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Lava to detach manufacturing arm into independent entity
Industry News- Jul 12,24
Lava, which has struggled to meet its PLI targets since the scheme's inception in 2020-21, is optimistic about a turnaround with the new incentive package for component production.
Lava International, a domestic smartphone brand and contract manufacturer, is contemplating spinning off its production arm into a separate entity. This strategic move aims to attract business from other handset brands and meet the targets set by the production-linked incentive (PLI) scheme for smartphones.
Lava, which has struggled to meet its PLI targets since the scheme's inception in 2020-21, is optimistic about a turnaround with the new incentive package for component production, said Sanjeev Agarwal, Head- Manufacturing, Lava.
“Our performance in the on-going PLI scheme is an internal concern, and we are working on plans to bridge the gap,” Agarwal stated. He mentioned that spinning off the manufacturing arm could be a potential solution, although no final decision has been made yet.
The challenge for Lava is to increase production by Rs 5 billion annually, either by expanding its market share or by manufacturing for other brands. Agarwal attributed Lava’s difficulties in meeting PLI targets to its higher starting base, making incremental targets more challenging compared to others who began their manufacturing journey with the scheme.
Additionally, Lava has not benefited from the government’s push for Chinese smartphone brands to collaborate with PLI-eligible domestic firms due to rival brands' policies against partnering with manufacturers that also operate their own brands. This led to a loss of business from top Chinese brands and Google Pixel.
Lava plans to increase local value addition and enhance its intellectual property through its designs, leveraging the upcoming components PLI. The focus on component manufacturing is expected to elevate Lava’s manufacturing capabilities.
The electronics industry anticipates the government will announce the financial outlay for the new scheme in the 2024-2025 Union Budget, demanding Rs 450-750 billion for the scheme. Details are expected by the end of the fiscal year.
Lava is also planning to localize more components, starting with printed-circuit-board assembly (PCBA). “We are evaluating which components to focus on from the bill of materials, considering technology and capital requirements. This will determine what to produce in-house and what to outsource,” Agarwal explained.
An ecosystem for components will reduce lead times and free up working capital due to lower turnaround times. The industry has requested an incentive package that includes support for both capital and operating expenditures to develop a component and sub-assembly ecosystem for non-semiconductor parts and modules.
The Electronics Industries Association of India (ELCINA) has asked for 40% capex support for high-priority components and seven years of opex support through PLI, with incentives decreasing over time. For low-priority components, it has requested 25% capex support and five years of PLI support with similar decreasing incentives.
(Source:ET)
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