Indian mobile phone makers’ business profile has been adversely impacted due to the rapidly increasing market share of Chinese players and fierce competition, says India Ratings and Research (Ind-Ra). The increasing strength of Chinese mobile phone manufacturers in smartphone market is reflected in the 3.4x growth in market share to 51% in 1QCY17 (International Data Corporation's : IDC Quarterly Mobile Phone Tracker).
There is a complete change in the market position of the top five smartphone players in FY17, as Micromax Informatics, Lava International Ltd. and Karbonn Mobiles Pvt Ltd were replaced by Xiaomi Inc., Vivo Mobile India Private Limited’s (Vivo India; ‘IND BB’/Stable) and Oppo Mobiles India Private Limited’s (Oppo; ‘IND BB’/Stable). While the global vendor Samsung Electronics Co Ltd (Samsung) remained the market leader with 28% share in 1QCY17 (1QCY16:25%), the share of Indian vendors downsized to a mere 14% (40%). Lenovo also sustained its position due to the established brands and products in the diversified price segments. Oppo and Vivo India have recorded sales increases of seven to nine times over FY17 respectively. Ind-Ra expects Vivo India and Oppo’s smartphone sales to grow by around 40%-50% over FY18.
The recent success of Chinese players can be attributed to their strong brand through substantial advertising expenditure and sales channel building funded by the sponsors. Chinese smartphone makers enjoy a debt-light capital structure and healthy liquidity due to the long payable period extended by their suppliers. Better technological capabilities of the Chinese players leading to superior product offerings have also contributed to their success.
Furthermore, large investments by Chinese players towards brand building and manufacturing facilities in India depict their long term strategic intent. Ind-Ra opines that established Indian vendors will face difficulty in sustaining, despite the early mover advantage and a more diversified product profile. Thus, Indian players’ recent investments into mobile phone assemble lines will face an elevated stabilisation risk, while advertising spends and fierce price competition will directly hit the operating margins. Indian smartphone makers have been slow in reacting to ongoing product innovation in the market, and are further constrained by limited marketing budgets.
Reliance Jio Infocomm Limited’s (RJio; ‘IND AAA’/Stable) free data and voice services during 2HFY17 pushed up the 4G Volte enabled smartphone demand, despite headwinds of slowing feature-phone-to-smart phone migration rates and liquidity shock due to demonetisation. Average data prices bottomed at around INR130/GB in 1QCY17 providing a stimulus to smartphone sales. The incumbent telcos are also offering differentiated data offerings for 4G smartphone users, hence pushing a higher smartphone replacement demand (to 4G from 3G) as well as a faster migration rate from feature phones to smartphones. This big opportunity saw aggressive marketing and competitive pricing strategies from Chinese vendors primarily in the budget to mid-price segment leading to market share gains.
1International Data Corporation's (IDC) Quarterly Mobile Phone Tracker