Fast-growing smartphone maker Lava is said to be in talks to buy Nokia's Chennai handset factory, once the world's biggest but now non-operational. If a deal is struck, that could raise the possibility of thousands of former workers getting a chance at re-employment at the plant that had been regarded as a showpiece of India's manufacturing capabilities.
The two companies have signed a nondisclosure agreement, people familiar with discussions told ET. "Lava's manufacturing team has already visited the plant and has done the assessment. It will make a proposal to Nokia mid-December after taking all aspects into consideration," one of the people said. "The tax issue needs to be sorted out before a final deal is sealed though."
He was referring to the tax dispute between Nokia and the government, which had prevented the Finnish company from transferring the factory to Microsoft as part of a global $7.2-billion deal to sell its devices business to the US company. The tax row is in court and the factory is silent after Microsoft decided to stop using it from November 1 as a contract manufacturer for its devices, putting thousands out of work.
Another person said a top executive of Nokia Finland's M&A team was recently in India to discuss the sale with Lava, which has moved up to the No. 3 spot among smartphone vendors in the July-September quarter from No. 4 in the second quarter, according to IDC. The Noida-based company, headed by co-founder and Chairman & Managing Director Hari Om Rai, was set up in 2009 and sells devices under the Lava and Xolo brand names.
"Nokia has already communicated to Lava that the ongoing tax and lease-related issues are being discussed with the authorities concerned," said the person cited above. "It has asked Lava to continue with the assessment since there are high chances that these issues would get resolved soon."
A Nokia spokesperson said in an email: "With production at Chennai suspended, we would like to see the asset freeze imposed by the tax authorities lifted. This will allow us to explore potential opportunities for sale to a suitable buyer."
Nokia and Lava declined comment on any talks they might be having. While there are no valuation estimates available, the Indian tax department had pegged Nokia's fixed assets including the factory and a few sales offices at Rs 586 crore in the Delhi High Court last December.
"The valuation would have gone down by 10-12% considering depreciation," said the second person quoted above. At its peak, the factory was the world's largest mobile phone manufacturing plant with 8,000 permanent employees working three shifts producing more than 15 million phones a month. ET recently reported that Nokia will renew the factory's licence by the end of November so the machines run occasionally and are kept in working condition, allowing the company to sell it off as a functional unit without too much of a cut in valuation.
A third person said Nokia is also open to leasing out the plant to contract manufacturers. "The plant's machinery can also be used for making other electronic equipment such as tablets or personal computers after some tweaking," he said. Nokia had approached Celkon Mobiles for a possible lease arrangement, said Executive Director Murali Retineni. "We've not given it serious thought," said the Celkon executive.
The person cited above said Celkon may not need the kind of big capacity that the factory offers, given its volumes. Buying the plant, however, makes sense for Lava, among the fastest-growing phone makers in India. It aims to start domestic manufacturing next year due to the rapidly increasing cost of labour in China. Lava has already said it plans to spend Rs 500 crore on local manufacturing operations over three years.
The company was earlier in talks with Chinese original equipment manufacturer (OEM) Vivo for setting up a manufacturing unit, but this fell through. The company is hoping the Nokia deal works out but will otherwise set up its own plant, land for which has already been earmarked, people said.
"Being one of the fastest-growing handset vendors, Lava has witnessed growth in both their brands — Lava and Xolo," IDC said in its latest market report on India released on Wednesday.
Lava is set to cross $1 billion (Rs 6,000 crore) revenue by the end of the current financial year, sharply higher than the Rs 2,909 crore it posted last year. It was the first Indian phone vendor to introduce its own user interface or skin, Hive, riding on the Android OS. Convergence Catalyst's founder analyst Jayanth Kolla said this is a "strong product differentiator" for Lava devices in India.
Source:The Economic Times
