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Endurance & Varroc IPOs ~ An Enduring Success Tale of Twins

Really happy for them ! ~ Anurang & Tarang Jain ~ Twins from our Sydenham College Mumbai Class of 83 & with who I’ve enjoyed long bridge sessions that often stretched into early morning while we were college mates

Related to the Bajaj Family, both were inspired & guided after post graduation to set up Auto Components Plants in Aurangabad to begin with  ~ Tarang set up Varroc Engineering in 1988 while Anurang founded the Endurance Technologies Group with it’s roots being an Aluminium Casting Plant in 1985.Their Footprint has spread globally with Endurance establishing Operations through Subsidiaries in Italy & Germany & three step down subsidiaries in Italy while Varroc has 36 plants in seven countries that include servicing North America too

Yesterday Varroc’s IPO,full offer for Sale of 20221730 Equity Shares of FV Rs 1, opened for subscription in the Rs 965-Rs 967 Band that implies at top end an IPO Size of Rs 1955 crs & a Valuation of  over Rs 13000 crs .It closed FY 18 with a Consolidated Top line of @ Rs 10400 crs

Earlier in October 2016 Anurang had already rung the success bell with Endurance’s IPO,an full offer for sale too at Rs 472 for an Equity Share of FV Rs 10, which was oversubscribed 43.7 times .Today Endurance quotes @ Rs 1250 giving a Market Cap of Rs 17700 crs.It closed FY 18 with a consolidated top line of Rs 6690 crs

Post Varroc’s IPO the Twins Companies should command a combined Market Cap of over Rs 30700 crs or @ US $ 4.5 billion on combined topline of over Rs 17000 crs or US $ 2.5 billion.Post IPO Promoters hold 82.5% of Endurance & 85% of Varroc giving the Jains a combined market wealth of over Rs 25500 crs or @ US $ 3.8 billion.Endurance is also a darling of the FPIs/MFs/DIIs .They collectively hold over 15% of the Equity leaving  under 2.5% as non institutional public float.This scenario should repeat itself also in Varroc with Anchor Investors already lapping up 5% though  it is interesting to see that neither Reliance MF nor HDFC MF are among the eight Anchor MFs…perhaps they’ll apply now or would love to know their reason for not participating  

Impressive Numbers already

Both Companies have a common Chairman,Mr Naresh Chandra

However,any Assessment from a shareholder’s viewpoint is always centered on ‘Value Vs Price’.There are always risks,largely operating,financial & legal,that companies face.

Varroc had negative Cash Flows in FY 18 & operates at lower EBITDA margins than Endurance.It also has @ Rs 1000 crs as Debt on it’s Balance Sheet at March 31,2018 of which Rs 636 crs is Long Term.Till FY 15 it was struggling with the bottomline.It’s also on the RBI watchlist as some of it’s export billings have yet to be realised over two years on …just a thought ~ 10 Million fresh issue of equity shares would have made the company debt free while increasing Equity Capital merely from Rs 13.48 crs to Rs 14.48 crs…would have saved the Company Rs 90 crs in Interest too…though issue size would have gone up to Rs 3000 crs… Tarang did come on TV yesterday to state the Debt/Equity is low at 0.3 & company does not need funds and can manage all expansion through internal accruals.He has a vision of a top line of Rs 20000 crs by 2020 & to move up Global ranking from current 6 in external lighting systems to 3 or 4…currently does Rs 7000 crs in this segment while No 5 globally does twice this

Here’s a Quick Tabular Comparison…leave it to you’ll to figure it out…Anurang had monetised @ Rs 251 crs selling 5.31 million shares in the Endurance IPO.Tarang is monetising Rs 169 crs selling 1.75 million shares in the Varroc IPO

 Background Varroc Engineering Endurance Technologies
Managing Director Tarang Jain Anurang Jain
Founded in 1988 1996 but roots in 1985
Auto Component Products External Lighting Systems Aluminium Casting for 2/3 W OEMs in India & 4W OEMs in Europe
Components ~ Plastic,Polymer,Electrical,Electronic,Precision Metallic Suspensions,Transmissions & Braking Systems
Plants 36 in seven countries 24 (India 16,Germany 3,Italy 5)
IPO Details
Face Value in Rs 1 10
IPO Pricing in Rs 965-967 467-472…fixed at 472
IPO Size 20,221,730 Equity Shares of Rs 1 aggregating up to Rs 1,955.44 Cr at top end 24,613,024 Equity Shares of Rs 10 aggregating up to Rs 1,161.73 Cr
IPO Nature of Offer Full Offer for Sale Full Offer for Sale
IPO Timing June 2018 October 2016
Oversubscription Issue Closes June 28,2018 43.7 times
Post IPO Promoter Shareholding 85% 82.5%
Consolidated FY 18 Financials & Valuation
Top Line in Rs Crs 10400 6690
PAT in Rs Crs 451 390
EBITDA Margin 9.5% 14.5%
Equity in Rs Crs 13.48 ( FV Rs 1) 140.66 (FV Rs 10)
Networth in Rs Crs 2849 2173
EPS in Rs 33.45 27.78
Book Value in Rs/Share 211 154
Market Capitalisation in Rs Crs 13035 at IPO Top End Rs 967 17700 at Current Market Price @ Rs 1250…52 Wk H/L is Rs 1422/Rs 855
PE & PBV 29 & 4.6 45 & 8.2
  • At CMP of @ Rs 1250 there’s been an appreciation of 165% from IPO Price of Rs 472 in just over one and a half years in Endurance Technologies.The Gains have been 201% if 52 Week High of Rs 1422 is considered
  • The Market Cap/Sales is 2.6 for Endurance while it’s under half at 1.25 for Varroc which has a higher top line
  • In fact the Relative Valuations for Endurance are significantly higher on Earnings & Networth than those of Varroc 
  • Endurance has recorded a 16.8% & 18% increase respectively in the top line  & bottom line in FY 18 with EBITDA Margin too climbing from 14% to 14.5%. Varroc’s ROC is 18%
  • At top end Rs 967 exiting shareholders in Varroc,  Omega TC Holdings Pte Ltd (selling entire holding of 15,373,608 shares &  Tata Capital Financial Services Limited (selling entire holding of  1,410,432 shares)
    would be making six times their average  holding cost of Rs 162.43 in a period of four and a half years from January 2014.The CAGR works out to nearly 50%

With strong Global Rankings in the auto component segments they operate both the companies clearly have established a Quality pedigree in the last three decades & the twins are extracting a Quality premium in Pricing for this for their companies …demanding and/or commanding ?

Leave that to you to take a view on…Endurance has made IPO Investors happy…will Varroc ? Institutional Investors are participating in this opportunity for a meaningful allottment…if you observe the trading Volumes are quite thin in Endurance…there is not much of floating traded stock

Again,happy for you Tarang & Anurang…Congratulations & Cheers !

🙂 A last thought ! ~ what if the Twins merge going forward to create an auto component global behemoth  EV !…it’s EV would be stunning

Cheers !

Disclaimer : This blogpost is for informational purposes only & should not be taken as advice or recommendation.This is not a Research Report.No consideration in any form is received for any blogpost as with this too. Content has been largely sourced from publicly available information through the Prospectus filed with SEBI,Notifications filed with the Exchanges,Share Price quoted on the Exchanges,Companies Websites & Annual Reports &  TV Interview of the MD &  presented in an easy to understand factual format.It may serve as Case Study or illustration in the Fundamental Equity Valuation Training Workshops that are conducted frequently.Anyone acting on this blogpost is doing so at their own risk  


2 thoughts on “Endurance & Varroc IPOs ~ An Enduring Success Tale of Twins”

  1. Splendid analysis sir..always been an enthusiast of your writing..the enumerating that you put is amazing..please continue composing with a similar effort and keep us educated

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