Cellphones - a 200,000 crore market in India in 2012

I hope all of you are enjoying IPL 3 and the numerous breaks that come in between just as much as I am. But have you noticed anything peculiar. Havent?
Let me tell you what I have noticed. Its the number of cellphone manufacturers advertising their products during the breaks. So along with the MNCs like Nokia, Samsung, LG, Motorola and Sony Ericcson you have companies like Karbonn, Lemon, Micromax, spice mobiles, gee pee, Videocon, lava also jumping into the fray.

And this I think is not something which has happened overnight. This has been the case since about 6 months. Infact, if i remember correctly then Karbonn mobiles had even sponsored the India South Africa series. So what is it that these companies are targetting. There is a hue and cry about the telecom sector being in the doldrums and these companies seem to be paying no heed to that. Is there a market opportunity that these people are seeing but we are not able to see.

These are the kind of questions that came in my mind and led me to dig deeper. And the findings are as follows.

The competition among the telecom operators in India and the pricing pressure might not be beneficial to them but it will certainly lead to more subscribers coming in the mobile net. This is where the opportunity lies for these cellphone manufacturers.

The cellphone manufacturing companies are after the larger picture.

If, we for a moment think about the telecom sector as just one company and not about which mobile operator is having what share what are we looking at.

We are looking at a wireless subscriber base of 581.81 million at the end of January 2010 and a teledensity of 49.5%. (Trai link)

Also the net additions during Jan 2010 is about 19.9 million (across all companies)

If we assume that the net additions are likely to remain constant at about 20 million (remember there is lots of competition) then in 2 years time the number of wireless subscriber base is likely to touch almost double to 1062 million (581.81+20X24) or 106 crore connection.

Yes, you are right there will be a lot of defunct connections as well as a lot of people having 2 connections. I don't have a number for that. Lets just assume 30% of the total base is either defunct or have dual connections.

So we should technically need to have about 70 crore cellphones (70% of 106 crore) by the end of FY12.

Assuming an average cellphone price of Rs 3000 the market size should be Rs 210000 crores. Huge do you say. Thats not the end my friend.

What do you think is the longevity of your cellpone. 2 years, 3 years or 1 year. Lets assume 2 years.

So what are we looking at? We are looking at a market of Approx Rs 210000 crores divided by 2 which is about 105000 crores each year.

Before I go any further. Please let me know if I am wrong in my calculations. Cos the numbers seem insane but still I dont seem to have heard any analyst talking about it.

You must be thinking that if that is the case then why has it not been noticed before. My hunch is that we have never had a listed Indian player which could be tracked. All of the players have been MNCs and thus we have no information on the financials. If we look at Nokia their sales from India was 3719 million Euros in 2008. In Indian rupee terms it means about approx Rs 22000 crores. (Nokia India sales).

So how do we play this. That is the real question. Do we really have any listed player in this space and can it make an impact.

The answer is a yes. Am sure all of you must have guessed the name already. Its Spice mobile. As per the management interviews, this company has a market share of around 10% currently and it wants to scale it up to about 20%. If that comes true then I am sure you can guess what the financials of Spice mobiles would look like.

I think the opportunity itself is quite a big one but still if you would want Spice mobile to be analysed separately please let me know. Also please correct me if my calculations seem to be incorrect.

Happy investing.