Varroc Engineering Limited — Investor Presentation 2023

Sep 5, 2023

Varroc Engineering Limited

Regd. & Corp. Office

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

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

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VARROC/SE/INT/2023-24/64

September 5, 2023

To, 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-400 051. NSE Symbol: VARROC

The Manager – Listing The Corporate Relation Department, BSE Limited Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai-400 001. BSE Security Code: 541578 [Debt: 973455]

Sub: Investor Presentation

Please find enclosed Investor Presentation to be referred during the ensuing Investor Meets, as informed earlier through our communications dated September 1, 2023 bearing Reference No VARROC/SE/INT/2023-24/62 and September 4, 2023 bearing Reference No VARROC/SE/INT/2023-24/63.

Kindly take the same on record and note the compliance.

For Varroc Engineering Limited

Digitally signed by Ajay Kumar Ajay Kumar Sharma Sharma Date: 2023.09.05 23:26:39 +05'30' Ajay Sharma Group General Counsel and Company Secretary

Encl: a/a

VARROC INVESTOR PRESENTATION

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*Release September 2023

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.

Confidential 2

About Us

Five primary business lines:

Vision Create safe, smart and sustainable future mobility solutions for everyone.

Mission Be the trendsetter in delivering highest value for money mobility solutions

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08
Countries
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7000+
Employees
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36
Operating Manufacturing Facilities
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90+
Patents
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07
Technical Centres
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LIGHTING

ELECTRICAL - ELECTRONICS

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METALLIC (Forging and Valves)

POLYMER

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AFTERMARKET

*Updated as per FY 2023 and excludes the revenue from the JV

Our Value Proposition

Comprehensive Solution Provider

• End-to-end services across design, development and delivery

• Wide range of products across Powertrain, Electrical and Body parts

• Ability to cross-sell to meet customer requirements

Long Standing, Growing Customer Relationships

• Strong long-standing

• relationships with marquee OEMs across high-end and mass market segments

• Ability to invest to meet growing customer needs

Continuous Focus on R&D Strong Competitive Capabilities Enhancing PortfolioPosition in a Growing Market Segment

• Developing innovative, cost-competitive proprietary products continuously.• Leading technology supplier

• • to 2W market Very low lead time for

• conceptualization, designing and manufacturing of new products due to • Leading supplier of exterior labs, testing facilities and domain lighting to passenger cars knowledge.

• Emerging system supplier

• • With our experts in automotive in telematics and interior technology and the latest global systems for 4W market, advancements, we develop world class ADAS. solutions with highest-standards

Strong Competitive Position in a Growing Market Segment

• Leading technology supplier to 2W market

• Leading supplier of exterior lighting to passenger cars

• Emerging system supplier in telematics and interior systems for 4W market, ADAS.

Global company with strong foothold in India

• Pan-India presence enabling proximity to customers

• Strategically located Asia footprint in China, Vietnam and Europe footprint in Romania, Italy

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Our Global Footprint

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Timisoara
Targu Mures
Changzhou (VTYC)
Krakow
Romania
Chongqing (VTYC)
Poland
China
Dortmund
Germany
Cambiano
Tokyo
Sumirago Japan
Italy
EUROPE ASIA
Romania India
Poland China
Hanoi
Vietnam
Italy
7000+ Vietnam Japan
08 Germany
COUNTRIES EMPLOYEES Aurangabad Czech Republic
Pune
90+ 36 Chennai SEGMENTS
PATENTS MANUFACTURING Pantnagar
FACILITIES Indore
Ahmedabad 2-WHEELER 3-WHEELER PASSENGER
VEHICLE
Binola
07 69,209 MN
Greater Noida
TECHNICAL FY 2023
Kolar
CENTERS REVENUE COMMERCIAL OFF HIGHWAY FARM
Bengaluru VEHICLE VEHICLE VEHICLE
Halol
India
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*Updated as per FY 2023 and excludes the revenue from the JV

Global Business

With diversified product lines

Business Division - India

Business Division - Global 4W Electronics & Lighting O.I.

Polymer

Electrical-Electronics & Lighting

Lighting

Electronics

13 Facilities in India

Offers wide product range across air filters, seats, mirrors, roof rails, console, painted and molded body parts in 2W, 3W, PV & CV segments

10 Facilities in India

Wide solutions in electricalelectronics components, lighting and smart e- mobility for 2W, 3W and 4W OEMs

2 Manufacturing Facilities in China and 3 manufacturing Facilities in Italy, Romania Vietnam

R&D Centers in Czech, Italy, China and Vietnam

Global supplier of exterior lighting systems for 2W and 4W PV OEMs

Manufacturing Facility in Romania, China, India & Vietnam

R&D Centres in Poland, Germany, China & India

Focus on ADAS, Driver Monitoring Systems, Surround View Systems, Telematics & other 4W electronics product lines.

After Market Division

State of the art 120 thousand sq. ft. warehouse 2000 SKUs of 26 product lines 400 distributors across 28 countries

Supplies electrical and electronics, lighting, forging and casting in metallic, engine parts, and consumable parts

Metallic

5 Facilities in India and 2 facilties in Italy

Offers wide product range in Valves, Transmission, Engine parts & Heavy forging.

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Our Customers

TWO/THREE WHEELERS

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PASSENGER CARS

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COMMERCIAL VEHICLES

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EARTH MOVERS & OFF ROADS

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Board & Leadership Team

Independent Directors

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Marc Szulewicz Ex-General Manager, Foreign equipment division, Plastic Omnium

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Arjun Jain

Director & CEO – Business Division I

• Total Experience: ~11 years

• Previously associated with Bain & Co India Pvt. Ltd.

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Vidyadhar Limaye

President –Polymer Business

• Total Experience: ~35 years

• Previously associated with IAC International, Faurecia, TACO interiors & Plastic div

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Vinish Kathuria Co-Founder and President of Rank Software Inc.

Gautam Khandelwal Executive Chairman, Nagpur Power and Industries Ltd

Vijaya Sampath Lawyer, ex-Group General Counsel for Bharti Airtel Ltd

Tarang Jain

Chairman and Managing

Director

• Founded Varroc in 1988

• Over 34 years experience in the automotive industry

K. Mahendra Kumar

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Global Chief Financial Officer

• Total Experience: ~26 years

• Previously worked with TI, Kone, Vestas, and Ford

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Dhruv Jain

Director & CEO – Business Division II Total Experience: ~4 years

• Bachelor of Economics from University of Chicago

Kavita Kulkarni

Global Chief Human Resource Officer

• Total Experience: ~28 years

• Previously associated with Infosys Ltd, WNS and Mphasis

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Tarun Tyagi

President –Metallic Business and Whole-time Director

• Total experience: ~29 years

• Previously associated with Sriram Pistons and Rings, FAG Bearing, Volvo Eicher

Sanjay Sharma

Global Chief Supply Chain Officer

• Total Experience: ~27 years

• Previously worked with Delphi Automotive Systems and Havells India

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Varroc Group

Global company with strong foothold in India

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Promoter Share Holding Public Share Holding
75.0% 25.0%
Varroc Engineering Limited
VEL - Standalone Operations
Overseas Joint Ventures Overseas Subsidiaries
India Subsidiaries’ & JV
●
Electrical and Electronics (EBU) (incl. 2W Lighting)
● ● IMES ITALY
Varroc TYC (China JV for ●
Varroc Polymers Pvt. Ltd (100%) (PBU)
●
Metallic Business Unit (MBU) – Forging & Valves
4W Lighting) (50%) ● ITALY 2W Lighting ● CarIQ Technologies Pvt. Ltd (95%) (EBU)
●
After Market Division (AMD)
●
Durovalves India Pvt. Ltd (72.78%) (MBU)
●
ROMANIA 2W Lighting ●
India 4W Lighting Business
●
Varroc Dell Orto Pvt. Ltd. (50.0%) (EBU)
●
VIETNAM 2W Lighting
● ROMANIA Electronics
FY2023 Revenue : ~Rs. FY2023 Revenue : ~Rs.
Revenue
FY2023 Revenue : ~Rs. 39,179 mn
8,500 mn 21,000 mn
India Operations (EBU, PBU,
Asia 4W Lighting Division Global 2W Lighting Electronics Business Others
MBU and AMD)
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• Revenue from the JV is not accounted in the consolidated financials. Our share of Revenue from the JV in FY23 was ~ Rs.8,500/- mn

Technology for Two Wheelers

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Electronic Fuel Injection
for ICE vehicles and BS6
LED Headlamps, Mirrors
catalytic converters
Safety Sustainability
Traction motor and controller,
Power assist ISG, and e-
Connected Displays, TFT
Drivetrain energy management
and sensor Interfaces, Electrification systems
Connectivity
FOTA in Telematics
& Digitization & Efficiency
(Varroc Connect)
Personalization
Signature Lighting,
Foam in Place seating
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Technology development driven by latest mega trends that enable safer, smarter, connected and sustainable mobility

Technology for Four Wheelers

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ADAS, Driver Monitoring
Systems, Surround View
Systems, LED Headlamps
& LCUs, Adaptive Front
Safety
Lighting Systems Mirrors Safety
Signature Lighting,
Interior Systems,
In-Cabin Sensing,
PersonalizationPersonalization Interior Mood Lighting,
Center Consoles
FOTA in Telematics, Video
Telematics, AI powered
sensor interfaces,
ConnectivityConnectivity
AUTOSAR compliant
& Digitization& Digitization
modules
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Technology Development driven by latest mega trends of Safety, Personalization, Connectivity and Digitization

Capabilities: Product Development

End-to-end capabilities across design, engineering, testing/validation, tooling, manufacturing and delivery

CAE and Simulation

Structural & Vibration

Thermal & Flow

Optics

Electromagnetics

Mold flow

Gap & Flush

Testing and Validation

Functional Performance Environmental, Durability Software HIL, SIL

EMI EMC

NABL Accredited Test Lab

Photometry

Surface treatment tests

Project and Program Management

Product Life Cycle management tools

Reliable and Wide Supplier base

In-house styling studio for early

engagement

Capacity and Competency

Quality Focus

Facilities

DFSS/DMAIC Proto facility

State of art tools

System Validation Lab

Dedicated Technology Centers

Certifications – NABL, APSICE2, IATF 16949

Proto Facility

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Test Facilities at Varroc Tech Center Pune

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EV Motor Dyno
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Dust Test

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Photometry Lab

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Shower Durability and Water Spray Test

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Vibration Lab
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Magneto Endurance
Lab
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Motor Endurance Lab

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Switch Endurance Lab

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Climatic Chamber
Test
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Performance Lab - Electrical Corrosion Test Performance Lab - Mechatronics

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EMI/EMC
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Proto Assy.

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Chemical Resistance Test

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Thermal Shock Test

Confidential - Varroc13

Unlocking Synergies across Businesses

Varroc's unique positioning as a systems supplier is strengthened through collaboration across its businesses.

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Traction Motor
4W ORVM Mirror
with Gearbox
Polymer + Electrical
Electrical + Metallic
Cross Mirror and
Tailgate
Seat with Signal Lighting
Business
Polymer +
Polymer + Electrical
Collaboration
Electrical
Integrated
Illuminated
Handlebar
Door Trims
Polymer +
Polymer + Electrical
Electrical
Adaptive Driving Beam
Electronics + Lighting
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Excelling as a Systems Supplier

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Motor
Battery & BMS 48V Motor Controller
Charger
Throttle
DC-DC Convertor VCU
LED Headlamp
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Components

• Customer CTQs

• Component Design

• Robust analysis to predict the design meets all CTQs

• Tolerance analysis to ensure DFM

• Material and component data Base to speed up the design

Sub-Systems

• Customer requirements and CTQs

• Sub-system level CTQs

• Design of Electronics Hardware, Software and Mechanical

• Sub-System level simulation and analysis to ensure robustness

• Model based design and system validation (HILS)

Systems

• System level requirements and CTQs

• System level architecture design

• Electronics, Control system and Software architecture design & development

• System integration and testing (HILS)

• Vehicle level testing (Vehicle, Dyno and Chassis)

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Sub-Systems
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Systems
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Components

Our 2W and 3W EV Capabilities

Charger

Telematics BMS

DC-DC converter Traction motor controller Traction motor/ Hub motor

• Locally designed, developed and manufactured

• • Fully IoT enabled machines

• Complete vertical integration for Electronic Manufacturing

• Motor Dyno Testing System for testing 2W and 3W EV

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C CONNECTIVITY E EMISSIONS

Electrical - Electronics Business

(India and Romania)

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E E-MOBILITY A ADAS S SAFETY
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Instrument Cluster EFI-ECU Telematics Control Unit

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Traction Motors Stator Motors & Magneto V-CAM (ADAS) Light Control Unit

Highlights

Opportunity & Focus Area

• Strong R&D team of 500+ engineers across 3 countries

• Keep up the pace with aggressive technological development to

• Successful commercial launch of fuel efficient & EV products

• capture the opportunity Mega Trends are bringing.

• Product Engineering and affordable electronics operations remains the key

• More Products per Customer and More Customers per Product to drive the profitable revenue growth

• Localised design and development capability with speed and agility

• Indian market leader for Electrical-Electronics systems with large scale drives competency

• Current content of 8-10K in ICE and 25-30K in EV in 2W. Likely to expand due to development of more products and catering to 4W.

• .

• Long Term agreement with supplier especially for Semiconductors

• World class system validation and test lab

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L

LIGHT-WEIGHTING S SAFETY

E EMISSIONS

Polymer Business

India

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Highlights

• 120+ skilled engineers across 2 technical centers in India

Opportunity & Focus Area

• Building capability for development of Green Bio-Carbon Material.

• Advanced manufacturing processes (In house style studio i.e. proto lab with 3D printing, software tools for designing, collaboration for testing labs, benchmarking for microlevel teardown data and advanced tool room capabilities) resulting into SOP of new products like tail gate, door trims, floor console, roof rail, instrumental panel, sunroof etc.

• Digitization (IoT, Robotics, poka-yoke system) to improve productivity

• Stabilizing operations for new business (products as well as for customers)

• Completing the greenfield plant in Chakan & Akrudi

• Strengthening of 4W product portfolio in various segments like interior, exterior, underhood parts, accessories and Mirrors.

• Expanding our presence in Passenger vehicle, EV components and products for Export market

• Premiumization and FSS to drive growth

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S SAFETY

E E-MOBILITY

Metallic Business India & Italy

E EMISSIONS

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Metallic Business Unit Highlights

• 3.6 Mn units of Transmission Assemblies _ Exports to Ducati, Harley

• 45 Mn units Of Engine Valves_ Exposure to global OEM standards and

• systems

• IMES (business in Italy) was positive at EBITDA & PAT level in FY23

Diversified Product portfolio.

• Transmission Gears, Shafts and assembly.

• • Crankshafts ,Connecting rods, Knuckles

• • Engine Valves,

• Cam Shafts, Crank Pins,

• Park lock, Pump Gears & Cardan Shafts

• First to export parts making Varroc a global supplier.

Opportunity & Focus Area

• Building capability for various components required in EV

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EV SINGLE SPEED GEARBOX

TRACTION MOTOR SHAFT

• To increase Capacity Utilization and reduce the breakeven level

• Tapping more Export Opportunity

• Develop Engine Agnostic components

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3W DIFFERENTIAL ASSEMBLY

• Well accustomed to Global systemsand procedures.

• .

• Capability to Produce DIN class 5 Gears and shafts

• Well experienced in light weighting of Parts-Ti-Valves

• Leaders In bringing new technology to Indian Market-Sodium Valves

• Consequently, for 5years Best supplier award from General Motors

• • Strong Design and Testing Facilities.

• Single Speed eV-transmission components under fine tunning

• • eV-Traction motor Shafts.

• eV-Single & Double Speed Gear Box Components

Design Software- Simulation

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Testing & Validation

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Eddy Current Testing Bench

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SEM & EDAX Analyser

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India, Italy, Vietnam, Romania and China JV

Lighting Business

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S SAFETY
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Highlights

Opportunity & Focus Area

• Strong 100+ engineers R&D team in India, Italy & China JV

• First to market efficient and stylish lighting in Inida

  • Further Strengthen our position as Global 2 wheeler lighting player and Increase our presence in Asia in 4 wheeler lighting.

• Smart LED lighting (HL&TL) Compactness

• Matrix Concept

• Strengthening backward integration for light engines and light control units through its Romania plant for EBU

• Projector Head Lamps

• Sensor Integration (Camera, Ultrasonic, Radar)

• Enhancing synergy with PBU to become system supplier like Smart surfaces, illuminated door trim, tail gate etc.

• Ability to support for any current and future international regulatory requirement (adaptive & bending light)

• Enhancing the capacity utilization in India 4W lighting business.

Aftermarket

With diversified product lines

Revenue	Approx. Rs.5800 mn (FY2023)							Revenue			4760		5800
	- India (5 regional office)					2980			3680
Geography (31+ countries) Key Products	- Asean - Africa - Latin America C.D.I, Starter Motors, Carbon Kits, Armature, Regulator Rectifier, Forgings, Magneto Coil Plate, Filter, Engine Oils, Lighting, Ignition, Rear View Mirror, etc.					FY 2020 FY 2021 FY 2022 480 600 740 Active Distributor						FY 2023 770							Strong Competitive Position in a Growing Market Segment •Market Leadership In Core Product Segment •Strong Leadership In 3W Segment. Long Standing, Growing Customer
No. of Active	Over 770 in FY23, Over 740 in FY22,																		Relationships
Distributors	Over 600 in FY21, Over 480 in FY20																		•Strong and longstanding relationship with
																			distributors.
No. of Cities Presence in India	Over 310 in FY23, Over 260 in FY22, Over 245 in FY21, Over 210 in FY20					FY 2020			FY 2021		FY 2022		FY 2023						•Ability to response as per customer Needs
						210 245 260 No. of Cities presence in India							310						Comprehensive Solution Provider •Continuous focus on product development. •Continuous development of the product as per customer needs. •Continuous focused on quality
						FY 2020			FY 2021		FY 2022		FY 2023

Revenue Breakdown for FY22-23 for Continued Operations

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Business Unit
Aftermarket,
8.6% IMES, 3.8%
PBU, 32.5%
Lighting, 21.0%
MBU, 12.1%
EBU, 22.0%
Geography
Outside India,
18.3%
India, 81.7%
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Segment
Others, 3.8%
4 Wheeler, 24.7%
2&3 Wheeler,
71.5%
Customer
Bajaj, 37.5%
Other Customers,
62.5%
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MBU=Metallic Business Unit; PBU=Polymer Business Unit; EBU=Electrical & Electronics Business Unit; Lighting = 2W & 4W Lighting

Confidential

22

Focus areas for Varroc

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Volume growth on top of inflation
Revenue
recovery to pave way for profitable
Growth
growth
Debt reduction, less capital-intensive
investments and prudent capital
deployment in organic + inorganic Sustainable improvement in contribution margins
growth opportunities to ensure through economies of scale, revenue
Prudent
CM
compounding of value management and cost efficiencies to magnify the
Redeployment
Improvement
benefit of revenue growth and make the business
more robust
Compounding
Machine of Value
Growth in CM and less than proportionate increase
Efficient conversion of growth in profits into
in fixed costs to result in multiplier effect on PBT
growth in FCF to improve intrinsic value of FCF Conversion PBT Growth
business and to create reinvestment pool through operating leverage
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Summary Financials of Continued Operations*

	Annual	Annual	Annual			Quarter	Quarter	Quarter
Rs. In Million	FY 22	FY 23	Grwoth		Rs. In Million	Q3 FY23 Q4 FY23 Q1 FY24 Q1 FY24 vsQ3 FY23
Revenue	58,442	68,631	17.4%		Revenue	17,168	16,901	17,924
Gross Margin	34.1%	35.4%	130 bps		Gross Margin	34.5%	36.7%	36.3%
EBITDA %	6.6%	8.7%	210 bps		EBITDA %	7.8%	9.5%	10.0%
PBT before JV %	1.10%	-0.50%	160 bps		PBT before JV %	0.6%	1.9%	3.3%
Net Debt	14,356	12,779	-11.0%		Net Debt	12,968	12,779	12,285
ROCE	2.6%	12.0%	940 bps		ROCE	11.2%	16.4%	20.4%
Net Debt/EBITDA	3.7X 2.1X -1.6X				Net Debt/EBITDA

• Improvement in Gross Margin, EBITDA margin and PBT margin

• Reduction in net debt

• Debt servicing ability is also improving

• Return on Invested capital is also improving

• Some of the figures are non-audited

Environmental Social Governance (ESG)

Renewable Energy & Power consumption

• Currently >25% consumption from renewable energy; targeting to cross >50% by FY25

• 132 projects implemented for energy savings FY23 resulting in 0.24 million units of savings

• Recycle and waste

• Recycled more than 93% of the waste generated

• Less than 1% of the waste generated is sent to landfill.

Corporate Social Responsibility

• area

• Kham River Eco Restoration Project (0.3 mn sq. metres area cleaned; 59,810 sq. metres greened; 3,000 saplings planted;

• Varroc academy for sustainable livelihoods (275 students enrolled in FY23)

• Varroc cricket academy and Abhinav Bindra foundation trust to promote sports

• Product range resulting in lower emissions, green mobility and use of sustainable materials

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THANK YOU

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