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Indian handset makers take on MNC giants

Indian handset makers take on MNC giants
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First Published: Mon, Dec 14 2009. 09 07 PM IST

Gaining ground: Local firms such as Micromax, Intex and Lava sold 6.4 million phones in the year to June.
Gaining ground: Local firms such as Micromax, Intex and Lava sold 6.4 million phones in the year to June.
Updated: Mon, Dec 14 2009. 09 07 PM IST
Mumbai: It’s not a business anyone would associate with Indian firms, but it emerges that local companies have a share in excess of South Korean firm LG Electronics Inc.’s and marginally lower than that of another Korean firm, Samsung Electronics Co. Ltd, in the mobile phone market.
Still better, these companies grew their volumes six times in the 12 months ended June. According to market research firm IDC, sales of such companies grew from 1.1 million units for the year to June 2008 to 6.4 million for the year to June 2009.
Around 100 million phones were sold in India during this period.
The Indian companies that are making inroads into a market that continues to be dominated by Nokia Corp.—it had a share of 56% of the market in the three months to June—include Micromax Informatics Ltd, Intex Technologies (India) Ltd, Lava International Ltd and Essar Group’s MobileStore, a chain of cellphone stores that has its own brand of phones, Ray. Videocon Industries Ltd is in the business, too.
Gaining ground: Local firms such as Micromax, Intex and Lava sold 6.4 million phones in the year to June.
Most of these firms are a step away from being mere traders. They claim to have their research and development divisions and that they design their own phones, but the products themselves are made either in China or Taiwan.
“Almost everybody manufactures the handsets in China or Taiwan and ships it over, so those that have a robust distribution and supply chain network are likely to have an edge in terms of capturing the market,” said Naveen Mishra, senior analyst, IDC.
Contrary to what people may believe, this actually gives these companies an edge, adds Mishra, because they “have the advantage of being lean with minimal overheads, which makes them very flexible and fit to respond to market feedback, in terms of user preferences”.
Mishra cited the case of dual subscriber identity module (SIM) phones, where Indian brands were quick to catch on to the emerging trend and launch their own models. The SIM card identifies the customer to the network.
To be sure, many of the firms are price warriors. Even mid-level feature-rich phones from these companies cost Rs1,500-2,500 and higher-end smartphones with Qwerty keyboards cost around Rs5,000.
This, and the inroads being made by these firms in smaller cities and rural India, could see them increase their market share in coming months—up to as much as 20% in the next year to 16 months, according to IDC.
The companies themselves are confident they can do better. “Features and pricing will be the differentiator for us as well as other Indian handset vendors,” said Rajiv Agarwal, chief executive and director of MobileStore.
“From an aspirational point of view, we are targeting a 5% market share in the one-two-year period,” added Agarwal, who has already sold over 100,000 Ray handsets through MobileStore outlets.
The growth they have already seen has made the fortunes of some of the firms. “We entered the mobile handset space sometime in 2007 and it has been a very interesting learning curve,” said Ramesh Vaswani, executive vice-chairman, Intex Technologies, a computer hardware-maker listed on the Bombay Stock Exchange that entered the mobile phone business in October 2007.
Mobile phones contribute nearly Rs200 crore out of Intex’s total revenue of around Rs650 crore. “We expect the vertical to contribute nearly 45% of our overall revenue as we go forward,” Vaswani added. He said the growth was “clearly in ‘B’ and ‘C’ towns” rather than in the metros.
Their initial success has prompted some of these firms to invest in manufacturing facilities. Gurgaon-based Micromax announced last week that it will invest Rs100 crore over the next year to start handset production at its plant in Himachal Pradesh.
“We will begin production of mobile handsets from our plant in Baddi, Himachal Pradesh, by February next year, with an initial capacity of 50,000 handsets,” Micromax business director Vikas Jain said.
Micromax, which currently sells around 650,000 handsets a month, is looking to sell around a million handsets a month by March.
Intex and Lava now source phones from China. And Lava, like Intex, is considering investing in a manufacturing facility in India. “The market opportunity is huge, and in our view, success hinges on an efficient supply chain and price positioning.” said S.N. Rai, co-founder, Lava International. “Currently, we are witnessing a month-on-month growth rate of between 45% and 55% in absolute value terms.”
Despite the low prices, the companies claim their profit margins are healthy. Intex claims a “20-35% margin” depending on the model.
Market leader Nokia admits that there is an emerging band of Indian handset brands, but sees them more as firms that import parts and brand them rather than handset makers.
“The past few months have seen the emergence of several players who are importing, branding and selling low-cost mobile handsets in the Indian market,” said a Nokia spokesperson.
An analyst for Gartner Inc., however, doesn’t see much difference between these firms and larger multinational ones. Many of the Indian companies are comparable with established firms in the business because they design their own phones and have them manufactured elsewhere, said Anshul Gupta, principal research analyst, Gartner.
Some of the larger multinationals have their own subsidiaries in China or Taiwan, added Gupta, but the Indian firms have to be content (for now) with contracting out work to third-party manufacturers.
Still, “we are seeing some unprecedented investment and branding efforts by the Indian firms,” Gupta said.
lison.j@livemint.com
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First Published: Mon, Dec 14 2009. 09 07 PM IST