While global smartphone makers such as Apple and Samsung have been meeting the incremental production and sales targets under the production-linked incentive (PLI) scheme, majority of the domestic handset companies are unlikely to meet the same in FY23.
Of the five local players selected for the PLI scheme, only two — Dixon-owned Padget Electronics and UTL Neolyncs which manufactures the JioPhone — were able to met the targets in FY22. Lava International, Bhagwati (Micromax), and local contract manufacturer Optiemus have so far failed to meet the targets for all the three years.
Besides, UTL was able to meet the targets because of JioPhone Next, which witnessed good traction at the time of its launch in November 2021. After that, its sales have been weak as consumers started preferring smartphones with better features, analysts said.
The PLI scheme for smartphones has different targets for global and Indian players. For local companies, the incremental sales targets are Rs 500 crore in the first year, Rs 1,000 crore in the second, Rs 2,000 crore in the third, Rs 3,500 crore in the fourth, and Rs 5,000 crore in the fifth year. Also, the phones made by Indian players should have an invoice value of less than `15,000.
In order to claim incentives, companies like Lava, Bhagwati (Micromax) and others are now opening themselves to the role of electronic manufacturing services (EMS) based on which they can manufacture smartphones for other brands and claim the incentives.
Analysts, however, believe that the EMS business of these players may also not pick up, given that companies like Xiaomi, Realme, etc, would be hesitant to give them contract manufacturing because of certain trust issues as domestic players are also in the smartphone-making business.
Weak demand, lower brand appeal, competition from players like Chinese handset makers, higher price sensitivity in the entry level and sub-`15,000 categories are among the key reasons for their failure, analysts said.
At two million units, domestic smartphone brands like Lava, Micromax, Karbonn, and JioPhone have a total market share of 1.3% of the total smartphone shipments in the country. Of this, Lava has a share of 0.6%, followed by Micromax at 0.1%. Brands like Karbonn and JioPhone have a minuscule market share.
“For Indian brands, the road is rocky as of now as improving brand value, channel partner management, product improvements, etc, require capital. It is difficult for domestic companies to compete with global counterparts,” said Prachir Singh, senior analyst at Counterpoint Research. “We see Lava in a prime position to make a comeback. Apart from this, no other domestic brand is seeing growth,” Singh added.
According to Counterpoint, Lava’s smartphone shipments grew 86% year-on-year to over 900,000 units in 2022. On the other hand, Micromax shipments fell 80% y-o-y to over 100,000 units last year.
“We should not expect the domestic players to grow when the mass market is witnessing weakness. Further, the increase in phone replacement cycles to 24 months from around 18 months earlier has also stalled growth of most mass market players,” said Navkendar Singh, associate vice-president at IDC.
According to Singh, these brands largely cater to the below Rs 25,000 segment, which witnessed a 16% y-o-y decline in 2022, largely due to the increase in replacement cycle and tapering demand in the mass segment. The below `25,000 market segment constitutes 80% of the total smartphone market.
The market is going to be stagnant for the Indian companies till the government provides them some cost-competitive advantages, especially with regard to 5G smartphone penetration.
“For domestic brands, the major growth lever can be the migration from 4G to 5G at affordable prices. And that will happen only when the industry is able to breach the sub Rs 10,000 price for 5G smartphones along with improving consumer spending by late 2023 onwards,” Singh of IDC said.
According to Crisil, currently about 30-35% of the 150-170 million smartphones shipped in India annually are 5G-enabled. The overall smartphone market shipments fell by 10% in 2022 to around 152 million largely due to weakness in entry-level smartphones, inflation, and macroeconomic factors, according to analysts.