Aim to be one of the top 3 external lighting systems providers to OEMs: CFO

Varroc Group, one of the largest auto component manufacturers in India, is scouting for acquisitions to emerge as one of the world’s top three suppliers of external lighting systems to global original equipment manufacturers (OEMs).

“Now, this business has grown significantly from $400 million to over $1 billion and contributes to 60% of the group’s revenues and we want to grow this business further,” T.R. Srinivasan, CFO, Varroc Group said in an interview.

“Our ambition is to be one of the top three players globally in lighting systems and the key strategy is to grow through acquisitions,” he added. “We are actively looking for acquisition opportunities at this stage. We want to be recognised as a global auto component player. It is good to be number one or number two in India but our ambition is more than that,” added Mr. Srinivasan.

With FY18 revenues of ₹10,300 crore, the group is already the sixth largest globally in external auto lightings. It supplies head and tail lamps and small lights to JLR, Ford, Tesla, Volkswagen, FCA, PSA and Renault Nissan and other American and European carmakers.

Varroc Group entered the auto component business in 2012 when it acquired the lighting systems business of Visteon Group which was spun off from Ford Motors.

“We want to grow the size and scale of our business to be considered as a global leader in the $18 billion lighting systems industry which is growing at 5%. We can go after acquisition opportunity even if it is very large. For a good opportunity, we can also issue equity shares. Besides, there is lot of elbow room to borrow,” he added.

As part of its strategy, the group is in the final stage of acquiring a lighting systems company in Turkey which has a revenue of ₹350 crore.

Currently the lighting systems business has six factories in Mexico, Czech Republic, China and India. Two more factories under construction in Brazil and Morocco would be operational by the end of this year.

Expanding footprint

Mr. Srinivasan said the group was keen on enhancing its geographical footprint and acquiring more customers, especially Japanese and Korean OEMs. “So any opportunity that provides this strategic fit can be considered,” he said.

Varroc Engineering Ltd. which supplies auto components to two and three-wheeler companies mainly to Bajaj Auto, is also broadbasing its product portfolio to cater to more number of customers. This India business generated revenues of ₹3,600 crore in FY18. It supplies 16 product lines to customers from its 26 factories in India. “We see further opportunity in growing our business with all OEMs and want to grow our share with OEMs significantly,” Mr. Srinivasan said.

The company had announced a ₹2,000-crore initial public offering to primary facilitate exit to private equity investor Tata Opportunities Fund which had invested ₹300 crore in 2012 and had picked up 13.7% stake in the company. Tata Opportunities Fund is exiting completely and promoters are diluting 1.3%.