Varroc Engg tanks 9% as firm sells 4-wheeler lighting biz at reduced price

Shares of Varroc Engineering tanked 9 per cent to Rs 308.55 on the BSE in Friday’s intra-day trade after the company said it completed the divestment of the 4-wheeler lighting business in the Americas and Europe. The stock of auto components & equipments company was trading at its lowest level since July 18, 2022.

The company and its Netherland-based subsidiary entered into an amended settlement agreement with Vale Vision S.A.S. France for divesting its 4-wheeler lighting systems business in America and Europe. As per the revised terms, the said transaction price has been reduced from euro 600 million to euro 520 million. The unit contributed 54 per cent of total revenue of the company.

Varroc Engineering in its FY22 annual report said that the deal is expected to significantly strengthen our balance sheet and operational performance. The divestment removes significant operational overhangs (low-capacity utilisation of VLS) and financial overhangs (net debt is expected to become zero when the deal closes). It improves our capacity to invest and be future-ready for upcoming disruptions in the automotive industry.

“We have identified key business segments such as EV components, electronics-electrical and connectivity solutions as potential areas of growth. Regarding EVs, we have already made considerable progress and developed an EV product for the two-wheeler segment, which includes battery management systems (BMS), on- board charger, DC-DC converter, motor controller, and PMSM traction motor. The deal also enables us to focus on maintaining a leadership position in the polymer, electrical-electronics, and metallic business in India. This will enable us to improve profitability through better capacity utilisation in a buoyant domestic 2W and 3W segment,” the company said.

Going forward, Varroc will increase its focus on strengthening EV components, electronics, connectivity solutions, the global two-wheeler lighting segment, and its India business. “Despite global headwinds, we are confident that the Indian automotive industry is at an inflection point, where our India business provides a strong platform to achieve double-digit margin growth,” the company said.

However, in past one month, the stock has underperformed the market by falling 20 per cent, as compared to 1.7 per cent decline in the S&P BSE Sensex. It has corrected 38 per cent from its 52-week high level of Rs 495, which had touched on April 29, 2022. It hit a 52-week low of Rs 274.45 on November 12, 2021.