Micromax – Bollywood beckons

The home market is ripe for taking if Micromax is quick.

• Micromax is the latest of the new generation of handset makers from Asia that are starting to make an impact on the global stage.
• Top of this list is Xiaomi which is now the No.1 smartphone vendor in China and whose phones are used more than the iPhone. (see here)
• Hot on its heels is Micromax which earlier this year beat Samsung into the No 2. Slot in its home market, India. (Counterpoint).
• As of Q1 14A, Micromax is the global No.4 feature phone manufacturer with 6.2m units shipped (Counterpoint) and is now arguably the most important smartphone manufacturer in India.
• India is like China in that it is a big enough market to support a local handset manufacturing industry on its own.
• When it comes to smartphones, penetration is going to end up being much lower than US, Europe or even China but because the market itself is so large this is less of an issue.
• RFM estimates that the middle class, which could afford a smartphone in India, is at least 300m which is not far off the population of Western Europe.
• Consequently, there is a very large addressable market for Micromax even it chooses just to remain at home.
• Micromax is not resting on its laurels and has commenced operations in the Russian market earlier this year.
• Micromax is like Xiaomi in that it is very good at offering devices that have a pretty good specification at very low cost.
• For example its recent Canvas Nitro A310 device offers an octa-core 1.7Ghz processor, 13MP camera, a 5inch 720p screen, 8GB storage and 2GB of RAM for $214.
• The device runs Android 4.4 KitKat but has little other than hardware and great pricing to differentiate it from its competitors such as the Moto G and Xiaomi Mi3.
• This is where Micromax needs to focus. Xiaomi (see here) has done a great job at capturing the use of smartphones with consumer content and I believe the same opportunity is available in India.
• India has a massive film industry which also drives its music industry.
• This content is very specific to India and I think that the market for delivering this to users is fragmented and not very well developed.
• If Micromax can have some impact here, it will have the beginnings of an ecosystem from which it can branch out into the other important Digital Life services.
• Without an ecosystem, Micromax will only be able to compete on price meaning that its margins will remain in low single digits in the best instance.
• The Indian Digital ecosystem market is almost non-existent today and there are no obvious large contenders like Baidu, Alibaba and Tencent like there are in China.
• This gives Micromax a good opportunity but it will have to move relatively quickly before everyone else cottons onto this opportunity.