Lava Locks an Investment of $100 Million from Three Chip Makers

Lava International Ltd. plans to forge a partnership with at least three chip design and manufacturing companies,which will together invest $100 million in the Noida based handset maker, which was earlier looking to raise a similar amount by directly selling stake to private equity or venture capital firms.

It is being called more of a strategic shift rather than a financial one. Lava International's chairman Hari Om Rai said in a statement, "We still want to build more capability there. We are in touch with some chip design companies. Those companies will pick up stake in our company."

Handset manufacturing is seeing a shifting trend globally, with handset makers such as Apple and Samsung manufacturing their own chips, has forced chip makers to focus on companies in emerging markets that have the potential to develop into a big brand in the future.

Rai’s confidence stems from a lot of consolidation decisions being taken in the industry. Smaller companies are being wiped out.

He added “I think there would be around 30 brands in the world. Ten years later, you will see only 10 brands,” Rai said, adding that he sees Lava among those 10. To be sure, as many as 150 brands have closed down in the past seven years in India, according to industry estimates.

As a matter of fact, 150 brands have closed down in the past seven years in India, according to industry estimates.

For Lava, Rai has set a target of achieving 20% market share by 2018, from around 10% now. “We have been building the company for the last seven years, and in the next three years, it will be in a different phase. Currently, most of the manufacturing happens in China, but now, we have started to shift and in a year’s time we will start exporting from here to various countries and that may include China,” he said.

The company has signed an agreement with Egyptian cosmetics and beauty products maker Easy Group for a joint venture to sell its handsets in Egypt. Lava, which expects to report revenue of $1.5 billion in 2016-17, plans to start phone shipments in the next four to five months, and will initially sell phones in the $300 bracket.

For India, the company assembles 50-60% of the products in the country and plans to cover the entire portfolio by March. Lava is in the process of investing Rs2,600 crore in two new manufacturing facilities.

Once operational, the units will have a combined capacity of 18 million handsets per month. India is one of the fastest growing smartphone markets globally and device makers are keen on setting up manufacturing units here to cater to burgeoning demand.

Lava’s net sales in the year ended 31 March stood at $1.2 billion. It sold 34 million units in the Indian market, of which only about 12 million were assembled in the country.

The new strategy to fetch investments should fructify in the next two quarters, Rai said, after which the handset maker will also look to bring on board companies with expertise in display and memory.

There has been a 29% increase in shipment of Lava phones in third quarter of this year taking the number to 7.1 million compared to 5.4 million in last quarter.

Lava also has aggressive plans for strengthening its manufacturing in India to cater to both domestic and international markets. It has earmarked an overall investment of Rs 2,615 crores for ramping up the existing manufacturing units along with setting up more manufacturing facilities to increase the overall production capacity to 216 million units per annum in the next five to eight years. Lava is aiming 20 % mobile handset market share by 2018-end.