January 18, 2017

Micromax’s new phones will cause disruption: Rahul Sharma, co-founder

The Economic Times

Micromax is staring at a lower revenue in FY17 amid unsustainable aggression from Chinese players coupled with demonetization slowing down sales towards the end of 2016, factors which have also delayed its China plans. Speaking to ET's Gulveen Aulakh and Romit Guha, co-founder Rahul Sharma said the company would be profitable this fiscal year. A Rs 500-crore investment with new factories at Alwar and MP and plans to target a larger share in the Rs 10,000-20,000 price category are part of a roadmap to bring Micromax back into competitive reckoning in 2017, Sharma asserted. Edited excerpts...

Q) 2016 was a tough year. Your thoughts...
We have not seen as interesting a year as this one -- new things (demonetisation) have been happening but this was the year which I can equate to 2010-11, when we started and when 133 Indian companies started. Everybody who has was doing business under the sun came to India. So, after our Canvas 6 launches, we stopped doing any launches, with a purpose -- because this is not the right way to do business.

Micromax has been a profit-making company since the beginning. That's why we (founders) have not diluted ourselves like the Snapdeals or the Flipkarts of the world.

So, as a principle, we said we won't burn cash. We didn't want to participate into whatever was happening. Instead we decided to create our asset base and invest in technology.

Q) When do you expect this situation to stabilize?
I had said that dust will settle down by Diwali, which (is happening if) you see companies like LeEco -- they have been burning too much. All these other Chinese guys are going completely crazy in the way they are acquiring consumers which is not sustainable. The Chinese have 75% of the total share of marketing spend, Samsung is 9%, and if you put the other Japanese, Korean and American players -- Google, Apple etc -- together, even that makes it only 24%.

Only two to four of these (Chinese) players will remain.

Q) But with Chinese brands putting in top dollars and you holding back, you are losing market share which will be difficult to regain later?
It is not about losing ground. It is all about what at what time. If we start doing the same thing, we start burning the same amount of money. We wanted to do it (launches) right after Diwali. But post Diwali, demonetization happened. Now we will be coming up with products that are high end and also products which are in the lower end segment. We will cause disruption at both spots.

Q) Given the challenges, would your revenue be lower this fiscal year? You were close to Rs 10,000 crore (excluding Yu Televentures) last FY.
It (revenue) will be lesser. But we would be profitable.

Q) The handset market has shrunk by 20-30% due to demonetization. How long will it take to bounce back?
I had thought it would be fine by January but I don't see it happening. It will take time, maybe 6 months.

Q) What will be Micromax's strategy for 2017?
You will see a lot of launches coming from our side. This year, markets have also changed in a way that Rs 10,000-Rs 20,000 segment has started increasing and we have planned a lot of launches in that segment. Our aim is to target Samsung's share.

This month end, the Alwar factory will open. In Madhya Pradesh, we have already acquired land for a factory.

Q: Can you elaborate on your local manufacturing plans?
We have plants in Rudrapur and Telangana. At the moment, 70-75% of our phones, including all smartphones, are made here, but in the coming three-four months, everything will be done here. We will invest about Rs 500 crore or so in 2017.

Q) Are you looking to raise funds?
Nothing is on the table at this time.

Q) Why has the conversion from feature phones to smartphones slowed?
Everyone has been waiting for 4G phones at the entry level, which today you don't have. There are two factors for users to adopt smartphones -- price and tariffs. We are working on a new product to solve the price part. So, if tariff comes down and the product price is lower, adoption will improve.

Q) What about your China entry plans? Have preparations begun?
It has got delayed (due to demonetization, India competition). Right now, we are focusing more on India but the intent to enter China is there. If we have to be a company which wants to be the top 5 in the world, we think that we will have to serve 2-2.5 billion people.

Q) Would 2018 be a realistic time to enter China?

Q) Have innovations in mobile phones peaked?
Not yet. This industry is going to peak like the laptop industry, which may happen by the end of 2018. We are preparing for this.

Q) Is that a reason for you to diversify into consumer electronics?
We had a choice to either keep on doing mobiles, or since our brand is strong, expanding horizontally. We have decided that we will leverage it (the brand) and expand horizontally in different verticals. We are more of a consumer electronics company now.

Q) What are the plans to grow that segment?
Our brand is strong in TV, we're in the top 5, close to overtaking VideoconBSE 0.00 %. Last year, we launched our ACs, this year we will be doing ACs in a full-fledged way.