Varroc’s profit drops 56.92% QoQ as tax and other income weigh
Operating margin edged up as revenue grew faster than expenses, but a higher tax rate and negative other income sharply reduced net profit.
Filed 04 Nov 2026, 14:09 IST · Varroc Engineering Ltd (VARROC)
Key takeaways
- Consolidated operating margin improved 0.30 percentage points QoQ as revenue grew +11.91%, faster than expenses at +11.54%.
- Net profit fell -56.92% QoQ as the tax rate rose 24.81 percentage points and other income contributed -75.54% of pre-tax profit.
- Management said EV models were 19% of Q2FY27 revenue and grew +130.00% YoY, while H1FY27 net new business wins reached Rs 10,127 million.
Price around the results
Revenue growth lifted Varroc’s operating margin
Varroc’s consolidated revenue grew +11.91% QoQ in Q2FY27, while expenses rose +11.54%, allowing operating profit to increase +15.88%. This pushed operating margin up 0.30 percentage points to 8.72%, despite management saying war-related inflation under-recovery reduced margins by approximately 80 basis points.
Tax and other income drove the profit decline
The profit conversion below operating level weakened sharply: interest rose +5.48%, while other income moved from positive in Q1FY27 to negative in Q2FY27 and represented -75.54% of pre-tax profit. The tax rate rose 24.81 percentage points to 56.87%, so net profit fell -56.92% QoQ even as operating profit increased. Varroc’s 8.72% operating margin was 3.45 percentage points below the 12.17% median for 192 Consumer Discretionary peers that had reported.
EV programmes are becoming a larger business contributor
Management said EV models accounted for approximately 19% of Q2FY27 revenue and grew +130.00% YoY. It also said more than 48% of net annual peak revenue wins came from EV vehicles, with H1FY27 net new business annual peak revenue wins at Rs 10,127 million. These are management-reported indicators of the changing order mix, not a forecast.
Expansion plans include battery systems and footprint changes
Management said Varroc plans to acquire a 45% stake in Forsee Power India for €4.5 million upfront, giving it operating control of a battery-systems platform. The company also said it plans to relocate selected Italian lighting programmes and equipment to Targu Mures and Hanoi, while Romania Electronics has infrastructure prepared for seven SMT lines and ten backend lines. Management also reported 35.9% capacity load at Cambiano and high fixed-cost absorption at sub-scale Italian volumes.
Q2FY27 at a glance
Consolidated figures as filed with NSE — filed ahead of third-party databases, not yet independently cross-checked.
| Line item | Q2FY27 | Q1FY27 | QoQ |
|---|---|---|---|
| Revenue | ₹2,948 cr | ₹2,634 cr | +11.91% |
| Other income | ₹-59 cr | ₹7 cr | — |
| Expenses | ₹2,691 cr | ₹2,412 cr | +11.54% |
| Operating profit | ₹257 cr | ₹222 cr | +15.88% |
| Operating margin (%) | 8.72% | 8.42% | — |
| Interest | ₹32 cr | ₹31 cr | +5.48% |
| Depreciation | ₹89 cr | ₹84 cr | +5.08% |
| Profit before tax | ₹78 cr | ₹114 cr | -32.16% |
| Tax | ₹44 cr | ₹37 cr | +20.32% |
| Net profit | ₹33 cr | ₹78 cr | -56.92% |
| EPS (₹) | ₹2.15 | ₹5.06 | -57.51% |
Operating margin of 8.72% compares with a Consumer Discretionary sector median of 12.17% across 192 peers that have reported Q2FY27.
What management said
From the company’s own investor presentation. Each point is checked against the source document before it appears here.
This quarter
- EV models represented approximately 19% of Q2 FY27 total revenue and grew 130% year on year.
Expansion
- Varroc plans to acquire a 45% equity stake in Forsee Power India for €4.5 million upfront consideration.
- Varroc plans to relocate selected Italian lighting programmes and equipment to Targu Mures and Hanoi.
- Romania Electronics has infrastructure prepared for seven SMT lines and ten backend lines, with immediate implementation possible.
New orders
- Net new business annual peak revenue win in H1 FY27 was Rs.10,127 million.
- More than 48% of net annual peak revenue wins came from supplying EV vehicles.
New initiatives
- The acquisition gives Varroc a controlled battery-systems platform with staged consideration and contractual technology-continuity protections.
Problems & risks
- War-related inflation under-recovery continued to reduce Q2 FY27 margins by approximately 80 basis points.
- Net debt increased primarily because of capex and delayed war recovery.
- The Italian manufacturing footprint had 35.9% capacity load at Cambiano.
- Italy faced high fixed-cost absorption at sub-scale volumes.
- Capital was tied up in a structurally inefficient Italian site.
What to watch
- Whether operating margin holds above 8.72% while war-related inflation under-recovery remains a reported pressure.
- Whether the tax rate moves down from 56.87% after rising 24.81 percentage points QoQ.
- Whether EV models remain near 19% of revenue and continue to account for more than 48% of net annual peak revenue wins.