Interview with Amit Dakshini, Chief Strategy Officer, Varroc Group

Report: Motown India Bureau, Photography: Mohd. Nasir

Company Description: A US$ 1.2 billion dollar enterprise, the Varroc Group is a full service supplier of plastic moulded modules, mirror assemblies, seating assemblies, engine valves, machined forgings, exterior lighting and electrical systems to auto industry. It currently operates from 32 manufacturing plants and eight technical and development centers across three continents. Based in Aurangabad, the Group has a diversified product portfolio catering to automotive companies worldwide with a workforce of 10,000+ employees.

Despite the recurring downturn in the automotive market, Varroc has done pretty well. What do you think are the company’s key growth drivers?

The most important thing is that we anticipated the slowdown in the general economy and have prepared ourselves by de-risking. Yes, there is a soft landing of sorts. While some OEMs have shown some signs of de-growth for the last one year, some of our customers are doing very well. Secondly, we have also diversified our product portfolio that has boosted our topline as well as our bottomline. Thirdly, our acquisitions (with Triom and Visteon) have been timed very well and have helped us grow the business inorganically.

Was adding new clients like Honda a part of your long-term gameplan to de-risk your business from a single client?

I won’t call it a de-risking strategy, but a growth strategy. This is because any player in the two-wheeler industry will have a limit to its marketshare. So if an auto component maker has to enhance its operations organically, it has to look beyond a single customer. De-risking becomes a by-product when you add new clients. The primary objective is to grow one’s business and become a global brand.

Have you identified any new areas of growth in your future course of action? If yes, could you tell us a little bit about that?

Let me give you a broader vision of our company. Our vision is to clock 20,000 crore in revenues by 2020 from 6,800 crore (on a consolidated basis) currently. Out of the said revenues, overseas business will contribute nearly 40pc of the total revenues. In the next 6-7 years, there will be new products which we will be focusing on. We have recently opened a crankshaft facility for commercial vehicles at Aurangabad. That is itself a product diversification and we probably have one of the best manufacturing facilities in India. We anticipate that once the commercial vehicle industry picks up, we will be able to leverage our investments in crankshaft facility. Similarly, our two-wheeler lighting division will grow with the overseas acquisition that we are integrating seamlessly with our domestic operations. We might look at partnerships which will help us access new technologies as well as leverage our existing relationship with our customers.  Even within our existing businesses, our endeavour is to build relationships with customers (OEMs) which are not part of our existing portfolio today like Hero MotoCorp. We are also working on air filters in the two-wheeler and four-wheeler spaces. So it will be a combination of various factors which will propel our growth.

So two-wheeler segment will remain your core business?

Definitely, the two-wheeler segment will still contribute around 70pc to our domestic business. The remaining will be derived from the four-wheeler/CV space. The international business will be primarily driven by Varroc Lighting Solutions (VLS). Even in India, one of the focus areas will be to create more presence in the automotive lighting space. We have a lot of interesting next-generation European technologies (with VLS and Triom) that we would like to leverage in the Indian market too.

Could you talk a little bit about your investment plans too?

We have already invested for short term and the focus is to utilise these capabilities in the short term. While we will get into new products and next-generation technologies in the long run, we will not be very capital intensive. Our investment plans will be driven by the expansion of our OEMs. For example, when Yamaha came up with its third plant at Chennai, we are also setting up our production unit there to cater specifically to them.Then we are looking at investing for a facility for serving Hero MotoCorp in Gujarat. For Honda (two-wheelers), we are heading to Pathredi (Rajasthan) for a greenfield facility.So it’s a footprint that we are following wherever our OEMs are spreading their base, especially for our Polymer business.

Could you talk a little bit about your R&D and other technical centres that you are running globally?

We have a dedicated R&D centre for polymer business wherein we have 100+ engineers working today. This will be ramped up by twofold in the next few years. There are two dimensions to our R&D operations. One is that we want to see more of our products to move from built-to-print to built-to-design solutions. So a lot of R&D work will happen in that space and we will make our proprietary solutions for our OEMs. The second dimension is in the existing product range; we need to probably look at solutions and advanced technologies and move out of commoditisation over a period of time. Apart from looking at new products and technologies, we are also constantly trying to be above the curve and invest in low-cost solution areas as well.Advanced engineering for next-gen technologies will be a key focus area.

It’s a known fact that polymers account for a large chunk of our overall business.  Will it continue to contribute sizably to your overall business or will the equations change?

To give you a broader perspective, we have five business division: i.e. Polymer, electrical, metallic, two-wheeler-lighting and four-wheeler lighting. This is how we divide our business. I would say that each of the business lines are expected to grow in their own areas from where they are today. They are all tied up to the same customers and markets and I don’t think the percentage contributions will change drastically. So the polymer division today will grow mostly in the domestic business. In the metallic division, which contributes around 16pc to the total business, our exports are expected to grow in the future. The electrical division which contributes around 18 pc of the business is expected to be our growth engine for proprietary products. The balance contribution would be derived from our two-wheeler and four-wheeler lighting divisions.

Coming back to your polymers division, are you looking at acquisitions in that space too?

As I mentioned before, the polymers business also has a lot of opportunities in the four-wheeler space. We are primarily present in the two-wheelers space. Although we work with M&M, Volkswagen, General Motors, Tata Motors and some of the CV players like VECV, our size of the business is small. In order to add more presence in the four-wheeler space, we will surely be looking at new technologies. If the right opportunity comes our way, we might look for strategic alliances or partnerships, but we are also working aggressively to develop in-house technologies to fuel our growth.

You also seem to be working on integrated foam-type seat and foam-in-place technology? When will you be launching them?

Yes. The product is for two-wheelers and is still under development. It is a new product for us and is slowly gaining acceptance in the Indian market.

Your presence is largely in the mass market two-wheeler segments. Do you have any plans to expand your base to premium clients like Royal Enfield, Triumph, Hyosung or Harley in the domestic market?

We have premium segment clients such as Ducati as our customer today and some of the clients that you have mentioned are already served by us. We are holding discussions with some of them like Harley Davidson and some deals are expected to be inked in the next few years. We are also keen to supply our products to Triumph. It is important to have them as our customers as it brings in a lot of value to our products and technological strength.

How big are you betting on the aftermarket division?

Currently, that vertical is not very big for us. Even though it (aftermarket vertical) is not as large as the direct market, it’s still one of the key focus areas for us. We are widening our product portfolio, enhancing our distribution network and expanding our sales team to crystallise our growth plans. Our strength in that space lies in franchised outlets and distribution chains. It is also driven by the kind of products that you are offering in the market. While we sell CDI systems (capacitor discharge ignition systems), regulator rectifier, starter motor, wiper motor, mirrors, coils, filters, relays in the aftermarket, we plan to add some new products to its portfolio such as headlights of passenger cars, crankshafts and engine valves.

So is Varroc looking for an IPO too once it reaches the Rs. 20,000 crore mark?

Even though I cannot comment on the timeline, what I can say is that we are hopeful about those plans in seven years.

So what else do you have in mind to transform Varroc to a global multinational giant?

Our vision is to become a global conglomerate and we will be working on multiple directions to further our objectives. On one hand, we will continue to enhance our base in the two-wheeler market by adding new customers (OEMs). Within each customer, we intend to get a larger share of business for all the product categories that we have. The second dimension is to sharpen our focus in the emerging geographies where two-wheeler and select four-wheeler markets fit into our product strategies.Our exterior Lighting business (VLS) forms an important facet to this dimension where we target to be the No.3 global lighting supplier. The third dimension is to selectively look at product technologies where we feel we will be able to build a reasonably-sized business.We will also be embracing technologies which will enable us to become greener and leaner. For example, we have invested in solar power projects. So if you combine all these dimensions, you will start to see a strategy emerging out of that.