Akash Jain
Ajcon Global
Varroc Engineering is a good play on exterior auto lighting systems. The stock has witnessed significant correction in the current mayhem from a high of Rs 1,040 after the IPO to Rs 768 currently. (IPO price was Rs 967).
After the acquisition, Visteon’s business grew by an annual 17-18 percent, as against the world average of 4 percent, over the last 5 years.
The management is banking on business from two of the world’s largest car manufacturers—Volkswagen and Renault-Nissan—to take its own operation to new highs.
We recommend a buy on the company due to the following factors:
a) 6th largest fastest growing among top six global exterior auto lighting suppliers,
b) strong competitive position in attractive growing markets,
c) focus on high growth markets for its global lighting business,
d) long-standing relationships with marquee clients like Ford, Jaguar Land Rover, Volkswagen, RenaultNissan-Mitsubishi, American electric car manufacturer – Tesla, Harley Davidson, Suzuki, Honda, Bajaj Auto, Yamaha, Hero, Piaggio, Eicher Motors (Royal Enfield) etc,
e) comprehensive product portfolio,
f) low cost, strategically located manufacturing and design footprint of 36 manufacturing facilities spread across seven countries, with six facilities for global lighting business, 25 for India business and five for other businesses,
g) robust in-house technology, innovation and in-house R&D capabilities in India, Czech Republic, China, USA, Mexico, Germany, Italy, Romania with 1,414 R&D engineers – 185 patents granted globally,
h) strong balance sheet with net debt: equity at 0.31x, positive operating cashflow with decent RoE of 15.94 percent.
The author is Vice President – Equity Research at Ajcon Global.
