IPO high: Varroc aims to break into the world’s top three lighting systems makers

Exterior lighting systems major Varroc Engineering debuted on the stock exchanges on Friday, listing at a premium of 6 percent on BSE compared to its issue price.

The Rs 1,955-crore initial public offering was subscribed 3.6 times, led by strong demand from institutional buyers.

The impressive debut positioned the company as the fourth most valuable auto component making company (at little over Rs 14,000 crore of market cap) on BSE, behind Motherson Sumi, Bosch and Bharat Forge.

Although no the company didn't get any fresh funds from its IPO, given that it was a secondary issue and comprised only an offer for sale, Varroc has set its sights firmly on breaking into the league of world's top three automotive lighting system manufacturers.

"Historically we have largely been an Indian player right from 1990 when we started. We were strong in the two and three-wheeler space in India. The first acquisition we did was in 2006 in Italy followed by another in Europe. But the game changer for us was the acquisition of Visteon," Tarang Jain, Managing Director, Varroc Group, told Moneycontrol.

Varroc acquired the lighting system division of US-based Visteon in 2012 for $92 million. That helped the company become the sixth-largest automotive lighting system manufacturer in the world.

Jain said that after the acquisition, Visteon's business grew by an annual 17-18 percent, as against the world average of 4 percent, over the last 5 years.

"The division we acquired of Visteon was the number six globally. I believe we have to be in the top three but it is not easy to do. The peers we have in the lighting business are quite big," Jain said.

The Varroc Group MD is banking on business from two of the world's largest car manufacturers -- Volkswagen and Renault-Nissan -- to take its own operation to new highs.

This is even as the company is reducing its dependence on India, which has been the major contributor to revenues in the past.

"There was always the vision to grow the company to a certain size which cannot happen by just being an India centric player. About 65 percent of its revenues is generated from outside of India. Our revenues last year with the China JV (part of the Visteon operation) were close to $1.1 billion. The number five player is closer to $2 billion," Jain said.

Varroc earned Rs 10,417 crore of revenue in 2017-18, and a net profit of Rs 451 crore. It has a market share of 4 percent in global car lighting industry. The automobile industry manufactures a total of 90 million cars a year.

However, in the electric vehicle space, the company is the second largest manufacturer of lighting systems, with a share of 20 percent. Auto makers produce around 1.5 million electric cars a year.

While Jain is looking for acquisitions in the lighting systems space, Varroc has put in place an organic expansion plans that will see the company set up four more factories to take its worldwide count to 40.

This also includes a factory that will be acquired. Varroc currently has 36 facilities including 10 outside India.