Auto parts maker Varroc Engineering will retire its debt fully if it manages to sell a major 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 divest its lighting business in the Americas and Europe for €600 million. The lighting business in India and China are not part of the deal.

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

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“The net equity value that Varroc will get after paying off all the debt (in Varroc Lighting Systems) will be €160-175 million. We will use some of that for partially retiring some of the high-cost debt in India which we had taken for VLS purposes abroad. We could use the balance for dividend or some other purpose,” Jain told BusinessLine.

Pandemic disruption

Two years of Covid-19 pandemic followed by the disruption in supply chain caused by semiconductor shortages had hit Varroc’s lighting business. Its underutilised plants became a drag on its balance sheet.

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

“India lighting business and the China joint venture will continue with us. We will still be in the lighting business but more in the Asian context. Sometimes circumstances call for a professional decision. You have to be unemotional when making such calls,” said Jain.

Jain said the company does not see the chip shortage ending before 2023. “With the debt piling up it was difficult for us to continue,” he said, adding that they decided last September to bring in strategic players.

Varroc will also look at some non-core areas of its business for divestment. Post the deal, 85 per cent of its revenues will have to come from India.

“We have a forging plant in Europe. We have not yet decided, but, going forward, there could be a disinvestment there or may be part of the metallic business in India, which is non-two-wheeler. We want to increase focus on the profitable and core business,” Jain added.