The story of Micromax, now India's largest mobile phone firm by market share, is more than about numbers
Mumbai/New Delhi: The world’s fourth largest telco and 10th largest mobile phone maker are both based in Gurgaon, New Delhi’s upmarket, if sometimes chaotic, satellite town.
While Bharti Airtel Ltd has usually received good press—hosannas have been sung over its asset-light model of expansion and its pioneering decision to outsource information technology (IT) operations, although the second didn’t work out very well for it eventually, Micromax Informatics Ltd has always been seen as a bit of an upstart, the scruffy (if street-smart) young man who finds himself in an old-fashioned club.
Part of that may have to do with the fact that no Indian company makes phones (actually, nor does Micromax; like many others, it depends on mobile phone makers in Shenzhen, China, to do so).
Part of that may have to do with its advertising, the quality of which ranges from the bland to the bad. One eminently forgettable ad featured Australian actor Hugh Jackman endorsing the brand.
Yet, by working hard to get the tough price-value equation right, paying big bucks for cricket sponsorship and launching up to 50 phones a year, Micromax has moved up from being listed in the bottom-five mobile phone companies in India by market share to becoming the second largest a couple of years back, and now, based on research data that is already being questioned, the first.
That merits repetition: Micromax is India’s largest mobile phone firm by market share.
Counterpoint isn’t exactly a known name and the numbers refer to shipments not sales, but they do fit on a trend line.
Then, the Micromax story isn’t really about numbers, although co-founder Rahul Sharma admitted it had crossed $1 billion (around ₹ 6,100 crore today) in revenue in 2013-14. The firm is unlisted, but disclosed that as of 31 March 2013, its annual revenue was ₹ 3,168 crore. On 20 March, PTI reported that Micromax expects to hit $1 billion in revenue as on 31 March.
The story ticks all the right boxes.
Unlikely founders: There were four. Rajesh Agarwal, Vikas Jain, Rahul Sharma and Sumeet Kumar. One of them, Agarwal, left the company on 9 August 2013, after being arrested in a case not related to the company, but which some Delhi tabloids called the “great banquet hall scam". Micromax had then said that Agarwal had quit the company to focus on the legal proceedings to clear his name.
Clear strategy: Delivering the right value at the right price seems to be the core of the company’s strategy. It does this by ensuring it has enough offerings in a hyper-competitive market and basing its products on off-the-shelf technology (which is always cheaper than a proprietary one). And, finally, it hasn’t ignored the other Ps of marketing either and has enough reach (130,000 retail outlets in 560 districts across India) and spends a lot on advertising.
The providential factor: Betting on Android. Need we say more?
Bhatnagar said the primary reason for investing in Micromax was the “ambition" of the founders. “When I looked into (co-founder) Rahul’s eyes, I could only see the ambition of making something really big. It made me think about all the things that could go right, rather than the things that could go wrong."
Bhatnagar also recalled getting a call from the chief executive officer (CEO) of a multinational handset company, a few days after the investment, “who phoned up to tell me what a fool I had been to put money in an unproven company and in a sector that was dominated by the Big Boys, and where success depended on brand and distribution".
According to Bhatnagar, Sequoia Capital will stay invested in the firm because “we are here for a very long term". But he added that Micromax cannot rest on past laurels and has to “continue to innovate rapidly to stay ahead".
“They (Micromax) are better off thinking themselves as underdogs and challengers," said Bhatnagar.
People: Micromax’s fortunes are now in the hands of Sanjay Kapoor, former CEO of Bharti Airtel’s Indian operations, and Vineet Taneja, former country head for IT and mobile businesses at Samsung’s India unit.
Urban legend: Every succesful brand needs one, and it doesn’t get any better than Domestic warriors Micromax and Xiaomi set to take on the world (Mint, 6 August).
The importance of that strategy part can’t be overstated. It is at the heart of the success of Micromax, which now sells dual-SIM phones, 3G Android smartphones, 3D smartphones, tablets, light emitting diode (LED) televisions, and even data cards. “We owe our success to our ability to understand the Indian consumer," said Sharma, Micromax co-founder.
“Our whole ethos is about innovation," he said in an interview on Tuesday.
The company’s understanding of the Indian consumer isn’t unique. It reflects an understanding of the price-value equation (read: low on price, high on features) that many before it have exploited, from Stencil shirts (remember the brand?) to, more recently, Hyundai Motor Co. cars.
The idea is to offer features normally associated with an expensive phone from one of the big brands at a price associated with an assembled Chinese-made phone (and forget the inherent logical lapse in that sentence—most big-brand phones are Chinese assembled.)
This is probably what Sharma calls innovation: Micromax was the first in India to launch a phone with 30-day battery life, dual-SIM phones and phones with Qwerty keypads at a price that may have well once meant no keypad at all, and universal remote-control mobile phones.
Analysts agree that home-grown handset makers like Micromax and Karbonn Mobiles India Pvt. Ltd are giving their multinational counterparts a run for their money. Manasi Yadav, an analyst at research firm IHS Inc., said that high-end phones haven’t been doing that well.
Vishal Tripathi, a principal analyst with research firm Gartner Inc.’s global consumer tech and markets team, said that India is still a predominantly feature phone market and so it comes as no surprise that Samsung, which has several high-end smartphones too, might have lost market share to home-grown companies such as Micromax and Karbonn in the sub- ₹ 10,000 market.
Feature phones are typically low-end phones with limited capabilities when compared with smartphones. Some have basic multimedia and Internet browsing capabilities. In India, a market where an estimated 60 million mobile phones will be sold this year, according to research firm Convergence Catalyst, feature phones still account for about 80% of all handset sales.
“Also, most phone buyers gloss over features like better screen quality and higher response times if they can get a phone that has a big screen and is sold at a similar price to a handset with, say an AMOLED screen," said Tripathi, adding that companies like Micromax have also been improving their distribution channels, and are going to smaller cities to increase sales.
Consumers want high-performance phones that don’t cost a lot, said Karan Thakkar, a research analyst at International Data Corp. (IDC).
In a study conducted by IDC in April, 56% of the respondents said they replaced their smartphone within two years of its purchase. “In such a case, consumers have an outlook of two years for a device lifespan and subsequently will look out for affordable options; this is where Indian and Chinese brands are picking up," said Thakkar.
That could pose a challenge for Micromax.
Chinese brands such as Xiaomi and Gioni, and Google’s Motorola operate in an overlapping price band with it.
Chinese smartphone maker Xiaomi announced its entry into the Indian market via e-commerce platform Flipkart.com, and is looking to build its team in the country.
On 29 July, Flipkart and Xiaomi said the week’s entire Mi 3 model stock was sold out in five seconds on flipkart.com. The press statement claimed that 250,000 users simultaneously accessed the Mi 3 page shortly after the sale opened. Xiaomi said the total number of Mi 3 devices sold on Flipkart was 20,000 till July end.
The brand, known as the Apple of China, expects to sell close to 60 million units globally by the end of this year, and is close to launching its operations in Indonesia, Brazil and Mexico, followed by Thailand, Vietnam, Turkey and Russia, Hugo Barra, Xiaomi’s global vice-president, said at the launch of its first products in India.
Samsung, too, announced the launch of three low-cost smartphones in July, including a 3G-enabled handset, to expand its sub- ₹ 10,000 category to seven devices. The three devices support 12 Indian languages.
Moreover, the growth of smartphones sales is outpacing that of feature phones. It is here that Samsung retains its edge with a 25.3% market share compared with Micromax’s 19.1% share, according to Counterpoint. Other research firms peg Samsung’s market share at over 30%.
Micromax’s Sharma is unfazed. “Competition was there right from the day we began operations," he said. “We are here for the long term, which explains why we have a manufacturing unit in Rudrapur (Uttar Pradesh), besides our contract manufacturing units. Our job is to identify gaps and make products to fill these gaps."
Most rival research firms declined to comment on the market share numbers.
Emails and text messages sent to Samsung seeking comments too went unanswered. Besides, research firms such as International Data Corp (IDC), Gartner Inc, and Convergence Catalyst are yet to publish their June quarter numbers.
“For the March quarter, there was a huge margin difference between the numbers (Samsung and Micromax). So Micromax overshooting Samsung’s numbers seems a little hard unless something significant happened that we don’t know of. Companies like Apple or HTC have been maintaining their market share and shipment numbers. In the case of Samsung, since its market share has been huge, the growth has been slower," said Manasi Yadav, an analyst at research firm IHS Inc.
“You will have to wait for our published numbers (to compare Samsung’s market share with that of Micromax and others) ," said Vishal Tripathi, a principal analyst with research firm Gartner’s global consumer tech and markets team.
Karan Thakkar, a research analyst at IDC, admitted that there has been a contraction in Samsung’s quarterly volumes, while Micromax’s sales have been picking up consistently.
Still, in the March quarter, Samsung sold 6.1 million units as opposed to Micromax’s 2.7 million units, according to IDC’s Thakkar.
“In terms of value, the average price of Samsung is much more than the average price of Micromax, so the difference in the value happens to be significant," he added.
Micromax claims to sell about 2.3 million mobility devices every month, with a presence in more than 560 districts through 125,000 retail outlets in India.