Chinese e-commerce giant Alibaba Group Holdings Ltd. (BABA, Financial) is in talks to buy a $1.2 billion stake in Indian smartphone player Micromax Informatics. The size of the deal is not clear yet, but Alibaba looks to expand in the growing devices and phone market in India. Alibaba will invest around $1.2 billion in Micromax, valuing it at around $6 billion. Micromax is the second largest smartphone company by sales and sells phones in South Asian countries namely India, Bangladesh, Sri Lanka and also in Russia. Micromax has an 18% smartphone market share in India and has built this market share by selling feature rich budget phones.
Alibaba has its own operating system and it wants to tap the growing number of mobile internet users through Micromax. India was also the fastest growing smartphone market in third quarter of 2014. Also with the growing number of mobile transactions in India, Alibaba will balance the stiff competition from rivals in China like JD.com Inc. (JD, Financial) and also in the E-commerce market. Alibaba looks to expand its business in India using Micromax devices.
India’s phone market
India’s smartphone market saw its first shipment decrease in the fourth quarter, because of the high channel inventory at the beginning of the period amongst general trade caused by the festive season online sales rush. It is also observed that the shift from feature phones to smartphones is increasing. The smartphones now have a 35% share of the total mobile phone market in India. As we observe the smartphone market share figures, Samsung holds the top spot with a 22% market share. Micromax is at second position with an 18% share, followed by Intex with an 8% share, Lava with a 7% share, and Xiaomi with a 4% share. The other smartphone vendors make up the rest of the 41% share.
If Alibaba buys a stake in Micromax, we will have a Chinese company competing against another Chinese company in the Indian smartphone market, as Xiaomi has already established itself by selling devices using online platforms. Xiaomi announced that they have Ratan Tata, Chairman of conglomerate TATA group as their investor soon after entry into India’s smartphone market. Micromax Informatics became one of the top selling smartphone makers by selling low-priced, large screen and feature rich smartphones to middle-class Indians. Micromax adds up features like local language integration, quad core processors and dual SIM slots at very low prices. It is also one of the fastest growing smartphone makers in India.
Micromax wants to expand into new businesses like personal computing, and this stake sale will help Micromax to raise the money required for the expansion. Micromax had been looking to sell stakes for quite some time and was in talks with investors for months. The company is looking for private investors or a stock market listing as told by its co-founders.
Our understanding
If the deal is successful it will become Alibaba’s second investment in India after investing $575 million in mobile payments platform Paytm. Alibaba Group founder Jack Ma has visited India a lot of times and is keen to continue investing in India’s mobile and e-commerce segment. Sequoia Capital and TA Associates are also Micromax’s investors.
