Ever wondered what it is like for an auto component-maker to have 36 plants in its kitty both here and abroad? Ask Tarang Jain, Managing Director of Varroc Group, which will commission facilities in Sao Paolo, Brazil and Tangiers, Morocco, during the course of the year.

While the Moroccan market by itself is not large, the plant will also service the Spanish region for exterior lighting in cars. Brazil likewise, is critical for customers like Ford, Volkswagen and Renault “who want us to be there”.

It is Jain’s firm belief that Brazil is coming back to a growth path after years of experiencing severe economic downswings. “There should be good growth going forward after all the hard times the country has gone through. Brazil is important as part of our global footprint,” he says.

Perhaps, it is time to take a break at this point in the narrative and put Varroc’s entire growth strategy in perspective. The Aurangabad-based group has two core businesses: exterior lighting for cars, which was acquired from Visteon in 2012, and two-wheeler parts in India. Jointly, they account for 95 per cent of revenues.

Lighting it up

Jain has reasons to be pleased with the car lighting business, which was of a smaller size in terms of sales as well as margins at the time of the buyout six years ago. “Over the years, we have been able to align well with the existing customers in the business such as Ford and Jaguar Land Rover and have also won a lot of new business from our existing customers,” he says.

While this has helped margins for sure, what has been equally significant is the turnaround achieved in the Mexico and India operations. These were the two loss-making units in the lighting business at the time of acquisition.

“We have grown well in double digits over the last few years but margins growth in this business has been better realised in 2017-18,” says Jain. Doubtless, the journey in lighting has been tough but now the business has reached a certain level of EBITDA (earnings before interest, taxes, depreciation and amortisation) last fiscal.

“That way, I would say it has been a turning point and from now we can look to better years ahead,” adds a confident Jain. On the India front, sales have been good both from the revenue and the EBITDA side because Varroc has been able to utilise capacities much better.

Some of its plants saw lower utilisation levels in the previous years but 2017-18 saw things improve substantially across its 25 facilities in the country.

From Varroc’s point of view, its growth will revolve around its core businesses of global exterior lighting for cars and two-wheeler parts in India. These will be the pivots for future trends, which include electrification, shared mobility, connectivity and so on.

In the passenger car lighting business, Jain believes it is important to increase the global footprint because of customer needs for more platforms. When Varroc took over Visteon’s lighting business, its presence was confined to Mexico (catering to the North American market), the Czech Republic (which serviced Europe and Russia), China and India.

Expanding global footprint

It opened its second plant in China a couple of years ago and with Morocco and Sao Paolo due to join the parade in the coming months, things are quickly falling in place. The missing gaps are Korea and Japan, which are important markets and this is where acquisitions will be considered part of the growth strategy.

Beyond these two countries, the ASEAN region is not very big for the car market. It is also very tough especially with Stanley, Koito and Samlip, the bigger players present here.

“What is more important for us in the ASEAN market is the two-wheeler components business and we already have a plant in Vietnam for lighting. Indonesia, Vietnam and Thailand are large markets in this segment,” says Jain.

Varroc has also started an office in Japan with sales and engineering people to service the two and four-wheeler OEMs there. The reasoning is that it is important to be in close contact with these companies.

“Our overall lighting market share in passenger cars is four per cent and we have a vision to be in the top three or at least number four position going forward,” reiterates Jain, whose group is now in sixth place. Varroc is, incidentally, the number two lighting supplier for electric vehicles globally with a 20 per cent market share.

Jain also wants the lighting business to grow its presence in India. “We need a bigger share in passenger car lighting segment for India without a doubt,” he says. This would mean building strategies around Suzuki and Hyundai, which are the lead players here.

The Varroc chief is only too aware that the world is changing rapidly with the likes of Apple and Google keen on entering the car space.

Keeping up with change

This only means that his group needs to constantly keep abreast of change and what the future has in store for the mobility space.

According to Jain, there are many startups doing innovative things in a big way in the US, Israel and in Asia. “It is important that Tier-1 suppliers be engaged with them to know what is happening here and how they could be impacted in the future,” he says. It is likely that Varroc could even partner with one or two such startups to bring in further innovation.

On the two-wheeler side, the big immediate challenge is the BS VI regime, which becomes mandatory two years down the line, where Varroc is ready with its portfolio of products. The new safety and emission regulations will pose challenges on pricing for suppliers and it will be interesting to see how this will impact vehicle sales post 2020.

“Metal parts could give way to plastics to reduce the weight of a vehicle and also compensate for the cost of new technologies such as ABS and EFI,” says Jain. Digital clusters and LED lamps are the two “really good products for us” going forward besides the electronic fuel injection system.

“We are well set in the two-wheeler business and we have some of the biggest brands in our kitty. We are also in the process of developing parts in the two-wheeler electric space,” signs off Jain.

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