Varroc Engineering Ltd
22/06/2018 IPO/FPO note
Varroc Engineering Ltd (VEL) is a tier-1 automotive component group. It designs, manufactures and supplies exterior lighting systems, plastic & polymer components, electricals-electronics components and precision metallic components to passenger cars, commercial vehicles, 2W, 3W and off highway vehicle OEMs directly worldwide. VEL has a global footprint of 36 manufacturing facilities spread across seven countries, with six facilities for its Global Lighting business, 25 for India business and five for Other businesses. Currently, VEL’s ~34.7% of revenue comes from india and balance from Europe (41.8%), North America (22.3%), Asian pacific (0.7%) and others (0.5%). Outlook & Valuation: 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, VEL 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.
   Amber Enterprises India Ltd
21/06/2018 Initiating Coverage
Amber Enterprises India Ltd. (Amber) is the market leader in the room air conditioners (RAC) outsourced manufacturing space in India. It is a one-stop solutions provider for the major brands in the RAC industry and currently serves eight out of the ten top RAC brands in India. Its growing manufacturing capabilities and scale put it in a sweet spot to capture the underpenetrated RAC market in India. Outlook & Valuation: We expect Amber to report consolidated revenue/PAT CAGR of 28%/51% respectively over FY2018-20E. It is currently trading at 21x FY 2020 earnings which is at 25-30% discount than its closest peer - Dixon Technologies. The recent correction has provided a very good entry point for the investors to take a bet on the booming AC space. Hence, we initiate coverage on the stock with a BUY recommendation and Target Price of `1272 (28x FY2020E EPS), an upside of 32% from the current levels.
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