Varroc Engineering Pvt. Ltd (Varroc) – Tata Opportunities Fund (TOF)

The Tata Opportunities Fund (TOF), the flagship Private Equity fund of Tata Capital, announced its investment of INR 300 Crore (USD 50 million) in Varroc Engineering Private Limited, the holding company of the Varroc Group.

Varroc_Group1. Why did TOF invest in Varroc?
Varroc is a global auto-parts company, and also one of the leading privately held auto component companies in India. Varroc’s Indian business mainly caters to the 2-wheeler segment. The growth in this segment is driven by the demands of the Indian domestic consumer both in rural and urban markets. The company is also rapidly growing its presence in the Indian domestic passenger (4 wheeler) vehicle and commercial vehicle segments. Varroc Lighting Systems (VLS), which was acquired from Visteon in 2012, is one of the largest suppliers of lighting systems to marquee global Original Equipment Manufacturers (OEMs) including Ford, Jaguar Land Rover, Volkswagen, General Motors, Bentley, Nissan-Renault among others. Varroc has also been the sole lighting supplier to Tesla, the highly successful and pioneering global leader in electric cars. This illustrates in particular how lighting systems are increasingly becoming a differentiating design feature in automobiles, as well as a key safety element. With excellent design capabilities and a low cost manufacturing footprint across the Czech Republic, Mexico, China and India, VLS is extremely well placed in the global lighting industry.

2. What value does TOF bring to Varroc?
The Tata Opportunities Fund (TOF) is an active investor and works with all its investments to drive growth and profitability. TOF has unique access to the networks and knowledge of the Tata group, and a mandate to create mutually interesting opportunities for its investees and Tata. In evaluating Varroc, TOF was able to draw on the extensive automotive market experience both within India and globally of Tata’s automotive businesses including through Tata Capital’s Senior Advisor, Mr. Prakash Telang, formerly the CEO and Managing Director of Tata Motors India, who was actively involved in the consideration of Varroc.

3. What are TOF investment criteria for Tata and Non-Tata deals?
TOF evaluates all investments by their ability to generate attractive risk-adjusted returns to its investor base, whether these investments come from the Tata group or outside. TOF is investing from a US$600m third party fund closed in March 2013, which will be a mix of Tata and non-Tata investments when fully invested. The Fund continues to evaluate and look to consummate Tata and Non-Tata investments with a minimum equity requirement of US$30m.

4. Varroc’s big step forward was the acquisition of Visteon Lighting Systems (VLS) in 2012. How has it played out?
Varroc’s acquisition of Visteon Lighting is a recently completed transaction (August 2012), and the company is well progressed on several key transformation and growth initiatives at VLS. With already a strong management team, many marquee client relationships, and unique design and low-cost manufacturing capabilities, VLS is a proven leader in global auto-lighting. Varroc’s primary role has been in supporting the management with resources to scale up operations, step up research and development (R&D), deepen management resources, secure new customer wins and continue to invest for the future.

5. Why has Varroc raised Private Equity funds? Why not an IPO?
Varroc believes the next few years to be very strategic for its growth. With support from TOF, both financial and otherwise, Varroc is well placed to capitalize on its strategic bets in R&D, operations and people. This is the first time that the company has raised equity from external investors recognizing the need for third party supportive capital to support the step change in Varroc’s scale and operations. The company will consider an IPO, when it is ready – potentially in the next few years.

6. Why did Varroc choose TOF as its Private Equity investor?
Varroc appreciates the value that TOF can provide both in terms of financial and strategic support through its unique mandate within the Tata Group. This network of relationships and people that the Tata Opportunities Fund provides should enable Varroc to expand business with current and new customers, develop new business partners, access talented and experienced managers and share learnings on a strategic level, including acquisitions. Varroc has also invited TOF to nominate members on the Board of its companies in India and overseas.

7. What is the percentage stake that TOF will secure for its investment? What will Varroc use the money for?
TOF will have a minority stake in Varroc which has not been disclosed publicly. Varroc will use the funds provided to expand capacities, fund domestic and global operations both in India and overseas, and for capital repayments.