Lumax Auto Technologies, the market leader in gear shifters in India, aims to diversify into the passenger and commercial vehicle interiors business with its recent acquisition of IAC India; looks to benefit from operational and sourcing synergies and also transform into a systems supplier.
20 Mar 2023 | 8149 Views | By Mayank Dhingra
On February 20, 2023, Lumax Auto Technologies (LATL) signed a strategic agreement with the global automotive products supplier International Automotive Components Group (IAC Group) to acquire a majority stake in IAC International Automotive India (IAC India).
The acquisition, pegged at an equity valuation of Rs 587 crore, is likely ...
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On February 20, 2023, Lumax Auto Technologies (LATL) signed a strategic agreement with the global automotive products supplier International Automotive Components Group (IAC Group) to acquire a majority stake in IAC International Automotive India (IAC India).
The acquisition, pegged at an equity valuation of Rs 587 crore, is likely to conclude before end-March 2023. The move will put LATL into the driver’s seat to chart out a mid-term roadmap, starting FY2024, for growing the IAC India business and also tap into the multiple synergies between the two companies whose core competencies lie in plastics.
While the IAC Group is a global supplier of powertrain-agnostic exterior components and interior systems such as instrument panels, cockpits and consoles, door and trim systems, headliner, and overhead systems among others, LATL is a strong player in interior components such as power-window switches, gear shifters, and embellishments for dashboards and door panels.
The inorganic partnership will give LATL an opportunity to expand its customer base from its existing hold of the two- and three-wheeler segments, to passenger vehicle (PV) as well as the commercial vehicle (CV) segments, where IAC India is a key supplier to the likes of Mahindra & Mahindra, Maruti Suzuki India, Volkswagen India and VE Commercial Vehicles among others.
“Lumax Auto Technologies has always primarily been a two- and three-wheeler supplier and, as part of our long-term strategy, we wanted to increase our wallet share in the PV segment. We also wanted to focus on our core competency, which includes plastic injection moulding, painting and assembly. Therefore, this was a great opportunity for us to expand our footprint into the PV segment, considering it was also expanding on our core competencies. While this was the primary reason why we acquired the IAC India business, globally, there is a growing trend of integration between interior lighting and interior trim component suppliers,” Anmol Jain, Managing Director, LATL, told Autocar Professional in an exclusive interview.
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Jain referred to the unfolding trend in the automotive interior and lighting systems segment, where recent acquisitions such as that of Faurecia buying over Hella, determining a roadmap of opportunities that can be tapped with the integration of the two related domains. “We observed that in India, there is no strong player which can service OEMs both from a lighting as well as interior standpoint. We saw that as a huge opportunity to service our customers, and give them integrated solutions.
“Moreover, at LATL, we have multiple products across various JVs which conduct a lot of part-level production and engineering for parts of the vehicle interior. This gives us an opportunity to not just cross sell, but to also integrate everything and sell it as a module to OEMs,” he added.
Lumax to enter ‘teen-EBITDA’ range
The deal which will be executed through an acquisition vehicle or SPV (special purpose vehicle), at Rs 440 crore that will be paid in cash, funded by debt and internal accruals, will give LATL a 75 percent stake in IAC India, which will continue to hold a minority stake. In terms of financial credentials, IAC India has a strong, free cash-flow generation, with the company clocking revenues of Rs 480 crore in FY2022, and already hinting at a healthy year-on-year growth with revenues touching Rs 470 crore in the first three quarters of FY2023. The company also has slightly better margins than LATL and, importantly, a strong order book for the coming years.
“FY2024 would be the first full year for us to consolidate revenues and profits of the two companies. Particularly from a margin standpoint, the acquisition will allow us to expand our margins, in line with our long-term guidance of taking LATL towards the ‘teen’ EBITDA range – which is what we aspire to do. It would also enable us to have a healthier, and diversified vehicle segment mix by diversifying into the PV and CV segments. We will scale this up . . . expand our customer base as well as grow our wallet share with few of our existing customers,” Jain said.
“The timing is also very opportune as the PV segment is presently a very buoyant one in the Indian automobile market, with a positive outlook in the foreseeable future as well. Moreover, as the market is increasingly tilting towards SUVs, one of the largest customers of IAC India is Mahindra & Mahindra, for whom the SUV body type is its hardcore domain. From a technology standpoint, electronics and digitisation is happening at an accelerated pace in cars, and a lot of regulation is coming into play as well that would entail certain technological transformation,” added the Lumax Auto Technologies boss.
Integrating systems, tapping synergies in R&D
Jain christens the acquisition as an inorganic partnership, in line with the Lumax Group’s guiding principles that have ensured the company’s success by drawing the best technology to India from around the world. LATL also aims to tap the R&D capabilities offered by IAC India to drive synergies and co-develop products, and transform itself into a systems supplier.
“The collaboration gives us the opportunity to move up the value chain to be integrated as a systems supplier, and not just remain a part supplier to our OEM customers. We would also leverage operational and sourcing synergies between the two companies.
“Tapping into co-engineering and co-development synergies is also on top of our radar as IAC India has a very strong engineering team with end-to-end capabilities in terms of product design, development, and validation. So, we aim to co-engineer future products for Lumax Auto Technologies as well as IAC India,” Jain pointed out.
IAC India has a state-of-the-art engineering centre in Pune, Maharashtra, with capabilities in product design, dimensional engineering, programme management and tool development, with a team of over 150 engineers and designers with global experience, catering to all tool development requirements from its customers as well as from its global sister concerns.
Furthermore, with IAC India’s five manufacturing plants spread across Maharashtra, Karnataka, and Haryana, LATL, which has a strong manufacturing footprint of 17 plants across India, will also explore future possibilities of tapping into the manufacturing synergies between the two companies, and achieve optimised capital allocations when it comes to capacity expansion.
Bullish on the CV business
Apart from the PV market, Lumax is also bullish about increasing LATL’s commercial vehicle business through IAC India, which has a significant presence with longstanding customer relationships in the space. “As the government is aggressively pushing infrastructure spend, there is going to be a rapid transformation in made-in-India trucks, particularly, from the perspectives of interior cabin technology and comfort. This transformation is yet to happen, and that is going to be a big opportunity lying ahead for IAC India,” concluded Jain.