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.