Varroc Engineering reported a robust 10.2% YoY revenue growth to Rs. 22,875 million in Q3 FY26, fueled by strong Indian operations and a 53% surge in EV model sales. The company secured record net new order wins worth Rs. 20,636 million, predominantly for EVs. Despite pre-exceptional item profitability improvements, Q3 PAT stood at Rs. -113 million due to Rs. 1,049 million in exceptional costs, including VRS expenses. Net debt rose to Rs. 4,405 million.
📉 Varroc Engineering's Q3 FY26: Revenue Climbs, EV Momentum Builds, but One-Offs Dent Profitability
The Numbers: Varroc Engineering Limited announced Q3 FY26 revenue of Rs. 22,875 million, marking a significant 10.2% year-on-year (YoY) increase. This growth was primarily driven by its Indian operations, which saw a 12.3% YoY jump. A standout performer was revenue from EV models, which rocketed by 53% YoY to contribute approximately 14.3% to the total revenue in the quarter. For the nine-month period (9M) of FY26, revenue grew 7.7% YoY to Rs. 65,224 million.
The Quality: Profitability metrics showed improvement before exceptional items. Profit Before Tax (PBT), excluding JV and exceptional items, rose to 4.4% in Q3 FY26 from 3.2% in Q3 FY25, and for 9M FY26, it improved to 4.2% from 3.5% YoY. The EBITDA margin for Q3 FY26 was reported at 9.3%. However, the Profit After Tax (PAT) for Q3 FY26 plunged to Rs. -113 million. This was heavily influenced by substantial exceptional items totalling Rs. 1,049 million, comprising a voluntary separation scheme (VRS) cost of approximately Rs. 799 million and expenses related to the new labor code. Despite the quarterly PAT hit, 9M FY26 PAT stood at Rs. 1,594 million.
Risks & Outlook: The company achieved its highest-ever net new order wins in 9M FY26, with an annual peak revenue potential of Rs. 20,636 million, over 74% of which is linked to EV models. Key wins include HV PCBA for a global EV OEM and 4W lighting business for EV OEMs. While domestic operations are strong, overseas business faces headwinds due to US tariffs. Management is focused on sustainable contribution margin improvements, leveraging operating leverage, efficient Free Cash Flow (FCF) conversion, and prudent capital redeployment, including debt reduction. The VRS expenditure, while impacting current PAT, is expected to enhance the cost structure with a projected payback period of around 4 years. Investors should monitor the integration of new EV orders and the recovery of overseas markets.
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