Micromax IPO Review

by Manshu on October 27, 2010

in IPO/NFO

Micromax recently filed its prospectus, and will be coming out with an IPO very soon. One of the first things that caught my eye about this IPO is that they’re thinking about giving a 10% discount to retail investors instead of the customary 5%. I thought I’d take a look at the Micromax IPO prospectus even though the dates or pricing is not yet out, as I was interested to see how this relatively new player has performed in the highly competitive telecom market.

About Micromax

Micromax is the biggest Indian domestic mobile handsets company and has been growing explosively in the fast growing telecom market since they started in January 2008, and their market share stood at 6.24% for the March 2010 quarter. Micromax has been more about affordable handsets which shows in their average selling price of Rs. 2,275.98 for the March 2010 quarter.

They have over 30 handset models selling in the Indian market, and that helps in not relying on just one product to drive revenues, as no single handset accounted for more than 20% of their revenues. Similarly, they are well diversified across states, and no single state accounted for more than 10% of their sales.  They are currently not present in Android or Touch phone segments, but plan to produce phones for these segments in the future.

The growth in Indian telecom has been really explosive in the past few years, so it is natural to ask how long will it continue at the current pace, and what happens when a large number of people own mobile phones?

The replacement market has got to be the key going forward with people switching or upgrading their handsets, and I found some interesting numbers on this market from the Micromax IPO draft prospectus.

They quote research from Analysys Mason which states that the replacement market will drive the market rather than new additions. Even currently, the replacement market constitutes as high as 62.77% of the total handset market for 2010, and they expect this percentage to grow to 89.30% of total handset market by December 31st 2014. In absolute numbers – from 118 million handsets in 2010 to 359 million handsets in 2014.

They are also looking at adding some subscription based value added services, and here are a few of them mentioned in their prospectus.

Receive email on SMS: They are developing an application that would allow customers to receive emails on SMS, targeting mobile subscribers who do not have access to GPRS services or data connectivity.

Phonebook backup: They are developing a ‘phonebook backup’ application, where customers can store their contacts backup, and pull them up later when they need it.

Buddy Tracker: This is a Foursquare like application which has already been developed but not launched yet. This application will allow Micromax subscribers to track the location of friends and contacts also using Micromax using paid SMS service.

Facebook agreement: They have also entered into an agreement with Facebook to be able to use their brand features within the applications that Micromax develops.

The biggest risk to Micromax is that it is in a highly competitive market where there exist much larger players like Nokia, Samsung, LG, and Videocon. These players have much bigger resources at their disposal and pose a competitive threat to Micromax.

There are several VC firms invested in Micromax as well, and here are their details:

US Private Equity Firm Stakes in Micromax

Private Equity Firm Pre IPO Stake
TA Associates 15.00%
Sequoia, Sandstone and Madison 5.77%
http://bit.ly/9hamfX

Micromax IPO Financials

The first thing that struck me about the balance sheet is that there is hardly any debt on its books. The size of the balance sheet is Rs. 5.39 billion in 2010, and the total of the secured and unsecured loans was just Rs. 11.69 million. This is probably due to the fact that they don’t have any manufacturing facility thereby not incurring much capital costs.

Their revenues have significantly grown in the past few years and stand at Rs. 16,017.58 million for 2010 with a net profit after tax of Rs. 2,003.16 million.

The EPS for 2010 is Rs. 11.83 up from Rs. 1.41 in 2009, and Rs. 0.89 in 2008. The company had a negative cash flow in 2008, but it has been generating positive cash flows after that.

Objective of the Micromax IPO

Micromax currently doesn’t have a manufacturing facility, and it intends to change this. Currently they design their products internally and then contract with manufacturers to manufacture and supply them. They suppliers are primarily located in China and Taiwan.

They want to change this by setting up their own manufacturing facility, and the money raised by the IPO will be used for this. They are looking at big numbers too – the plan is to spend Rs. 2.26 billion on setting up factories that will have the capability to produce 2 million handsets per month.

I will update this post with more information about pricing, and dates as and when they are released, and for now I wanted to get a glimpse of what the company has done in the past, what is the money being raised for, future plans etc.

{ 26 comments… read them below or add one }

Supriya October 27, 2010 at 9:31 pm

good article…
Micromax has always caught attention.. initially with their handsets at such low prices.. later.. the company as a whole. the way they entered and captured the markets which was dominated by big players.. and actually is considered as a challenge by the bigger players today.. making them bring down their prices too… all this .. in such a short span of time…
Truly commendable…. This will definately instill a lot of customer faith in the company…Way to Go Micromax!!!

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Manshu October 28, 2010 at 6:22 am

Have you used their phones, any impressions on quality? It’d be good to hear from a few people who have used the phones extensively and what they thought about the quality.

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Supriya October 28, 2010 at 9:10 pm

I havent used it personally but know few people who do. and they are quite happy with the product. in terms of value for the money. The graphics are very basic. but it looks good and is quite sturdy and durable kinds. unlike few of the branded models like Samsung etc where you need to take care of the phones.

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Supriya October 28, 2010 at 9:36 pm

Another aspect about micromax was the sound quality. As the phones were quiet cheaper I expected poor sound quality.. the kinds you get in the cheaper phones (China Models) which hurts the ears. Surprisingly Micromax had good sound quality as well.

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Manshu October 29, 2010 at 3:42 am

Thanks for your detailed response Supriya!

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Param November 18, 2010 at 3:39 am

I am using the micromax as well as Nokia. With a price tag of Rs 1500 , it is a worth of money. Sound quality is good , graphics are ok, double sim, good battery backup. So overall good value of money.

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Manshu November 18, 2010 at 7:32 am

Thanks Param. I’m curious to know how does the double sim work because I’ve never used one myself could you please tell us?

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Param November 18, 2010 at 9:22 am

I am writing my experience. In my double sim mobile when my sim 1 is busy if some body calls me on sim 2 then my sim 2 will be out of reach and same is the case with sim1. That is with my micromax X118 .

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Manshu November 18, 2010 at 9:42 am

Thanks for leaving the comment Param, so looks like you don’t get the missed call, and it’s up to the person to call you back.

And you have to select a SIM while making a call, or how does it know which SIM to use?

Thanks again!

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Param November 18, 2010 at 9:47 am

there is a option when you make a call that whether u want to make it from sim1 or sim 2. But in some mobiles there is a separate call switch of sim 1 and sim 2, but in my mobile which is lower end mobile it does not have separate sim1 and sim2 calling switches.

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Manshu November 18, 2010 at 10:02 am

Thanks again Param! I thought that they would allow a default SIM, and then you have to do something if you want to use the other SIM, but I guess this method also works.

Thanks!

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rahul November 18, 2010 at 4:04 pm

I’m also following this IPO and from the Red herring prospectus. Haven’t done in dept fundamental analysis though, but ROCE and ROE figures are quite impressive, sundry debtors > six months are very low which indicates good sales not only on P&L but also from distributors .

But I’m anxious about only one factor i.e., customer satisfaction. I read lots of reviews for Micromax cell phones on websites and majority of them were quite negative. Micromax is taking huge efforts for brand building but what about after sales/service/support/quality/defects? Does anybody have any personal experiences regarding these factors?

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Manshu November 18, 2010 at 6:37 pm

The couple of people who commented here did speak from their personal experience, and they didn’t have any problems.

The one thing about reading stuff online, especially forums – is that people who have had a negative experience are way more likely to post on a forum or another board than someone who has had a neutral to positive experience, so out of a 100 people just 1 might have a problem and he is the only person you hear from. That’s just the nature of forums in general.

Of course, sites like Amazon and e-Bay are an exception, so I’d also look at the nature of the sites where I’m reading the review to get a context.

Thanks for your comment, and I’d be interested to hear where you read the reviews.

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rahul November 20, 2010 at 2:17 pm
Manshu November 22, 2010 at 8:37 am

Quite good fun reading through these reviews, but my impression was that people who compare it to Nokia quality find it lacking, but otherwise it seems to be okay, and the trackball seems to be a problem for a lot of folks.

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rahul November 20, 2010 at 2:19 pm

This website is not allowing to publish links to webpages, I just clicked on the page1 results of google ‘micromax user reviews’

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Manshu November 20, 2010 at 2:27 pm

Thanks for letting me know Rahul.

The spam filter on this site (and many others) usually blocks comments with more than 2 links. Generally, they come to the moderation queue, but sometimes they are deemed spam and that’s when it looks like you are not allowed to publish links.

The reason for that is a large number of links is usually a pretty good indication of spam, and spam is of course a huge problem.
In fact I just looked at the spam statistics and it had caught 96,350 spam comments!!!

I’ll look over those links – thanks for sharing!

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janmohammad khan December 13, 2010 at 8:11 pm

sir i have gmail id my handset is micromax q3 i have set email setting but facing problem in sending email error is -smtp command error any body can help me please give me solution my email is– jm.miskin@gmail.com

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Manshu December 13, 2010 at 8:24 pm

Hmm, no sorry, don’t know how to do that.

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Chirag January 5, 2011 at 9:38 pm

Nokia users would not admire Micro Max.. With BB penetrating market by flooding BB Curve 8520 just for 11K Rs odd..
Manshu would you subscribe to the ipo ?

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Manshu January 5, 2011 at 9:55 pm

IPOs are going real crazy now, and I’d rather be away from them, and buy the company from secondary market if I get interested later on.

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Tammy February 22, 2011 at 12:14 am

If they are using that money for a manufacturing facility in india, i’m not keen on them, the amount of corruption in india will make this far less profitable from china. Rivals make even make their life hell.

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Vishal July 31, 2011 at 1:05 am

@Manshu, I’m sure that they would make huge profit after IPO, the IPO will also attract the many people as its now well known company for every indians. I’d agree that that the’re not looking for after sales service but their growth in recent month is explosive. Once they setup their own manufacturing unit so they may setup more service centers across the country. Finally, its profitable venture.

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Alok September 20, 2011 at 4:09 pm

Worthless products with lots of bugs and errors with pathetic service

My personal suggestion not to buy any micromax phone… it will make your life hell… it is damn sure that you will get some problem in mobile set.

if you go to service center they ask minimum 20 days to repair and after 20 days dey will keep begging for 7 more days till next couple of months…

so it’s better to purchase any other Chinese mobile but don’t go for this company.. They don’t have parts available in main manufacturing unit…

Worst company… I think we should not use mobiles of this company and let them realize that we Indian are not fool…

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micromax_user9 September 26, 2011 at 1:33 pm

I have personaly used micromax handsets…They are of all best quality and values for money.
I can garantee they are best and far beter than all companies if you measure them by values for money.

Features their handsets provide at such low cost is amazing….my family has 2 micormax cells and there are no issues with them…..I appreciate Micromax as their competative pricing has forced all the other chinese/korean brand to lower prices….Else all these Overseas companies wd have never reduced fares and would have kept on looting INDIA….Thanks Micromax…I’m proud you being indian company. Keep on the good work. If this IPO is correctly priced i will be investing abt 10lacs in your IPO for sure.

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Vishal Totla June 22, 2012 at 4:28 pm

Micro Max is the worst Company I ever seen. It not only makes 3rd class mobile handset but also its repairing services are also the same. I had submitted my micromax phone to their service center in Sept, 2011 till date I had not received it back.
The third class company and third class Mobile brand. If someone is thinking to purchase any handset of Micromax please dont even if the same is offered to free of cost then also please say No.

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