Shares of Varroc Engineering jumped as much as 11 percent on Tuesday after a report spoke about the company’s plan to cut debt.
The auto component maker is likely to sell its global lighting business Varroc Lighting System (VLS) at an enterprise value of up to $650 million to a leading European component maker to pare its debt, ET reported.
As per the report, the company is likely to become debt free after the deal. VLS is the sixth-largest automotive lighting maker globally, supplying parts to Ford and Jaguar Land Rover.
An analyst from a domestic brokerage firm said that in case the company manages to pull off this deal then the company's stock could get re-rated.
VLS contributes around 65 percent to Varroc Engineering’s overall revenue, he pointed out.
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Since VLS is a loss-making unit and has massive debt on its books, Varroc Engineering’s margin was getting impacted and if the company manages to hive off this arm, it could turn net cash and concentrate on the India business which is relatively more profitable, the analyst explained.
The company brought on board a European investment bank based in Paris a few months ago to look for buyers for its global lighting business where it makes headlamps, rear lamps, and fog lamps, the report said.
The company’s recent foray into the EV component business and the speculation about the company hiving off its loss-making arm have brightened its business prospects.
At 1154 IST, shares of Varroc Engineering were trading 4.7 percent higher at Rs 427.10 on BSE.
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