Varroc Engineering seeks to sell its lighting business and pay off its debt

Auto parts maker Varroc Engineering will fully pay off its debt if it manages to sell a large part of its lighting business.

The Aurangabad-based company, headed by Tarang Jain, has signed an agreement with French company Compagnie Plastic Omnium SE to sell its lighting business in the Americas and Europe for 600 million euros. Lighting activities in India and China are not part of the agreement.

At the end of FY22, Varroc Engineering had a consolidated debt of ₹2,500 crore.

“The net equity value that Varroc will get after repaying all the debt (in Varroc Lighting Systems) will be 160-175 million euros. We will use part of it to partially repay some of the high cost debt in India that we had incurred for VLS purposes abroad. We could use the balance for a dividend or other purposes,” Jain said. Activity area.

Pandemic disruption

Two years of the Covid-19 pandemic followed by supply chain disruption caused by semiconductor shortages had hit Varroc’s lighting business. Its underutilized factories have become a drag on its balance sheet.

Prior to the pandemic, the company had a 4% market share in the global lighting segment, including 20% ​​in the global electric vehicle lighting business. It aimed to become one of the top three lighting manufacturers in the world.

“The lighting business in India and the joint venture in China will continue with us. We will still be in the lighting business but more in the Asian context. Sometimes circumstances call for a business decision. you make such calls,” Jain said.

Jain said the company doesn’t see the chip shortage ending until 2023. “With debt mounting, it was difficult for us to continue,” he said, adding that they decided in September last to bring in strategic players.

Varroc will also review certain non-core areas of its business with a view to divestment. After the deal, 85% of its revenue will have to come from India.

“We have a forge plant in Europe. We haven’t decided yet, but in the future there might be a divestment there or maybe some of the metal business in India, which is not the two-wheeler business. We want to focus more on profitable and core business,” added Jain.

Published on

May 03, 2022

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