Staff Writer
Pune: Varroc Engineering Ltd. reported its highest quarterly revenue since the company’s divestment exercise, marking a steady financial performance in a period marked by global uncertainty. The auto components major registered consolidated revenue of ₹22,073 million in the second quarter of FY26, a rise of 6.1 percent over the same period last year. Profit before tax, excluding joint venture contributions, stood at ₹912 million compared to ₹901 million in Q2 FY25.
Chairman and Managing Director Tarang Jain said the broader economic environment continues to shift, but the Indian market remains strong. He noted that India’s GDP expanded by 7.8 percent in the April to June quarter, inflation has moderated, and the auto sector is holding firm despite global tariff barriers, supply chain restrictions and geopolitical tensions. Jain said companies are being pushed to rethink resilience and agility, and Varroc has been working to strengthen its fundamentals over the last three years.
He highlighted a steady improvement in free cash flow generation, debt reduction and cost controls since the company’s divestment. Net Debt to EBITDA has dropped from over 2 times in FY23 to below 0.3 times now. Interest costs, which were nearly 3 percent of revenue in Q2 FY23, have fallen to below 1.5 percent. Gross margins inched up by about one percent, and organisational restructuring in FY25 trimmed manpower expenses. These measures have helped lift PBT margins from 1.1 percent to more than 4 percent.
Jain said the company is pushing for faster execution, stronger program management and better response times. Varroc has set up a new R&D centre in China to strengthen its capabilities in lighting and electronics. The company is also studying ways to rationalise fixed manpower costs at plants, including possible VRS measures. He said such decisions are driven by long-term goals rather than short-term optics.
Varroc has expanded its electric vehicle portfolio in recent years, and EV-linked revenue now accounts for more than 11 percent of its turnover. The company is also experimenting with artificial intelligence for quality inspection and corporate processes to improve productivity. Work is underway on initiatives to cut working capital and improve throughput.
Jain outlined three pillars that will shape the group’s growth strategy. The first stems from the transformation underway in the auto industry driven by connected technologies, autonomy, shared mobility and electrification. The second focuses on business portfolio management. After an arbitration verdict earlier this year, the company chose to exit manufacturing in China and is instead building operations in Thailand, a mature auto hub with export potential. The third pillar involves growth through adjacencies such as aftermarket, exports and non-auto businesses, both organically and through acquisitions.
These moves, along with tighter financial control, have strengthened Varroc’s balance sheet. The company’s return on capital employed rose to 23.6 percent in Q2 FY26, up from 12 percent in FY23.
Jain said India’s auto industry performed well in the September quarter, supported by strong economic conditions and an early festive season. Production rose across categories on both yearly and sequential comparisons. Two-wheelers grew 10.6 percent year-on-year, three-wheelers rose 18.3 percent, passenger vehicles 4.2 percent and commercial vehicles 11.8 percent.
Varroc’s India business reported revenue growth of 7 percent in the quarter, though industry-wide rare-earth shortages affected supplies and resulted in an estimated revenue loss of ₹750 million. Without this disruption, growth would have approached 12 percent. Higher employee costs linked to the new overseas R&D centre dragged down EBITDA to 9.1 percent from 9.7 percent a year earlier. PBT before JV profit came in at 4.1 percent of revenue compared to 4.3 percent in Q2 FY25.
Jain said the India business remained strong, with EBITDA at 11.5 percent and PBT above 7 percent, improving both year-on-year and sequentially. Overseas operations in electronics, lighting and forging continued to face pressure due to customer concentration and macroeconomic headwinds, but he said new order wins are encouraging and a turnaround is expected from the second half of FY27.
The company reduced net debt by ₹3,680 million in the first half of FY26, bringing the figure down to about ₹3,800 million. Net debt to equity is now below 0.22 times. With major investments planned in the second half, only modest improvement in debt is expected for the rest of the year.
Varroc secured new business in H1 FY26 with annualised peak revenue potential of ₹8,928 million. Key wins include four-wheeler lighting for passenger vehicles and expanded volumes from existing EV customers. Jain said the company is confident of clinching high-voltage electronics orders for high-performance e-powertrain components for its Romanian operations before the end of the calendar year.
He said the company will continue to shape its transformation to stay resilient in a volatile environment while pursuing growth opportunities.
