China effect: Tough times for Indian brands Micromax, Lava, Intex, Karbonn

Lava, Intex, and Karbonn slipped below the top five slots in smartphone market
Since touching new peaks in India’s robust handsets market in 2015 and 2016, the four major Indian brands seem to have been caught in a downward spiral. 

Micromax, Lava, Intex and Karbonn — the big four of the local handsets industry — have not only lost a significant market share, but they are also in a tight spot, at least financially. And with heightened activity by their Chinese peers in the market, a return to their heyday seems difficult.

Earlier this month, Lava International Chairman Hari Om Rai informed the employees their salaries would be delayed. Citing disruption in the past three years like demonetisation, the entry of a fleet of Chinese competitors with their ability to burn cash and deep discounting through e-commerce channels, Rai pointed at the financial crunch the firm was facing.

The situation in Lava is not unique, though. Sources in various other Indian handset firms said delay in salary and downsizing had been part of their journey in recent quarters. Earlier in the year, all four brands had to reduce their sales teams. In certain multi-brand outlets, the number of on-shop promoters and sales executives was cut by half. For others, who managed to keep their jobs, salaries were cut by 20-25 per cent — from close to Rs 20,000 to less than Rs 15,000.  “Salary comes with a delay of one-two months or in parts,” an employee who has worked in the plants of a few local manufacturers said. Falling sales in the past two years meant reduction in the strength of contractual workers — at times by 50 per cent. An estimated 20,000 workers could be employed in the plants of the four brands, running at full capacity.

A spokesperson from Karbonn told Business Standard, "Payments and all other related financial obligations of Jaina Group (and Karbonn) towards employees & other parties are being met as per company's policies and norms without any delays."

Austerity measures adopted by most Indian brands that used to rule the market are not without rationale. The Chinese invasion since 2014 meant not only a loss of crucial market shares but loss of sales as well. From a high of more than 35 per cent in end 2015 in the smartphone market, the four Indian handset brands today hold less than 10 per cent of the market, with an exception in September, when Micromax posted a 9 per cent market share. The firm had bagged a government contract to supply a part of 5 million smartphones ahead of the elections in Chhattisgarh.

Revenues of all four have come down since 2015. Micromax posted Rs 56.14 billion in sales in 2016-17, down from Rs 104.51 billion in 2014-15. Competition insight provider Owler estimates Lava’s sales may have come down to Rs 19.75 billion in 2018 from Rs 76.50 billion in 2015-16.  Intex, which held fourth spot till early 2016, posted 32 per cent decline in sales in 2017-18 to Rs 28.62 billion. The firm’s net profit plunged to Rs 130 million from Rs 1.27 billion in 2016-17. Karbonn Mobiles, which posted revenues in excess of Rs 40 billion 2013-14, is estimated to have a revenue of Rs 28 billion in 2018.

Analysts point to the unpreparedness of the local brands in facing competition, value for money offers and a bagful of money to be spent on advertising and promotion. Tarun Pathak, analyst at Counterpoint Research, said local players missed the 4G bus in 2015-16 when Chinese firms began the onslaught with a 4G-only portfolio.

The outlook is bleak for local brands said Faisal Kawoosa, founder & principal analyst at TechArc. As per the analyst firm, all four local brands – Micromax, Lava, Intex and Karbonn – are expected to loss more sales in 2019, though the smartphone market may grow at 13 percent. “None of the home grown brands is expected to show reversal of declining trends that continued all through 2018”, it said.

At present, the feature phones market is the only silver lining for local brands. But growing focus by Chinese behemoths in the space like Transsion Holdings and rise of a fusion handset product like Jio Phone that has certain features of a smartphone could be a threat for the four brands if they miss the bus, again.
On a downward slope
  • All major Indian handset brands have lost market due to growing competition from Chinese brands
  • Lava, Intex, and Karbonn slipped below the top five slots in smartphone market
  • Lava appeared as the fifth-largest player in feature phones market in December 2017 with 7.2 per cent share
  • Micromax made a comeback as the fourth largest player in smartphones market in September with large government contract
  • Analyst estimate all four brands to further lose sales to Chinese brands in 2019

 

Source: RoC, Companies, Owler, IDC & TechArc


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