Varroc Engineering Ltd (Varroc), a global tier-I auto components group, announced its results for the first quarter ended Sep 30, 2025.

Tarang Jain, CMD, Varroc Engineering, said, “The Indian economy continues to perform well, experiencing robust growth and has become the world’s fastest growing major economy. India's real GDP grew by 7.8 per cent in the April-June 2025 quarter. The inflation in India continues to moderate. Globally, rising tariff barriers, supply chain restrictions, and geopolitical tensions are increasing uncertainty for businesses. Supply chain resilience and regionalisation are becoming key corporate strategies amid this uncertainty. The automotive industry is also preparing to deal with these challenges. In these uncertain times, it becomes very important for the Company to find ways to manage this uncertainty and grow simultaneously during this period. We are moving fast to make our organisation more agile, fundamentally strong, and customer-focused to succeed in this environment.

Over the last 3 years since the divestment exercise, we have been consistently improving on financial prudence, cost reduction and customer delight. As you all know, we focused on free cash flow generation and managed to reduce our debt significantly. As a result, the Net Debt/EBITDA, which was more than 2x in FY 23, is now below 0.3X. The interest burden which was close to 3 per cent of revenue in Q2 of FY 23 has been reduced to below 1.5 per cent in Q2 of FY26. We also improved our gross margins during this period by almost 1 per cent.

We also delayered the organisation during Q4 of FY 25, which moderated our manpower costs. All these improvements reflected in improvement in PBT margin during this period from 1.1 per cent to over 4 per cent now. We are also continuously improving our speed of response, program management efficacy and delivering first time right. As indicated earlier, we had also established a strong R&D facility in China this FY to enhance our capabilities and to take advantage of skillset available there. We are also exploring opportunities to rationalise fixed manpower cost in plants through VRS schemes. In taking these decisions, we are giving more importance to long-term growth rather than short-term impact.

Over the last few years, we have been able to scale our EV products portfolio, and this has resulted in our revenue growth in this segment helping the overall growth of the Company. Today, more than 11 per cent of Revenue comes from supplying to EV customers. We are also experimenting with AI in areas like quality inspection and corporate functions to improve productivity and cut down inefficiencies. We are also working on various other initiatives to reduce working capital and improve throughput. We will be sharing more updates on the same in our future discussions with you.

Our growth plan is built mainly on 3 pillars. The first opportunity for growth comes from the disruption which CASE (Connected, Autonomous, Shared, and Electric) is bringing in the automotive sector. As an organisation, we are focusing significantly on E-mobility, connectivity and ADAS. The second pillar of growth comes from business portfolio management. In this year only, taking advantage of the arbitration verdict, we took the call not to have manufacturing footprint in China.

Instead, we have set up a location in Thailand which is a well-established auto manufacturing hub and offers several export opportunities. The third pillar of growth is looking through adjacencies, and the company is looking to further grow its business in aftermarket, exports, non-auto both organically and through M&A. These strategic calls along with strong financial prudence enabled us to generate good amount of free cash flow and improve the return ratios. In Q2 FY26, the ROCE of the Company was 23.6 per cent as compared to 12 per cent seen in FY23. Coming to the performance in this quarter, let’s first understand the industry performance in India.

In terms of Automotive production in India, during Q2 of FY26, all the segments registered growth on YoY basis as well as QoQ basis due to buoyant economy as well as early festive season:

• On YoY basis, 2W grew by 10.6 per cent, 3W grew by 18.3 per cent, PV grew by 4.2 per cent & CV grew by 11.8per cent.
• On QoQ basis, 2W grew by 17.4 per cent, 3W grew by 39.3 per cent, PV grew by 6.5 per cent, and only CV grew by 2.9 per cent.

Coming to the operational performance, during Q2 FY26, the Company registered consolidated revenue of Rs 22.7 billion with a growth of 6.1 per cent YoY, with India operations growing at 7. 0 per cent. The Indian revenue was impacted by industry wide rare-earth issue. This resulted in loss of INR ~ 750 million of Revenue in Q2 FY26 or else the growth in the Indian operation would have been 11.8 per cent.

As stated earlier, for future growth perspective, we have established an R&D centre in overseas location to support 4W lighting and electronics businesses. This has resulted in higher employee costs starting from Q1 FY26. Thus, our EBITDA for the quarter was around 9.1 per cent as compared to 9.7 per cent on YoY basis.

Our PBT before JV profit was 4.1 per cent of revenue in Q2 FY26 as against 4.3 per cent in Q2 FY25. However, I would like to bring to your attention to the point that the India EBITDA and PBT were strong at 11.5 per cent and 7per cent+ respectively and grew both on year-on-year basis as well as sequentially.

As explained earlier, the overseas electronics, lighting and forging businesses continue to face challenges due to customer concentration and macro environment. However, we are winning significant orders for the overseas electronics and lighting businesses already and the turnaround is expected to be visible from H2 of FY 27. We continue to strengthen our balance sheet. The net debt of the company in H1 FY26 was reduced by Rs 3,680 million and as a result, the net debt to equity is reduced to below 0.22x. The absolute net debt figure was Rs 3,800 million. With significant growth-enabling investments planned in H2, the net debt may see only modest improvement in H2 of this year. In H1 FY26, we achieved new net business wins with annualised peak revenues of Rs 8,928 million.