Varroc Engineering Ltd share price falls 9% after change in disinvestment deal — Check details

Global automotive component manufacturer and supplier, Varroc Engineering Ltd share price declined around 9 per cent in early trade on Friday. Varroc Engineering Ltd share's current market price was around 316 — which is 6.29 per cent down on the BSE. On NSE, Varroc Engineering Ltd was down by 6.37 per cent at 317. The stock of auto components and equipment company was trading at its lowest level since July 18, 2022.

Decline in the share price comes after Varroc Engineering Ltd changed the base price of the disinvestment deal of 4-wheeler lighting systems operations which was announced in April 2022. The deal worth Euro 600 million (Rs. 4800 crore) has now been reduced to Euro 520 million (Rs 4200 crore).

According to Varroc, the deal has been completed on October 6, 2022 and debt and debt-like adjustments of approximately Euro 400 million have been settled.

Reasons for reduction in base price of the deal

1. Raw material inflation is 6 per cent higher than expectation. 

2. Demand has been hit due to Ukraine war and the business’s financial outlook seems to decline. 

3. The Earnings Before Interest, Taxes, and Amortisation (EBITA) of 4-wheeler lighting systems operations has turned negative. 

4. They have kept buyers' concerns in mind and have questioned the sustainability of business’s profitability and are spending Euro 400 million to settle the deal. 

Disinvestment deal 

In April 2022, Varroc Engineering had signed a Securities Purchase Agreement (SPA) with Compagnie Plastic Omnium SE of France to divest its 4-wheeler lighting systems operations in the Americas and Europe. The divestment is part of VEL's (Varroc) strategy to align its resources with the high value and high growth primary markets in China, India, and the two-wheeler sector globally.

In the deal Varroc was divesting its lighting System operations in the USA, Brazil, Mexico, Poland, Czech Republic, Germany, Turkey, and Morocco.