Varroc IPO to raise up to Rs 1,955 crore opens today: Should you subscribe?

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Updated: June 26, 2018 10:53:51 AM

Varroc Engineering IPO: The IPO of auto component maker Varroc Engineering Ltd to raise up to Rs 1,955 crore opens for subscription today. We take a look at what brokerages have to say.

Varroc IPO: Varroc Engineering expects to raise up to Rs 1,955 crore at the upper end of the price band.

Varroc IPO: The IPO of auto components maker Varroc Engineering Ltd to raise up to Rs 1,955 crore opens for subscription today. Notably, this is the the biggest IPO in FY19 so far. The public offer is a complete offer for sale from the existing promoters and investors. Varroc Engineering expects to raise up to Rs 1,955 crore at the upper end of the price band. In Varroc IPO, the existing promoters and investors will be selling 2.02 crore equity shares of face value of Re 1 per equity share via the offer for sale route. The price band has been fixed at Rs 965 to Rs 967, and the company has expected to garner Rs 1,955.44 crore at the upper end of the price band. Bids can be made for a minimum of 15 equity shares and in multiples of 15 equity shares thereafter. While investors maybe mulling whether to subscribe to the issue, we take a look at what brokerages have to say.

Varroc IPO: What top brokerages say

HDFC Securities

Taking note of the strengths of the issue, HDFC Securities says that Varroc Engineering has a strong competitive position in attractive growing markets, strong, long-standing customer relationships; comprehensive product portfolio and low cost, strategically located manufacturing and design footprint. However, the concerns of the issue include: pricing pressure from customers may adversely affect the gross margin, profitability; Business is dependent on certain major customers, with whom VEL do not have firm commitment agreements and a heavy dependence on the performance of the global passenger vehicle market and the two wheeler and three wheeler markets in India.

Also read: Varroc Engineering IPO opens today: 19 facts you should know before subscribing to Rs 1,950 crore issue

Angel Broking

“In terms of valuations, the pre-issue P/E works out to 28.9x FY2018 earnings (at the upper end of the issue price band), which is high compared to its peers like Motherson Sumi, which is trading at 26.4x. Further, Varroc Engineering has lower RoE at 16% vs. Motherson Sumi at 25% (FY18). Considering the above factors and two year low profitability growth, we recommend NEUTRAL rating on the issue,” Angel Broking said in its report.

Choice Broking

Choice Broking has a “Subscribe with Caution” rating on the Varroc Engineering IPO. “At the higher price band of Rs. 967 per share, Varroc’s share is valued at a P/E multiple of 29x (to its restated FY18 EPS of Rs. 33.4) as compared to the peers average of 23.1x,” Choice Broking said in its report.

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