Lava hits sweet spot in smartphones

As the demand for mobile phones soars in India, few handset makers see a brighter 2015 than home-grown Lava International. The company aims to more than double its revenue by March to $1 billion, or about Rs 6,300 crore, from Rs 2,909 crore in the previous financial year.

Founded in 2009 by Hari Om Rai, Sunil Bhalla, Shailendra Nath Rai and Vishal Sehgal, Lava has been been among the best performers in the Indian market since 2013. From a revenue of Rs 1,043 crore in 2012-13, it is now the second-largest handset player in the smartphone market among home-grown companies.

According to International Data Corporation (IDC), Samsung with 24 per cent share was the market leader in the July-September 2014 quarter, followed by Micromax at 20 per cent and Lava at 8 per cent. Lava, which launched its first smartphone in November 2012, increased its market share by two percentage points during the period, even as domestic rival Karbonn's share remained stagnant at 8 per cent. In the overall handset market (feature phones and smartphones) too, Lava with 10 per cent market share was ahead of Karbonn at 8 per cent.

"We can grow much faster in the coming years. Now that we have built the company over the past few years, the next 10 years will be the years of success," says Hari Om Rai, chairman & managing director, Lava International.

Rai credits the company's swift growth to its focus on Tier-I and Tier-II towns, a single-layer distribution network and its investments in building design and research capabilities to keep costs under control. Lava was the first handset maker to follow a multi-brand strategy like fast-moving consumer goods companies. In 2012, Lava's partners decided to launch a parallel brand only for smartphones to cater to a different set of consumers. Thus, came Xolo, a brand catering distinctly to consumers looking for high-end but affordable smartphones, while Lava continued to be the brand for smartphones in all other categories. "If FMCG companies can have multiple brands for similar products and can make each brand successful, why can't we," argues Rai.

The strategy seems to have paid off. Both Lava and Xolo have a strong hold in the mobile devices segment. Xolo has also become the first Indian handset brand to come up with its own user interface platform called HIVE. "Being one of the fastest growing handset vendors, Lava has witnessed growth in both its brands i.e. Lava and Xolo. Both the brands are currently treated as independent lines of business in the market place," says IDC in its latest report.

The strategy of different standalone brands by the same company is nothing short of revolutionary in the mobile handset market where even established players stick to creating only sub brands. However, taking note of Lava's success, others are fast catching up. Last month, Micromax launched YU to cater to the young tech-savvy population.

Lava, meanwhile, has moved on to the next big thing in technology: the Internet of Things, or devices interacting with other devices, and is readying itself to become a global company. After launching feature phones and smartphones, the company is now gearing up to cater to the device ecosystem in the era of long-term evolution (LTE). Plans are afoot to launch a bouquet of affordable LTE smartphones in the next two months as operators start rolling out the service. Its LTE devices will be priced competitively between Rs 5,000 and Rs 15,000.

Starting March, Rai says, Lava will also start selling Made-in-India smartphones. It will spend over Rs 500 crore over three years to set up a production facility in Noida. The first phase of the project, which will require around Rs 50 crore, will be funded through internal accruals.

Going global is on the agenda too. Starting with repositioning its brand, the company will spend about Rs 300 crore on marketing in FY2015. At present, Lava phones are exported to Bangladesh, Nepal, Pakistan, Russia, Thailand and West Asian countries.

To fund its expansion plans, the company may go public in a few years. "An initial public offering is bound to happen, but it would happen in three to four years," says Rai. In the shorter-term, the company is looking to raise funds from external sources, including private equity. In the first phase, the company could raise Rs 300-400 crore. Over a period of time, the founding partners will offload up to 20 per cent of their stakes.