India's smartphone market could hit $45 billion this year

Flipkart Sale: Get attractive discounts on realme smartphones. (Pexels)
Flipkart Sale: Get attractive discounts on realme smartphones. (Pexels)

Summary

India's smartphone market generated $39 billion in revenue in 2023. This year, the revenue may grow 15% as smartphone makers ride a premium wave

New Delhi: After enduring two consecutive years of a decline, India's smartphone market, the world's second-largest, is showing signs of a recovery. Not because companies are selling more handsets. But because they have figured out how to sell costlier ones.

The first quarter of the year has ushered in a wave of optimism, signalling a resurgence for brands, such as Samsung, Xiaomi and Vivo, with the industry witnessing an impressive 18% rise in market value, soaring to $9.5 billion—the highest first-quarter revenue in the past five years.

Despite the first quarter of a fiscal year being a relatively subdued period for sales historically, a consensus poll of four industry analysts by Mint, project a robust growth trajectory for the full year.

Forecasts indicate a potential 15% revenue surge, breaching the $45 billion mark in FY25, compared to $39 billion in the previous fiscal year.

Also read: Is the worst over for India's smartphone industry?

This bullish outlook is despite market volumes that are expected to remain unchanged as compared with 2023 levels, with projections hovering at 151-155 million units.

On Thursday, Counterpoint India said in a report that smartphone sales recorded an 8% growth from a year earlier, with shipments likely surpassing 33.5 million units. While this marks an improvement over last year, it falls short of the market's post-pandemic highs.

The premiumization factor

The driving force behind the domestic smartphone market's revival is the rise in average selling prices (ASPs) of smartphones. According to Mint's analyst consensus, the ASP stands at $295, or around 24,600—up 20% in the past two years.

This trend, hints at a premiumization of India's smartphone market, after enduring eight consecutive quarters of stagnation.

Samsung, for instance, achieved its highest-ever ASP in India in Q4 FY24, reaching $425 ( 35,500). Despite ranking third in terms of volumes, the Korean firm claimed the top spot in overall market value, capturing 25% of the $9.5 billion revenue generated during this period.

Also read: Can AI ring in a change for smartphones?

Meanwhile, Apple, which does not rank in the top five in sales volumes, secured the second spot in revenue share, with a 19% share.

Email queries to Apple, Samsung and Xiaomi did not elicit any response till press time.

Pundits attributed this resurgence to a combination of of factors, including lucrative financing schemes, lack of compelling offerings in the low-price segments, increasing disposable incomes, and a strategic shift towards high-margin market strategies by leading brands.

Margin dynamics

According to Mint's analyst panel, smartphones priced under 15,000 yielded a modest 4% margin for retailers. In contrast, devices priced above 25,000 witnessed margins of 8%, potentially rising to 10% with brand incentives—a testament to the allure of premiumization driving India's smartphone renaissance.

“Brands are bringing along a heavy push for internal financing options, targeting users in tier-II cities, and beyond—even for those who do not have an existing credit line or cards," said Shubham Singh, research analyst, Counterpoint Research. “Internal financing options at zero interest are piquing users’ interests, which are in turn, pushing users to buy more expensive devices."

Also read: How GenAI is making your smartphone more intelligent

The margin dynamics add an interesting dimension to the narrative. With quarterly revenue surging to $9.5 billion, and ASPs on the rise, retailers and brands alike stand to benefit from higher profit margins on smartphone sales.

Manish Khatri, a partner at Mumbai-based multi-brand electronics retailer Mahesh Telecom, echoed similar views, following the uptick in smartphone demand in the first quarter.

“More users are walking in to avail upgrade schemes, cashbacks and 24-month, zero-interest financing schemes for premium smartphones. This is good for us, since a higher-valued device is better to sell for retailers, including brand partnership incentive schemes."

In fact, more and more buyers are opting for long-tenure financing plans, which would allow them to make a staggered payment for over a two-year period. For instance, devices priced up to 1 lakh could now be accessible for around 4,200 per month under these schemes.

“There is an increase in disposable income and credit awareness that we’ve seen among buyers, which makes it easier for us, sellers, to push devices that are more expensive," said the director of a national electronics retailing chain, requesting anonymity.

"The easiest to sell are Samsung and Apple handsets, due to their premium brand impression. Especially in tier-II markets, this is helpful since buying a flagship smartphone for many is still an aspirational social factor," he added.

A concern: Longer upgrade cycles

That said, there are near-term concerns. Both Counterpoint's Singh and Mahesh Telecom's Khatri agreed that a significant outcome of these long-term financing plans is the extended usage and upgrade cycle.

“The market has moved on from a six-month smartphone refresh cycle among buyers to two years—this is a given in the present market. This is also driven by the fact that lower priced smartphones do not bring features that are as exciting as premium ones, and this is something that will play out over the next few years," Singh said.

Khatri, however, sounded cautiously optimistic.

“Longer usage cycles make business tricky for us, since we are catering to a finite user pool. Plus, there are bigger retailers as well as online retailers, with more financial muscle, who could be difficult to compete with in terms of matching their deals."

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