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Micromax: Closing in on handset market leaders

December 07, 2010
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Of late, Gurgaon-based handset manufacturer Micromax has been in the spotlight. Having cornered a significant portion of the Indian hand-held market a mere two years after launching its brand, the company is now set to debut on the bourses. According to Vikas Jain, business director, Micromax, the company has filed the draft prospectus with the Securities and Exchange Board of India and is now awaiting its approval.

Micromax hopes to raise around Rs 4.26 billion through a public issue of 21.5 million shares. The proceeds of the public issue will go towards the establishment of a new handset manufacturing plant, enhancement of the Micromax brand, and investment in acquisitions and other strategic initiatives. Almost 50 per cent of the IPO proceeds (Rs 2.25 billion) will reportedly be utilised for setting up a handset manufacturing plant, possibly in Sriperumbudur in Tamil Nadu, while Rs 1.25 billion will be used for brand marketing and advertising over the next two years. About Rs 750 million will be kept aside for investment in acquisitions and other strategic initiatives.

Meanwhile, the company is busy doing what it does best – expanding its handset portfolio, forming several strategic alliances and consolidating its footprint overseas.

Market position

Micromax entered the Indian hand-held market in March 2008 and rapidly cornered market share, which reportedly grew from 0.59 per cent in September 2008 to 6.24 per cent in March 2010. Handset sales grew by 123.48 per cent – from 1.15 million units in the quarter ended June 30, 2009 to 2.57 million units in the quarter ended March 31, 2010. A relative newcomer in the handset market, Micromax is quickly closing in on market leaders Nokia and Samsung.

Its handsets fall under 10 broad categories: long-life battery, dual-reception mode, QWERTY keypad hand-helds, utility, multimedia, universal remote control, gaming, smartphones, 3G phones and gravity phones. Till date, Micromax has launched more than 40 models in a price range of Rs 1,999 to Rs 12,500.

While the company’s initial focus was on the low- and medium-user segments, it has broken away from this mould with its latest offering, the modu T, for which it tied up with Israeli company Modu. The phone, dubbed as “the world’s lightest 3.5G touchscreen handset”, is priced at Rs 12,500. “With the modu T phone, we are targeting the aspirational segment of users who are the early adopters of technology and passionate about electronic gadgets,” says Jain.

Another interesting offering is the X 550 Qube 3D hand-held. The Rs 5,999 Qube is the country’s first 3D-based phone, which supports dual-SIM cards. Interestingly, Spice Mobiles, which launched a 3D hand-held a month later, offers similar features for Rs 4,299.

Recently, however, the company ran into stormy weather with respect to one of its popular offerings, the “Bling”. Micromax got embroiled in a court case over copyright issues, with handset designer Bling Telecom alleging that the former had used the brand name “Bling” without permission. According to Rajiv Khanna, chairman, Bling Telecom, the company had filed for the trademark in July 2009 and has introduced six models under the brand name since then. Therefore, the use of the mark “Bling” by Micromax for mobile phones was without its consent. The matter ended with the Delhi High Court banning Micromax from selling or advertising the “Bling”, using the trademark or any other similar name until February 8, 2011.

International foray

The Bling issue apart, the company remains steady and ambitious about its growth targets. For instance, it is keen on leaving its mark on international shores. Exports currently constitute 8 to 9 per cent of the company’s total sales.

Micromax already has operations in Nepal, Sri Lanka, Bangladesh and the Middle East. It sells its products via its wholly owned subsidiary, Micromax Informatics FZE, in the Gulf and has joined hands with various local distributors. In Sri Lanka, Micromax has entered into a distribution arrangement with Infinity Lanka Holdings, which will make its products available via 1,500 outlets across the country.

In the future, Micromax intends to enter the Latin American market, starting with Brazil. According to Jain, the company is awaiting approval from Brazilian regulator Anatel to start exporting handsets. In the near term, it expects exports to account for sales of 0.1 million units, of the total 1.2 million units sold every month. It also intends to increase its handset stores from 55,000 at present to 80,000 by end-2010.

Financial performance

For 2009-10, the company posted revenues of about Rs 16 billion and hopes to hike that to Rs 25 billion in the current fiscal year. In September 2010, in a pre-IPO placement, the company raised Rs 2 billion from three investors – Sequoia Capital, Sandstone Capital LLC and Madison India Capital. Earlier, in late 2009, it  had raised $45 million from TA Associates.

Market view

While companies like Micromax, Lemon, Lava Mobiles and Intex Technologies have, no doubt, gained popularity, telecom analysts are cautious about their future outlook. An analyst from Credit Analysis and Research says that such players have to contend with various challenges. To compete with heavyweights like Nokia, Sony Ericsson, Samsung or LG, these players will have to constantly invest in innovation and brand building; strengthen their distribution network and after-sales services; and move up the value chain, both in terms of technology (3G handsets and QWERTY phones) and markets (from Tier II and Tier III segments to urban markets).

For now though, Micromax is making its presence felt. With 2 million users buying hand-helds every month, its business case looks strong. Its USP lies in providing handsets loaded with features at low prices and tapping the bottom of the pyramid.

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