Varroc Engineering tumbles 13% on disappointing December quarter results

Shares of Varroc Engineering, on Wednesday, crashed 13 per cent intra-day to Rs 397.25 on the BSE after the company reported a disappointing set of numbers for the December 2020 quarter (Q3FY21).

The company’s consolidated Ebitda (earnings before interest, taxes, depreciation, and amortisation) declined 8.8 per cent year on year (YoY) at Rs 245.60 crore. Ebitda margins declined 260 basis points (bps) YoY, mainly due to lower margins in Varroc Lighting Systems (VLS).

The company said the VLS margin declined due to Covid second wave-related heavy absenteeism, coupled with higher OEM demand for Czech plants, resulting in high overtime and premium freight to be able to meet the delivery schedules. The continued losses in new plants – Poland and Morocco – due to slower ramp-up in production volumes.

Meanwhile, Varroc Engineering reported a consolidated net loss of Rs 29.1 crore for the quarter under review, against a net profit of Rs 29.3 crore in Q3FY20. Revenue from operations, however, increased 25 per cent at Rs 3,493 crore over the previous year quarter.

The company reported net loss after tax impairment of Rs 136.96 crore. The Czech subsidiary of the company had, in earlier years, recognised certain tax credits as deferred tax assets under two different incentive schemes available to the company. Based on assessment, management concluded that there is an uncertainty on the recoverability of the deferred tax assets recognised under the first scheme, which expire by March 2024. Accordingly, the company has prudently written-off tax assets amounting to Rs 107.80 crore during the current quarter, Varroc Engineering said.

However, the management sees robust demand in VLS business across regions as car manufacturers geared up their production schedules to cope with the pent-up demand. Covid-induced high absenteeism rate, mainly in Czech plants, led to delivery backlogs, overtime and premium freight costs impacting margins adversely. The volumes ramp-up in newer plants was slower than anticipated due to delays in product launches.

“We have covered most of the production backlog and have rebuilt the pipeline of components and finished goods as we entered Q4. Our focus will be to steadily improve the margins in our VLS business on a sustainable basis in the coming quarters,” the management said.

At 10:19 am, the stock had erased partially its intra-day losses and was trading 7 per cent lower at Rs 422 on the BSE. In comparison, the S&P BSE Sensex was down 0.42 per cent at 51,114 points. A combined around 600,000 equity shares have changed hands on the counter on the NSE and BSE, so far.