Addressable market for OEMs likely to be over Rs 10 trn by 2025: Report

The addressable market for components manufacturers after deducting the conversions cost, handling charges, margins, etc is estimated at around Rs 6.5 to 7.5 trillion

The growing domestic handset manufacturing market and supportive policies by government have ensured that India steadily builds on its device manufacturing capabilities, and the addressable market for OEMs (original equipment manufacturers) is expected to be about Rs 10 lakh crore to Rs 11 lakh crore by 2025, a report said on Tuesday.

The report KPMG in India and HSBC India titled 'Powering up Electronics manufacturing in India' examined the advantages that India offers global electronics components manufacturers, specifically in mobile handsets.

"As per KPMG analysis, considering the estimated Rs 14 lakh crore (USD 184.79 billion) market size for handsets by 2025, the addressable market for OEMs after deducting the branding, after-sales, retailer mark-ups and accessories cost would stand around Rs 10 lakh crore-11 lakh crore (USD 131.99-145.19 billion)," it said.

The addressable market for components manufacturers after deducting the conversions cost, handling charges, margins, etc is estimated at around Rs 6.5 to 7.5 lakh crore (USD 85.79-98.99 billion), it added.

"By any stretch, this is a large and attractive market and India offers an enviable opportunity for handset and components manufacturers to establish the manufacturing units in India," the report said.

The report noted that India can leverage this "opportune moment" and capitalise on several existing strengths as well the shifting, post COVID-19 geo-political sentiment to become a global leader in the handset, components and electronics manufacturing industry.

Global supply chains are undergoing a radical reconfiguration against the backdrop of the COVID-19 pandemic, rising economic nationalism across the world and significant geopolitical shifts, the report said.

It stated that the pandemic has highlighted the risks a single-source supply chain carries, as companies across the world have faced disruptions to the flow of materials from China - the initial epicenter of the pandemic.

As multinational companies seek to relocate their global supply chains, emerging economies such as India are increasingly seen as attractive sourcing destinations, it said.

"With India continuously improving its ease of doing business and the launch of several attractive government initiatives such as the Production Linked Incentives (PLI), export incentives, Phased Manufacturing Program (PMP), M-SIPS, Make in India, Digital India, etc. alongside the visionary National Digital Communications Policy (NDCP), FDI in to the country and especially into electronics manufacturing is sure to rise," it added.

India's electronics production posted a compounded annual growth rate (CAGR) of around 24 per cent during FY15-20. Also, since FY17, domestic electronic production has exceeded electronic imports, which could be perceived as an indicator of the effectiveness of these supportive policies, the report said.

"While the pandemic has caused economic damage it has also yielded vital lessons as well as opportunities to forge new paths of growth. A significant example is that the diversification of global supply chains has generated new opportunities," Arun M Kumar, Chairman and CEO of KPMG in India, said.

He added that the Electronics Systems and Design Manufacturing (ESDM) segment, of which electronics components and mobile handsets are a part, is one such area.

"India has the second largest smartphone market globally, with the number of users expected to increase to 829 million by 2022; as of this year, the country has become the second largest mobile phone manufacturing hub in the world," he said.

Kumar added that KPMG in India, with its deep and credible experience in this field, is currently working with several global electronics manufacturers to objectively evaluate the India replacement opportunity within their larger reshoring agenda.

The report said while top global handset manufacturers such as Samsung, Xiaomi, Vivo, etc have established their presence in India with assembly operations, the components manufacturing ecosystem is still comparatively nascent.

These units continue to import a significant number of components and other raw materials as their availability in India is limited.

However, of late, imports into this sector are increasingly Semi Knocked Down (SKD) or smaller components rather than as completely built units (CBU), which signals a healthy shift from a consumption economy to a manufacturing focussed one, the report said.

The annual production of mobile phones in India has increased from 60 million units valued at Rs 18,900 crore (USD 2.58 billion) in FY15 to an estimated 320 million units valued at Rs 2,25,000 crore (USD 30.68 billion) in FY20.

The Ministry of Electronics and Information Technology (MeitY) recently implemented the National Policy on Electronics, 2019 to support the manufacturing of electronic products in India.

The policy envisages a turnover of USD 400 billion in electronic manufacturing in India by 2025 and the production of one billion mobile handsets valued at USD 190 billion by 2025, out of which 600 million handsets valued at USD 100 billion could be exported.