The first quarter of the year has ushered in a wave of optimism, signaling a revival for brands like Samsung, Xiaomi and Vivo, with the sector witnessing an impressive 18% increase in market value, reaching $9.5 billion – the highest level ever. quarterly turnover in the past five years.
Despite the fact that the first quarter of a fiscal year is historically a relatively subdued period for sales, a consensus poll among four industry analysts by Mintforecast a robust growth trajectory for the full year.
Forecasts indicate a potential revenue increase of 15%, crossing the $45 billion mark in FY25, compared to $39 billion in the previous fiscal year.
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This optimistic outlook comes despite the fact that market volumes are expected to remain unchanged compared to 2023 levels, with forecasts hovering around 151-155 million units.
On Thursday, Counterpoint India said in a report that smartphone sales recorded 8% growth from a year earlier, with shipments likely to cross 33.5 million units. While this represents an improvement over last year, it falls short of the market's post-pandemic highs.
The premiumization factor
The driving force behind the revival of the domestic smartphone market is the increase in average selling prices (ASPs) of smartphones. According to Mint consensus among analysts, the ASP is at $295, or around ₹24,600 – an increase of 20% in the last two years.
This trend signals a premiumization of the Indian smartphone market, after eight consecutive quarters of stagnation.
For example, Samsung achieved the highest ever ASP in India in Q4 FY24 at $425 ( ₹35,500). Despite ranking third in terms of volumes, the Korean company claimed the top spot in terms of total market value, capturing 25% of the $9.5 billion in sales generated during the period.
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Meanwhile, Apple, which is not in the top five in terms of sales volumes, secured the second spot in terms of revenue share, with a 19% share.
Email queries to Apple, Samsung and Xiaomi did not result in any response until the time of going to press.
Experts attributed this revival to a combination of factors, including lucrative financing schemes, a lack of attractive offerings in the low-price segments, rising disposable incomes and a strategic shift to high-margin market strategies by leading brands.
Margin dynamics
According to Mint analyst panel, smartphones underpriced ₹15,000 gave retailers a modest margin of 4%. In contrast, devices are priced higher ₹25,000 witnessed margins of 8%, which could potentially increase to 10% with brand incentives – a testament to the appeal of premiumization driving India's smartphone renaissance.
“Brands are bringing a heavy push for in-house financing options, targeting users in tier-II cities and beyond – even those who don't have an existing credit line or cards,” said Shubham Singh, research analyst at Counterpoint Research . Zero-interest in-house financing options pique user interest, which in turn drives users to purchase more expensive devices.”
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The margin dynamics add an interesting dimension to the story. With quarterly revenue rising to $9.5 billion and the number of ASPs increasing, both retailers and brands can benefit from higher profit margins on smartphone sales.
Manish Khatri, a partner at Mumbai-based electronics retailer Mahesh Telecom, echoed similar views, following the surge in demand for smartphones in the first quarter.
“More users are coming in to take advantage of upgrade programs, cashbacks and 24-month interest-free financing programs for premium smartphones. This is good for us because a higher value device is easier to sell to retailers, including brand partnership incentive programs.”
In fact, more and more buyers are opting for long-term financing plans, which allow them to make a payment over a two-year period. Devices with a price up to, for example ₹1 lakh could now be available for approx ₹4,200 per month under these schemes.
“There is an increase in disposable income and credit consciousness that we have seen among buyers, which makes it easier for us, sellers, to bring more expensive devices to market,” said the director of a national electronics retail chain, who requested anonymity .
“The easiest to sell are Samsung and Apple handsets, due to their premium brand impression. Especially in Tier II markets, this is useful as buying a flagship smartphone is still an aspirational social factor for many,” he added .
One concern: longer upgrade cycles
That said, there are short-term concerns. Both Singh of Counterpoint and Khatri of Mahesh Telecom agreed that a key outcome of these long-term financing plans is the extended usage and upgrade cycle.
“The market has gone from a six-month smartphone renewal cycle among buyers to two years – this is a given in today's market. This is also driven by the fact that cheaper smartphones do not have features as exciting as premium smartphones, and this is something that will play out in the coming years,” said Singh.
Khatri, however, sounded cautiously optimistic.
“Longer usage cycles make it difficult to do business for us because we focus on a finite user pool. Additionally, there are both larger retailers and online retailers, with more financial clout, who could be difficult to compete with when it comes to matching their deals.”