Lava plans to file DRHP by June-end

Lava International is planning raise Rs1400-1500 crore via an initial public offering (IPO), for which it will file a Draft Red Herring Prospectus (DRHP) by the end of this month, people familiar with the matter said, a move aimed at helping the home-bred handset maker take on its moneyed Chinese rivals.

“The company is moving towards filing DRHP by June-end. The work is on,” one of the people told ET, asking not to be named.

The IPO of the company, co-founded by Hari Om Rai, is likely to be a combination of fresh equity and an offer for sale.

China’s Unic Memory Technology Company Ltd., a Tsinghua group company which holds 3.3% share in Lava, is likely to sell at least part of its stake along with some employees. Promoters though are unlikely to sell their stake but “internal discussions are currently on,” a second person said. The Tsinghua group also owns chipmaker Unisoc.

The company, which is also into contract manufacturing, has also written a letter to shareholders seeking their approval for the primary float.

“The company is exploring options for undertaking an initial public offering of its equity shares…the offer may be undertaken by the company at an appropriate time in consultation with the book running lead managers (BRLMs) and other advisers appointed for the offer,” the letter said, adding that the issue will consist of fresh issue and offer-for-sale by existing eligible shareholders.

Lava was founded in 2009 by Hari Om Rai, Shailendra Nath Rai, Vishal Sehgal and Sunil Bhalla. Hari Om Rai is chairman and managing director of the company while rest of the co-founders hold director positions in the company. Lava is among those Indian companies approved under the government’s Production Linked scheme (PLI) to avail of incentives by boosting local manufacturing and exports.

“Their (Lava’s) strength lies in understanding the supply chain, design, and manufacturing,” Tarun Pathak, research director of mobile devices and ecosystems at Counterpoint Research said. He added that Lava’s strengths can be leveraged across different categories of products including consumer IoT, smartphones, IT hardware, among others, that will be localized in India, due to the PLI push.

“Though the capex will be high, it will bring the long-term benefits and other opportunities like exports and in-house design and manufacturing of self-branded products, where it is facing intense competition as of now. Apart from this Lava also has a strong offline connection that it can strengthen further through the funding,” Pathak said.

The year 2016 was the best year for Lava when its overall revenue reached Rs 7272 crore. However, its domestic business fell drastically because it couldn’t compete with Chinese players that entered the market with fat marketing budgets.

Lava’s revenue for FY19-20 stood at Rs 5269 crore with a major contribution from its international business, compared with Rs 5,108 crore reported for the year ago. Its net profit stood at Rs 107 crore, compared with Rs 73 crore in the previous year.

Lava is currently making an investment of Rs 800 crore to support its smartphone business and expand manufacturing capabilities under the PLI scheme over the next five years.

Besides manufacturing its own branded devices, Lava has also started making Nokia and Motorola branded smartphones through its contract manufacturing business. It is also actively looking for western companies as part of its push into contract manufacturing. It has been working with US companies like AT&T and General Electric (GE) to provide them with affordable smartphones. Koliasa