 Fax +91 240 2564540

email: varroc.info@varroc.com www.v<1rrocarouo.com CIN: L28920MH1988PLC047335 varroc

August 10, 2019

VARROC/SE/I NT /2019-20/ 41

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, Sandra (East), Mumbai-400051.

NSE Symbol: VARROC

(2) The Mar~ager - Listing The Co.rporate Relation Department, SSE Limited Phiroze J2ejeebhoy Towers, Dalal Street, Fort, Mumbai-400001.

BSE Security Code: 541578 Security ID: VARROC

Dear Sir/ Madam,

Ref: Regulation 30 (read with Part A of Schedule Ill) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations")

Sub: Revised Investor Presentation - Financial Results for the quarter ended on June 30, 2019

Further to o·ur letter bearing no. VARROC/SE/INT /2019-20/39 dated August 09, 2019, please find enclosed herewith revised Investor Presentation on Unaudited Standalone and Consolidated Financial Results of the Company for the quarter ended on June 30, 2019.

Kindly take the same on record.

Thanking you,

Yours faithfully, For Varroc Engineering Limited

~ Darji

Rakesh Company Secretary & Compliance Officer

Enc/s.: Revised Investor Presentation.

Q1 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 Q1 FY20

Sources: India Data - SIAM, Global Data – Production volume, © IHS Markit, July 2019. All rights reserved.

Business Highlights: Q1 FY20

• Revenue from Operations for Q1 FY20 declined by 2.0% YoY*
• EBITDA for Q1 FY20 at INR 2,788 Mn*; +20bps YoY
• VLS: Revenue increased 1% in Euro terms; margin improved by 40bps YoY to 9.5%*
• India Business: Revenue was almost flat against double digit decline in industry volumes; EBITDA margin maintained at 10.1%
• PAT for Q1 at INR 875 Mn a decline of 12.9% YoY as a result of:
  • China JV incurred a small loss due to significant decline in revenue (-37.1% YoY)
  • Higher depreciation and finance cost largely driven by adoption of Ind AS115 and Ind AS116 partially offset by higher tax credits in Q1 FY 20
• VLS business wins of Euro 93 Mn in first 4 months of FY20
• India Business focus on technology driven futuristic products; gaining traction with key OEMs

Starting this financial year, erstwhile TRIOM business which is into international lighting products for 2Ws, has been integrated with VLS. Financial numbers for both the periods are accordingly adjusted to include TRIOM.

Varroc Group: Summary Key Financials Q1 FY20

			(INR Mn)
Particulars	Q1 FY 20	Q1 FY19	Growth(Y-o-Y)
Revenue from Operations -Reported	28,701	29,270	-1.9%
Revenue from operations : like-for-like	28,701	29,273	-2.0%
Other income -Operating	280	165
Other income -Non operating	11	96
EBITDA -Reported *	2,970	2,412	23.2%
EBITDA : like-for-like $	2,788	2,786	0.0%
EBITDA Margins (%) $	9.7%	9.5%
Share of net profits of JVs under equity method	(1)	129	-101.1%
PBT -reported	1,021	1,343	-24.0%
PAT -reported	875	1,004	-12.9%
Net Debt to Equity (Excl. Impact of Leases: Ind AS 116)	0.73	0.55

Ind AS 116 impact on EBITDA and PAT for the quarter on consolidated basis at (+)INR 87 million and (-)INR 10 million, respectively.

*EBITDA = Profit before share of net profits of JVs plus depreciation plus finance cost less non-operating portion of other income $ like-for-like excludes impact of Interior Plastics business closure in North America, Ind AS 116, Start-up costs and other items as explained in later part of this presentation

Varroc Group: Business Wise Performance Q1 FY20

(INR Mn)

SBU Q1 FY20 Q1 FY19 Revenue Revenue Growth YoY Revenue Adjusted* EBITDA EBITDA # Like-for-like % EBITDA Revenue Revenue Adjusted* EBITDA EBITDA # Like-for-like % EBITDA India Business 10,359 10,359 1,066 1,050 10.1% 10,431 10,431 1,051 1,051 10.1% -0.7% VLS (Incl TRIOM) 17,840 17,840 1,859 1,692 9.5% 18,046 18,050 1,264 1,639 9.1% -1.2% Others (IMES) 578 578 33 33 5.7% 836 836 98 98 11.7% -30.9% Elimination (76) (76) 12 12 (43) (43) (1) (1) Total 28,701 28,701 2,970 2,788 9.7% 29,270 29,273 2,412 2,786 9.5% -2.0% China JV - 50% 1,009 1,009 64 64 6.3% 1,605 1,605 214 214 13.3% -37.1%

Euro Performance for VLS

	Q1 FY20				Q1 FY19
SBU	Revenue	RevenueAdjusted*	EBITDA	EBITDA #Like-for-like	% EBITDA	Revenue	RevenueAdjusted*	EBITDA	EBITDA #Like-for-like	% EBITDA	RevenueGrowth YoY
VLS	228	228	23.8	21.6	9.5%	226	226	15.6	20.5	9.1%	1.0%

Exchange rates : INR/Euro Average for Q1 FY20 = 78.120; INR/Euro Average for Q1 FY19 = 79.871

• *For Q1 FY19 it includes impact of Ind AS 115 and excludes Interiors Business to make results comparable

• *#*EBITDA : like-for-like is as explained in next few slides

India Business : Financial Performance

Revenue nearly flat in a tough external environment

EBITDA margins flat YoY adjusted for impact of Ind AS116

India Revenue Split by Customer(1)

EBITDA variation analysis

EBITDA margin maintained in a declining industry

Global Lighting Business (VLS): Financial Performance

1.0% YoY revenue growth in Euro terms

EBITDA (1) & Adjusted EBITDA (3)

5.4%YoY EBITDA growth in Euro terms

VLS Revenue Split by Customer(2)

VLS EBITDA margin variation explanation on the next page

Note: (1) China JV revenue and EBITDA not included in the reported numbers; (2) Total Revenue break-up in Euro for Q1 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 (3) Adjusted for closure of Interiors Business in North America (Q1 FY19 small inventory sold), Ind AS 115 impact adjusted in Q1FY19, start-up costs and differential launch cost. Ind AS 116 impact excluded from Q1FY20 adjusted EBITDA but it includes Turkey. 7

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 lower as compared to Q1 FY19

Highlights of Major Order Wins and Near Term Potential

Business	New Business wins: VLS / Recent orders: India	Near term potentials
VLS(YTD July)		VW is set to become our second largest customerin FY20 & the largest in FY21.
	Overall Net Business Wins of Eur 93 Mn-New Business wins -Eur 81 Million-Re-wins (net) -Eur 12 Mn	Ford: In discussion for some programs in andoutside of North America
		China: Focus on locally strong players like Geely,VW-FAW.
IndiaBusiness(Q1 FY20)	VW: New business won 2k Injection molding technologyorders INR 590 Mn –Part business start in FY22	Traction Motor & Controller: development inprogress. Prototypes ready for 2W & development
	Bajaj: New business of INR 290 Mn/ re-wins INR 1160 Mnin Q1 FY20	work is ongoing for 3W; in discussion with a fewcustomers
	HMSI: INR 640 Mn wins and re-wins for Polymer &Electrical products	ISG: In discussion with customers for near termsupply
	PSA: Export order for supply of Intake/Exhaust Valve forEuro VII Engine –INR 1040 Mn; SOP to start in FY21	In discussion with RE for more product categoriesin Metallic and Electrical business.
	M&M: Polymer orders for INR 300 Mn
	RE: UCE BSVI Magneto replacement order for INR 450Mn;LOI to supply valves to J1 Engine for Jan2020 SOP	TVS: In discussion for more Electrical products
	ThyssenKrupp: BSVI crankshaft replacement INR 450 Mn	Polymer products for M&M: Working on few
	Yamaha: New order for polymer body parts INR 90 Mn	products

R & D / Business Updates – Q1 FY20

Global Lighting Business

• Updates on new locations
  • Brazil: Industrialization on track to support our 2nd customer launch and ramp up by December. This is full vehicle lighting including our first HL launch in Brazil.
  • Morocco: Seven new projects will be launched in Morocco during FY20. Phase 2 extension is on-track and likely to be ready by November 2019.
  • Poland: Construction activity on track; likely to start SOP in Q4 FY20
  • Romania JV: Building shell ready and SMT machines being ordered.
• VLS completed a fully functional demonstration vehicle in India, to show new lighting innovations directly targeted to the value conscious India market.

India Business

• EBU: Multiple customer enquiries for exploring supply of traction motor, ISG and telematics devices.
• Metallic: Success in securing order for Euro VII valves; exploring opportunities with other customers to supply these products
• Polymer: working with a large customer to supply complete body parts for 2W EV. SOP to start later this year.

Poland Manufacturing Plant : Const. Status

Outside view

Roof insulation and proofing

Manufacturing Area – inside view 1

Manufacturing Area – inside view 2