Homegrown auto component major Varroc Engineering is optimistic on the M&A route to grow its market share in the global automotive lighting industry. The company has defined a clear strategy around its two core businesses – the local and the global.
According to Tarang Jain, the managing director for the Aurangabad-based component major, the company has a very clear strategy that it didn’t have in 2006. Wherein, the local business is the in India caters to the two- and three-wheeler parts business, where it has one of the most diversified auto component offerings in India. According to Jain, the company currently has over 16 products across 3 divisions, and is a very strong player in the two- and three-wheeler space supplying to the marquee customers.
In fact, the company is not looking to acquire any domestic company, Jain says, “Here (two- and three-wheeler business) we don’t see much of a possibility of M&A growth going forward, as we enjoy a fairly good market share and good level of cross-selling that’s already happening year-on-year over here.”
Turkey the gateway to Europe
The Tier 1 supplier sees action in its second largest core business, the global automotive exterior lighting segment, where it has around 4 percent market share. The company which recently acquired a Turkish lighting company expects the formalities to be finalised by next month. The decision behind the acquisition as per Jain was to gain a foothold in the Turkish auto market, which is estimated to be around 1.7 million units (local and exports to Europe).
Tarang Jain: "The company's Initial Public Offering (IPO) will open on June 26 and close on June 28. Varroc Engineering has set a price band of Rs 965-967 per share to raise around 1,950 crore."
According to Jain, the company is looking at growing its market share when it comes to its lighting business, “We have grown about 14-15 percent CAGR in that particular business (lighting). Overall, we have grown at around 13-14 percent over the past five years as a group, but that business (lighting) has grown a bit faster we are only number 6. We really need to move forward, we need higher market share growth from this business and that is more than 4 percent.”
The company is therefore looking at opportunities in the lighting space for cars. Jain agrees, that there are not too many opportunities available, but some do come by and that is something that Varroc Engineering is very alert about.
“We are on the lookout for acquisitions and that’s going to be other then the organic play, in the lighting business where we will be growing faster than the market. But that’s not enough for us to grow market share, we will have to look at M&A in the global lighting space, to increase market share. Because we already posses all the levels, our M&A will not be there for technology. In the technology space we are already among the top 8-10 players in the world to posses the relevant technologies for today and tomorrow in the global lighting space, and it will be more for the market share growth,” reveals Jain.
Electric, connected and shared mobility
The company claims it currently is the number 6th player when it comes to overall lighting market with 4 percent market share, but when it comes to EV (Full-LED), we have 20 percent market share and is the second biggest player. The EV space despite being very small, with around one-and-a-half million car sales is growing. But for Varroc it is not just about EV or non-EV (lighting business), it is more to do with the LED penetration, which is growing very fast.
“Today the global market for LED headlamps is already at 10-12 percent levels. The rear lamps are close to 30 percent levels, what I understand is in the next 3-4 years this penetration for headlamps will go close to 30 percent for LEDs, in case of the rear lamps it is going to be almost 70 percent. That kind of penetration is helping the revenue growth, the car market going forward will not grow more than 2 percent, the lighting market generally the lamps will not grow more than four-and-a-half percent, but because of this content growth that will lead to higher revenue growth for us,” adds Jain.
He perceives that with the future trends hinting towards electric, connected, shared and autonomous mobility it is a very exciting time for the lighting players who posses technologies. Jain reveals, “In the coming time for instance you will see integration in lamps of a LiDar, more sensors, or more light detection. Which means further higher revenue streams, so all those little ugly things will be packed into the lamp, which is a very attractive product. We see huge possibilities irrespective of the passenger car market globally, and there is a huge growth in the global lighting segment.”
Varroc Engineering is set to get listed at Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on July 6, 2018. The company's Initial Public Offering (IPO) opened on June 26 and will close on June 28. Varroc Engineering has set a price band of Rs 965-967 per share to raise around Rs 1,950 crore.