Mehabe score: 1 G Factor: 3 Piotski Score: 3 The stock has a rating SELL. The mehabe team score is reflective of its fundamental and technical merits. A rating above 8 is considered good buy. The stock has a G-Factor of 3 and Piotski score of 3.
Description
Varroc Engineering Ltd was incorporated in 1988, is the flagship company of the Aurangabad-based Varroc Group. Varroc is a global tier-1 automotive component group. It is engaged in the business of manufacturing and supplying automobile components to a wide range of OEMs across the globe
Main Points
Brand Reputation
It is the second-largest Indian auto component group and a leading tier-1 manufacturer and supplier to Indian two-wheeler and three-wheeler OEMs
It is the sixth-largest global exterior automotive lighting manufacturer and one of the top three independent exterior lighting players.
It has a strong client base with some big names like Ford, Jaguar, Bajaj, Honda, and many more.Site:VARROCMain Symbol:VARROC
Stock trades at 337.0, below its 50dma 361.49 and below its 200dma 364.74. The stock remains bearish on technicals
The 52 week high is at 499.95 and the 52week low is at 196.20
Price Chart
P/E Chart
Sales and Margin
Strengths
– has reduced debt.
Weakness
– has low interest coverage ratio.
-The company has delivered a poor sales growth of 7.40% over past five years.
– has a low return on equity of -2.33% for last 3 years.
– might be capitalizing the interest cost
-Debtor days have increased from 43.22 to 52.98 days.
Competition
– The industry trades at a mean P/E of 30.4x. Minda Industries trades at the industry’s max P/E of 98.79x. VARROC trades at a P/E of x
– Industry’s mean G-Factor is 3.6 while the mean Piotski score is 7.0. VARROC has a G-Factor of 3 and Piotski scoreof 3.
– Average 1 month return for industry is 0.3%. The max 1- month return was given by Minda Industries: a return of 13.95 %
Quarterly Results
Sales for period ended Mar 2021 is Rs 3619.0 cr compared to Rs 2745.0 cr for period ended Mar 2020, a rise of 31.8%
Operating Profits reported at Rs 117.0 cr for period ended Mar 2021 vis-vis 56.0 for period ended Mar 2020 .
Operating Margins expanded 119.3 bps for period ended Mar 2021 vis-vis Mar 2020 .
The EPS for Mar 2021 was Rs -9.52 compared to Rs -10.29 for previous quarter ended Dec 2020 and Rs -10.2 for Mar 2020
Profit & Loss Statement
Profit&Loss Comments
Company reported sales of Rs 11303.0 cr for period ended Mar 2021 vis-vis sales of Rs 11122.0 cr for the period ended Mar 2020, a growth of 1.6%. The 3 year sales cagr stood at 3.2%.
Operating margins shrank to 4.0% for period ended Mar 2021 vis-vis 7.0% for period ended Mar 2020, contraction of 300.0 bps.
Net Profit reported at Rs -632.0 cr for period ended Mar 2021 vis-vis sales of Rs 0.0 cr for the period ended Mar 2020, falling 0%.
Balance Sheet Statement
Cash Flow Statement
Cash Flow comments
CashFlow from operating activities was positive.
Sales Growth
Profit Growth Statement
Profit Growth Statement
Stock Price CAGR
Return of Equity
General Comments
– The company has worsened on its Return on Equity (RoE) metric. The RoE on Last Year basis was -21.0% compared to -2.0% over the last 3 Years. – The stock has given a return of 57% on a 1 Year basis vis-vis a return of -30% over the last 3 Years. – The compounded sales growth on a TTM bassis is 2% vis-vis a compounded sales growth of 3% over the last 3 Years. – The compounded profit growth on a TTM basis is -556624% vis-vis a compounded profit growth of % over the last 3 Years.
Ratios
Shareholding Pattern
– FII shareholding has remained largely constant. The Jun 2021 fii holding stood at 4.91% vis-vis 5.21% for Mar 2021 – Public shareholding has remained largely constant. The Jun 2021 public holding stood at 5.78% vis-vis 5.1% for Mar 2021
Conclusion
– has reduced debt. – has low interest coverage ratio.
-The company has delivered a poor sales growth of 7.40% over past five years.
– has a low return on equity of -2.33% for last 3 years.
– might be capitalizing the interest cost
-Debtor days have increased from 43.22 to 52.98 days.
Fundamentally, the stock remains weak. The business fundamentals are on shaky ground. Weak near term results have dampened and questioned business drivers. We suggest to wait for a upturn in business performance.
Technically, the stock reflects the poor fundamentals. The stock remains below its 50 DMA 361.49 and is trading at 337.0. It has shown near term lack of bullish momentum. We suggest to observe price action. However as investors, who like to avoid timing the markets, we suggest to avoid the stock
