Expect real normal in chip availability starting 2024: Varroc

Aurangabad-based auto parts maker Varroc Engineering Ltd will be a debt-free company after the divestment of its global four-wheeler lighting business for €600 million, chairman and managing director Tarang Jain said in an interview. 

Until as recently as early 2020, Varroc had been expan-ding this business in Europe and the US with automakers such as Renault and Volkswagen. The company’s stock had hit the upper circuit after it signed a sales purchase agreement to divest Varroc Lighting Systems (VLS) last week. 

With the debt-laden VLS business set to be sold off to France’s Plastic Omnium group, Varroc’s India business will now account for 85% of the company’s revenue, up from over 30% share of the components maker’s current revenue. 

 “Capacities at our global facilities for four-wheeler lighting were 35% underutilized and our new plants were bleeding, and we did not want that to risk our strong India business. By last September, it was evident to us that the semiconductor shortage was going to be long-term, and will stay at least till the end of calendar year 2022. With continuing underutilization and debt in VLS, we had to look for a strategic partner to divest the business. We opted against remaining minority shareholders,” Jain said. 

 According to Jain, Varroc is targeting a revenue of ₹7,000 crore in FY23 from the business it now owns, besides the revenue it will continue to have till the sale of VLS to Plastic Omnium is finalized, which will be sometime after August. 

 “We have a strong product portfolio for EV two- and three-wheelers in India, we also have products on the telematics side, including four-wheelers, we have developed electronics other than BS-VI and EVs also, such as ADAS (advanced driver assistance systems) including camera systems, some high-end LCUs (lighting control units) and light engines for lighting going forward. 

We have enough to do in India over the next five years, and have a lot to grow in the two-wheeler and four-wheeler business in India. Abroad, where we only have two-wheeler lighting systems and electronics, we may look at off-road lights, marine lights and other product lines which may not be high volume but are high-margin,” Jain explained. 

 However, Varroc expects normalcy with respect to chip supply to come only by January 2024. 

 “Although the next year will be better than the last with respect to semiconductor availability, normalcy will not be restored so soon,” Jain said, and added, “The feedback we have from electronics chips suppliers is that real normalcy in terms of supplies will only come from January 2024, when additional capacities would have been built. That will be the normal stage. Having said that, I think the coming year will be better than the previous year from a supplies standpoint, but challenges will still remain on the semiconductor front. So while the situation will improve through 2023, it will not still be fully normal,” Jain said.