Varroc Engg to divest lighting biz in Americas and Europe to French firm

It has signed a Euro 600 million transaction with Compagnie Plastic Omnium

Varroc Engineering has signed a Securities Purchase Agreement (SPA) with Compagnie Plastic Omnium SE of France to divest its four-wheeler lighting systems operations in the Americas and Europe, the Aurangabad-based company said in a statement.

The Euro 600 million (Rs 4,836 crore) transaction will see Varroc divesting its lighting System operations in the US, Brazil, Mexico, Poland, Czech Republic, Germany, Turkey, and Morocco.

Varroc Lighting System had been a drag for the company for a few quarters now, and weighed on Varroc Engineering’s performance in the third quarter of FY22. During the quarter, a two per cent increase in India business was offset by 15 per cent decline in VLS.

Following the announcement, the company's shares rose touching an upper circuit. It closed at Rs 444.90, up 7.95 per cent on the BSE.

The company’s consolidated net debt of Rs 2,604 crore at the end of December 2021, down from Rs 3,010 crore the previous quarter.

It is not clear whether the deal is an all-cash deal. But assuming it is one, it would help the company wipe out the debt and still leave it with cash of Rs 2,236 crore which could in turn bump up the valuation, said an analyst at a domestic brokerage.  

The move, said the company in the statement, is part of the larger strategy to transform Varroc into a high-tech company and focus on the existing growth of electronics, connectivity, electric vehicles (EVs) product lines and the two-wheeler segment globally, it said.

This divestment will help the company to align its resources with the high value and high growth primary markets in China, India, and the two-wheeler sector globally, it added.

Varroc will also continue to operate its China JV and other international two-wheeler businesses in countries like Italy and Vietnam and global electronics businesses in Poland and Romania. The company is retaining its four-wheeler lighting operations in Asia.

“Our immediate goal is to be future-ready with continued profitable growth in emerging sectors like the EV and high technology electronics,” Tarang Jain, chairman and managing director of Varroc Engineering said in the statement. The divestment of the company’s passenger car lighting operations in the Americas and Europe “will be a win-win deal for Varroc and Plastic Omnium,” said Jain.

It would help the company “unlock great value” for all its shareholders, employees, and business partners as it plans for our next level of growth in the fastest-growing economies and auto sectors in the world, Jain said in the statement.

“Varroc Lighting Systems is a strategic addition to our business that will provide us with an extensive lighting product portfolio,” said Laurent Favre, Chief Executive Officer of Plastic Omnium.

With the Indian automobile sector, including 2-wheelers, 3-wheelers, and passenger car segment, poised to grow at 10-12 per cent CAGR over the next 4-5 years, and with emerging alternative technologies in electric vehicle (EV) mobility, Varroc will be investing in operations and R&D to enhance its shareholders’ value by creating a robust and financially strong operation, ensuring higher return on investments, the company said.

Rothschild & Co acted as the exclusive financial advisor to VEL on the transaction.  

 The deal marks  Varroc’s exit from global lighting business (excluding Asia) for 4-wheelers

 The business had been a drag for the company

 Deal is valued at Rs 4,680 crore, will help it retire debt

 At the end of Q3 2022 it had a debt of Rs 2,604 crore

 Will enable focus on electronics, connectivity and EVs