Varroc looks to change tack: shift focus to India, lighting business

Varroc Engineering will sharpen its focus on the domestic market and play to its strength in the lighting, electrical, and electronics components segment in India. This is part of its bid to re-align focus and enhance return on capital employed (ROCE).

Last week, the company had said it signed an agreement to sell its four-wheeler lighting business in Europe and Americas to Compagnie Plastic Omnium SE for €600 million.

Varroc seeks to consolidate its position in its home market and exit underperforming ones.

The lighting business in India and China are not part of the deal.

After closure of the deal by July or August this year, Varroc hopes to double its earnings before interest, tax, depreciation and amortisation (EBITDA) by next year.

“We will be targeting a double-digit Ebitda and a ROCE of over 20 per cent. We see a good free cash flow in all the remaining businesses. We are poised for a very good level of profitable growth,” Tarang Jain, chairman and managing director of Varroc Engineering, told Business Standard.

Post the deal, 85 per cent of its business will come from India.

Focus on the domestic market is a change in tack for the Tarang Jain-led company, which was aiming to be the top three global lighting players after its acquisition of Visteon in 2012.

“Our larger play will remain in India now. I don’t want to get into a global lighting business any more. We will rather focus on India and China. Even China, we need to see how it goes,” he said.

Varroc will also take a call within a year on whether it wants to remain in the lighting business in China.

The proposed transaction with Compagnie Plastic will help Varroc become debt free.

The net equity value that Varroc will get after paying off all the debt (in Varroc Lighting Systems) will be €160-175 million.

It would use some of the amount for partially retiring high-cost debt in India that it had taken for Varroc Lighting Systems’ operations.

The company would use the balance amount for dividend or some other purpose.

Net cash accretion to Varroc, post-tax and net of escrow, is estimated to be €160-175 million subject to closing adjustments.

The escrow of €35 million would be released over 2-3 years, the company said in a filing to the exchanges.