Varroc Engg drops after lighting biz deal revised lower

Varroc Engineering fell 7.75% to Rs 311.80 after the company announced a revised deal for its lighting business.

In April this year, Varroc Engineering entered into a definitive agreement with Compagnie Plastic Omnium SE, France (PO) to divest its 4-wheeler lighting business in the Americas and Europe. The deal was struck at an enterprise value of 600 million euros for 100% of the entities located in Europe, Americas and North Africa along with acquisition of the global R&D operations in India (Pune). Net cash accretion to Varroc, post-tax and net of escrow, was estimated to be between 160-175 million euros subject to closing adjustments. An escrow of 35 million was estimated to be released over 2-3 years.

The company announced today that the said divestment will be effective from close of business hours on 6 October 2022. However, the enterprise value of the deal reduced to 520 million euros considering the current recessionary trends in Europe. Varroc paid 51 million euros as out of court settlement for patents infringement disputes with Valeo Vision SAS.

Net cash accretion to Varroc India, post-tax and net of escrow, is now estimated to be about 5-9 million euros and escrow is revised downwards to 28 million from 35 million euros estimated earlier.

Post the deal closure, Varroc will still have debt worth Rs 1,300 crore on its books.

Further, Varroc Engineering said August and September witnessed the highest-ever revenue for Indian operations. It has added three new customers in the last six months in the EV segment. It said that strong order wins will drive future growth. Aftermarket business continues to grow at 20%, it said.

Varroc Engineering design, manufacture, and supply exterior lighting systems, plastic and polymer components, electrical-electronics components, and precision metallic components to passenger car, commercial vehicle, two-wheeler, three-wheeler and off-highway vehicle ("OHV") OEMs directly worldwide.

On a consolidated basis, Varroc Engineering reported net loss of Rs 84.84 crore in Q1 June 2022 as against net loss of Rs 230.29 crore in Q1 June 2021. Net sales rose 36.26% to Rs 1628.28 crore in Q1 June 2022 over Q1 June 2021.

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