Micromax Sends Out Feelers to Alibaba, Softbank. Considering Partial/ Complete Sellout
One of India’s largest homegrown handset vendors, Micromax, is rumoured to be exploring various strategic options at present. The producer of budget smartphones and feature phones, who were earlier toying with the idea of an IPO, has now hinted that they are looking at several other possibilities.
Working on the advice of Goldman Sachs, the company has indicated that it might be willing to sell a significant minority stake in the company or even sell the total business entity, if their valuation expectations are met. Various sources placed at the highest echelons of the company who are aware of the plans have been able to divulge only those details for now, on the conditions of anonymity.
“A stake sale of at least 26% now will also have a clear roadmap to a change of control. This will be a strategic and not a financial investor. You need a professional management to run the company during transition or even afterwards. But the promoters are also exploring selling out completely provided they get their premium,” said one of those cited above.
The IPO plan, around which the entire course of action of the company seemed to be revolving till late 2014, then suddenly seemed to have fizzled out.
Micromax is already said to have sent out feelers regard this proposed partial/ complete sellout to the richest man in China (the Alibaba founder owner Jack Ma) and the richest man in Japan (Softbank founder owner Masayoshi Son).
The promoters of this indigenous brand are looking for a valuation of $3-3.5 billion or as much as Rs 21,000 crore which is 2.5-2.9 times FY14 total income of Rs 7142 crore ($1.1 billion), according to Registrar of Companies (RoC) filings. It posted EBITDA of Rs 439 crore and profit after tax of Rs 284 crore that year.
Major Shareholders in Micromax
Micromax was founded in 2000 by four entrepreneurs- Rahul Sharma, Rajesh Agarwal, Sumeet Kumar and Vikas Jain—to supply mobile phone parts to Nokia. Taking rapid strides, the company soon started making affordable but feature-rich branded handsets of its own and became a force to reckon with in the Indian market, inspite of Apple and Samsung sitting pretty on the top of the table.
In 2010, the company got funds worth Rs 225 crore from TA Associates after being valued at Rs 1,500 crore. Buying up 15 percent of the company, the investing firm came on board five years back.
Sandstone Capital and Sequoia Capital own a 2.68% stake each. A 0.4% share is owned by Madison India Capital while China based Spreadtrum Communications, a fab-less semiconductor provider, also went on to invest $10 million in the company in 2012.
At present, the four founder owners own a little less than 80% of the company. Last year when the company was thinking in terms of an IPO, they had gone on to hire Bharti Airtel veteran Badal Bagri, former Bharti Airtel top honcho Sanjay Kapoor and Samsung India mobile head Vineet Taneja, hoping they together would help propel the company to greater heights and build a bigger brand before an IPO.
“For the last few years, the founding promoters have taken a backseat and have allowed Kapoor (who is now the Chairman ) and his team of senior professionals (obvious reference to Vineet Taneja, the current CEO) to run the operations for them,” said an insider.
Micromax Market Position at Present
The Gurgaon based company which has today come a long way from being a supplier of mobile parts a decade and a half back to the Number One player in the Indian mobile market, putting even the likes of Samsung behind them, is certainly placed at a very enviable position right now.
Having sold 3 million handsets (of which 45 percent were smartphones), the sales are at an all time high but there is a lot more going in into the valuation of the company than probably meets the eye.
The Chinese etailer Alibaba which is on an acquisition spree after buying an unspecified minority stake in a Chinese handset maker Meizu Technology Co for $590 million might show some love for the Indian manufacturer to milk in on its YunOS.
Softbank, the Japanese communications giant, has also been betting highly on tech companies and internet based projects with Indian roots in the last few months, Snapdeal being one of their most loved projects.
Rising manufacturing costs in China and the growing challenge to Android from the Cyanogen platform will also be major influencing factors.