Varroc Engineering Limited — Investor Presentation 2020

Nov 10, 2020

Varroc Engineering Ltd.

Regd. & Corp. Office

L-4, MIDC, Industrial Area Tel + 91 240 6653700 email : varroc.info@varroc.com Waluj, Aurangabad 431 Fax + 91 240 2564540 www.varroc.com 136, Maharashtra, India CIN: L28920MH1988PLC047335

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VARROC/SE/INT/2020-21/47

November 10, 2020

To, The Manager- Listing The Manager – Listing The Listing Department, The Corporate Relation National Stock Exchange of India Department, Limited Bombay Stock Exchange Exchange Plaza, Plot No. C/1, G Limited Block, Phiroze Jeejeebhoy Towers, Bandra-Kurla Complex, Dalal Street, Fort, Bandra (East), Mumbai-400051. Mumbai-400001. NSE Symbol: VARROC BSE Security Code: 541578

Sub: Investor Presentation - Financial Results Q2 FY 2020-21 - Revised

Dear Sir/ Ma’am,

Please find enclosed a copy of Revised Investor Presentation on the Unaudited Financial results (Consolidated & Standalone) for the quarter and half year ended on September 30, 2020.

Kindly take the same on record and note the compliance.

Yours faithfully,

For Varroc Engineering Limited

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________ Ajay Sharma Group General Counsel and Company Secretary

Encl: a/a

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Varroc Engineering Limited Financial Results Q2 FY21

::10[th] November 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 Q2 FY21 Click to edit Master title style

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-8%
4.67m
4.31m +1%
4.00m 4.02m
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NORT H A ME RIC A

E UROP E

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-5%
5.84m
5.57m
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0.32m
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-55%
0.14m
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2W
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3W
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6.01m
+11%
6.40m
5.79m
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GRE A T E R C H INA

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-3%
0.86m 0.84m
Q2 FY20
Q2 FY21
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P A S S E NGE R VE H IC LE S

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• Passenger Vehicle volumes in Q2 FY21 declined in Europe while were flat in North America

• China PV volumes saw a YoY growth as the industry recovery post Covid continued

• 2W Domestic sales volumes were flat YoY on a quarterly basis as a result of robust YoY growth in September; PV sales volumes grew YoY by 17% however 3W volumes were very weak - down by 75% YoY

• Exports for 2Ws showed YoY growth of 9%. PV and 3W exports declined by 18% & 20% YoY, respectively.

Business Highlights: Q2 FY21

• Revenue from Operations for the quarter increased by 7.9% YoY Click to edit Master title style

• Revenue from Operations for the quarter increased by 7.9% YoY

• Consolidated EBITDA for the quarter at ₹ 2661 Million; EBITDA margins increased by 60 bps YoY to 9.1%

• India Business: Revenue declined by 7.2% YoY due to weak industry volumes at the beginning of the quarter; EBITDA margin improved 280bps YoY to 13.5%, partly due to temporary cost saving measures in place

• VLS: Revenue growth 20.9% YoY (+8.9% in Euro terms) mainly due to strong growth in September and revenue from new facilities; EBITDA margin flat YoY at 7.6%. Cost rationalisation initiatives started to show positive impact

• VLS: China JV continue to preform well with EBITDA margin at 16.8% as against margin of 0.3% in Q2 FY20; Electronics unit in Romania started production in Q3

• The free cashflow for the quarter of ~₹ 4 billion resulted into net debt reduction to ₹ 30.6 billion; on track to reach target net debt of ₹ 26 billion by March 2021

• Business wins encouraging; VLS net business wins YTD €74 Million and India business wins at ₹5 Billion in FY21 so far.

• Operations on track to deliver strong YoY growth in H2; Plants continue to operate during the second lockdown across key European markets.

Varroc Group: Financial Performance Click to edit Master title style

₹ million

Particulars	Q2 FY21	Q2 FY20	Growth (Y-o-Y)		H1 FY21	H1 FY20	Growth (Y-o-Y)
Revenue from Operations - Reported	29,161	27,032	8%		41,908	55,733	-25%
Other income - Operating	228	88			338	368
Other income - Non operating	4	26			394	37
EBITDA - Reported *	2,661	2,311	15%		866	5,282	-84%
EBITDA Margins(%) $	9.1%	8.5%			1.9%	9.5%
Share of netprofits of JVs under equitymethod	90	(66)	-237%		200	(67)	-397%
Depreciation	2270	1666	36%		4339	3312	31%
Finance Cost	443	351	26%		874	664	32%
PBT - reported	41	254			(3,754)	1,276	-394%
PAT - reported	(388)	228			(3,474)	1,103	-415%
Particulars Q2 FY21 Q1 FY21 Change Net Debt 30,644 34,121 (3,477) Net Debt to Equity (Excl. Impact of Leases: Ind AS 116) 1.1 1.2
Particulars	Q2 FY21	Q1 FY21	Change
Net Debt	30,644	34,121	(3,477)
Net Debt to Equity (Excl. Impact of Leases: Ind AS 116)	1.1	1.2

EBITDA = Profit before share of net profits of JVs* _plus_ depreciation _plus_ finance cost less non-operating portion of other income**

Varroc Group: Business Wise Performance Q2 FY21 Click to edit Master title style

₹ million

SBU	Q2 FY21	Q2 FY21	Q2 FY21	Q2 FY20	Q2 FY20	Q2 FY20	Revenue Change YoY
	Revenue	EBITDA	% EBITDA	Revenue	EBITDA	% EBITDA
India Business	9,329	1,257	13.5%	10,058	1,076	10.7%	-7.2%
VLS	19,788	1,502	7.6%	16,373	1,239	7.6%	20.9%
Others(IMES)	421	(84)	-19.8%	620	11	1.8%	-32.1%
Elimination	(377)	(15)		(19)	(15)
Total	29,161	2,661	9.1%	27,032	2,311	8.5%	7.9%
China JV - 50%	1,228	206	16.8%	1,109	4	0.3%	10.7%

Euro Performance for VLS

SBU	Q2 FY21	Q2 FY21	Q2 FY21	Q2 FY20	Q2 FY20	Q2 FY20	Revenue Change YoY
	Revenue	EBITDA	% EBITDA	Revenue	EBITDA	% EBITDA
VLS -Euro	228	17	7.6%	209	16	7.6%	8.9%

Exchange rates : ₹/ € Average for Q2 FY21 = 86.94; ₹/ € Average for Q2 FY20 = 78.34

Revenue by Customers and Order Wins India Revenue Split by Customer Click to edit Master [(1)] t VLS Revenue Split by Customer[(2)] itle style

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Q2 FY 21 % Q2 FY 21, %
Revenue in Europe
Bajaj 15.0% Customer A increased by 12% YoY
26.3% 26.6% Customer B
Honda
Royal Enfield 11.8% Customer C Revenue in Americas
2.6% 52.3% Yamaha Customer D increased by 9% YoY
3.9%
Customer E
5.1% Mahindra & Mahindra 2.9%6.9%
Customer F Revenue in India
9.9% Others 26.7% 10.2%
Others increased by 70% YoY
Business New Business wins: VLS / Recent orders: India Near term potentials
Overall Net Business Wins of € 74 Mn; Pipeline ~€120 million
VLS
- New Business wins - € 44 Million net of losses/giveback Ordering activity is picking-up gradually and some of the potential
(YTD)
- Re-wins - € 30 Million orders will add to the already strong visibility for the VLS business
Overall Net Business Wins of ₹ 5 billion
Bajaj: Business of ₹ 2 billion for various products across businesses
HMSI: Various Polymer and Metallic product orders of ₹ 1 billion In discussion with major customers for Electrical products, Traction
HMCL: Various Electrical and Electronic and Polymer product orders of Motor and Controller, Telematics, lighting, Catalytic Convertor and
India
₹ 780 million Polymer products.
Business
Small orders from various customers (VW, Yamaha, MG Motors, Royal
(YTD)
Enfield and Mahindra & Mahindra etc.) for ₹ 1.3 billion Active engagement with new customers for couple of more product
categories for BSVI engine and EV products
Ordering activity in the month of Sept/Oct slowed as customers
focused more on meeting the current demand.
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Varroc Group: Business Wise Performance H1 FY21 Click to edit Master title style

₹ million

SBU	H1 FY21	H1 FY21	H1 FY21	H1 FY20	H1 FY20	H1 FY20	Revenue Change YoY
	Revenue	EBITDA	% EBITDA	Revenue	EBITDA	% EBITDA
India Business	12,306	1,004	8.2%	20,417	2,142	10.5%	-39.7%
VLS	29,251	(43)	-0.1%	34,214	3,098	9.1%	-14.5%
Others(IMES)	823	(94)	-11.5%	1,197	45	3.7%	-31.2%
Elimination	(473)	(0)		(95)	(3)
Total	41,908	866	2.1%	55,733	5,282	9.5%	-24.8%
China JV - 50%	2,545	423	16.6%	2,045	66	3.2%	24.4%

Euro Performance for VLS

SBU	H1 FY21	H1 FY21	H1 FY21	H1 FY20	H1 FY20	H1 FY20	Revenue Change YoY
	Revenue	EBITDA	% EBITDA	Revenue	EBITDA	% EBITDA
VLS -Euro	343	-1	-0.3%	437	40	9.1%	-21.6%

Exchange rates : ₹/ € Average for H1 FY21 = 85.30; ₹/€ Average for H1 FY20 = 78.27

₹ Billion

D/E

Debt Situation Status Update and Outlook for FY21 Click to edit M ~~aster tit~~ investments in Intangibles , 0.5 le style

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investments in Intangibles , 0.5
Capex paid,
1.8
34.1
32
Working capital
change, 4.6 Forecast 30.6 29 ~0.8x
9.4
0.8x Actual
26
24.7 Op. loss bef. WC chg. +
tax paid + int. paid, 2.2
March 2020 June 2020 September 2020 December 2020 March 2021
Forecast vs Actual Forecast Forecast
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March 2020

Debt Reduction by March 21 to happen through -

• Restoration of normal working capital cycle which has partially happened in Q2

• Positive operating cashflow generation which started in Q2 itself and likely to continue

• Significant reduction in Capex intensity and other initiatives

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

• Current Situation – Q2 FY21

• October/November – Strong volume growth across locations in India as well as in VLS

• Lockdowns announced in some markets in Europe not impacting industry manufacturing operations so far

• Outlook post Q3

• Revenue growth expected to continue in Q3; end customer demand will be key for sustainability of growth

• Focus on cost optimization, positive free cashflow and debt reduction to continue

  • Recurring SG&A reduction measures completed

  • Reduction in Capex target; VLS capex at € 45 million* - to be 47% lower than FY20

  • Working capital cycle normalistion in progress

    • All vendor payments brought to current

    • Focus on realisation of tooling dues linked to milestones

• Reiterate target of debt reduction from ₹ 34 billion end of June to ₹ 26 billion by year end

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