Varroc leads Charge of the Indian Component Brigade

Varroc, an automobile components company based out of Aurangabad has announced that it will buy out the lights business of Visteon Corporation, a $ 8 billion US based auto components company. Varroc says it has paid about $92 million for the acquisition. It will now become India’s largest automotive lighting manufacturer. It could, in fact, rank among the top three automotive component manufacturers in India.

It is possible that you might not have heard of Varroc before. You should now- for various reasons.  Here is a homegrown automotive components manufacturer with its sights on the global stage. Tarang Jain, the company’s managing director doesn't lack for ambition- he aims to grow Varroc to a $ 4 billion company by 2020. The new path not be through licences or technology agreements with multinationals like many of its peers. Vineet Sahni, president of Varroc’s electrical division and only six months old in the company (he was earlier at Minda) says that he has seen enough ‘begging for technology in the auto components space’. Varroc plans to have its own resources and technology. The downturn has thrown up quite a few opportunities, and there are good assets on sale, he says.

So what is Varroc's background? It was founded by Naresh Chandra Jain, an entrepreneur who has for long been suplier to Bajaj Auto. Tarang is the son of Naresh Jain and Suman Bajaj-Jain, who is Rahul Bajaj’s sister. In the last 20 years Varroc has grown to become a Rs. 3, 200 crore company. It is still a private company though where two wheelers account for almost 80 percent of its business. Varroc has three business verticals; polymers (rear view mirrors, body panels and stuff), electrical (headlights, instrument clusters) and metallic (forging, catalytic converters, crankshafts etc). Each business accounts for roughly a third of its turnover.

Varroc figures as a prominent supplier to the two and three wheelers industry in the plastics and electrical space. It supplies to Bajaj Auto, Yamaha and Royal Enfield. But it has been sometime now that Tarang has been looking at opportunities to break into the big league. The lighting business, could well be his chance to do this.

In  December last year, Varroc bought a majority stake (80 percent) in Italy’s lights manufacturing company Triom. The Itallian company has a market share of almost 60 percent in Europe and supplies to Yamaha, Ducati and Honda. And it has plants in Italy,Romania and Vietnam. But even when this deal was taking shape, back in October 2011, Varroc began closely looking at Visteon’s lights business which was up for sale. Visteon manufactures lights for the passenger vehicles market.

Varroc didn’t have any presence in the car lights business. Visteon had the technology and the low cost manufacturing base. Tarang says the acquisition comes with an engineering center with 400 engineers and manufacturing base in Czech Republic, Mexico, India and a joint venture in China. And Visteon’s major customers are Ford, General Motors, Volkswagen and Jaguar Land Rover. Visteon’s lights business recorded revenue of $ 531 in the year 2011. Varroc decided it was a good buy.

The question though is if that be so, why did Visteon want to sell? In the last few years the company has been downsizing and getting rid of what it calls non core businesses. It has been in chapter 11 protection for two years. Visteon posted a loss of $ 26 million in Q4 earnings declared last month. So it doesn't come as a surprise that it decided its lights biz is non core. Tarang quotes the example of another component maker- Delphi which at one point had revenues of more than $ 30 billion. “But it never made money,” he says. Over the last few years Delphi has gone the same way trimming down its businesses to bare essentials.

It is interesting how this acquisition will change Varroc’s profile. Cars rarely get developed for a single market anymore. With the Visteon buy, Varroc gets the scale and size of a global supplier. It will also have to scale up to deal with the complexity of running a global business. The total employee count is about 9, 000- spread across several geographies. Execution will be key to the success of the venture. Tarang will need  to grow Visteon’s existing business deeper into the US, European and India markets. He has to grow Varroc’s two-wheeler business in the far eastern countries. That’s a lot of hard work.

The thoughts and opinions shared here are of the author.