Home-grown mobile handset maker Micromax Informatics, which sold as many or even more smartphones in the past couple of quarters than global smartphone leader Samsung in India, is reportedly seeking a valuation of Rs 21,000 crore ($3-3.5 bliion) for a potential stake sale. The valuation, which is close to three times of its annual sales, is too low compared to its global competitors who are trying to capture a slice of Indian smartphone market, the fastest growing, where Micromax has already established its leadership. China’s Xiaomi, which has entered India only a few quarters ago, was valued at $45 billion in its last round of funding in December 2014, a jump from $4 billion in June 2012. Lenovo, another smartphone player, on the other hand is reportedly valued at $14.9 billion. However, investment bankers and analysts believe, a company which has grown more than 430 per cent since FY10, and close to 1,100 per cent since 2008-09 in total revenues, it is logical. Besides its sales, this is the only company that has threatened Samsung and pulled it from its market leader position in terms of unit sales, said one of the bankers. Analysts with brokerage houses, however, said Micromax should get a much higher valuation.
If Micromax finally gets investors at this valuation, its existing investors - TA Associates and Sequoia Capital, would have the exit option at about 18 times multiples of their investments.
TA Associates and Sequoia Capital, who reportedly pumped in about Rs 225 crore together about five years ago, now hold about 20% equity in the company. The company had, in 2011, withdrawn a Rs 466-crore initial public offer citing unstable market conditions.
According to media reports, Micromax is in talks with China's Alibaba and Japan's Softbank, two companies who have pumped in money in Indian start-ups in the past few months, for a potential stake sale putting its long-planned public issue on the backburner.
Micromax did not want to comment. The report cited unnamed sources, without official confirmation.
Micromax reported revenue at Rs 7,142 crore in fiscal year ended March 2014 with a profit after tax of Rs 284 crore. The report also cited that the founding promoters - Rahul Sharma, Rajesh Agarwal, Sumeet Kumar and Vikas Jain may also look to go for an outright sale of the company.
Goldman Sachs, which is cited as the advisor, has last month been reported to be advising the company for its IPO. According to bankers working in the sector, this could be a pre-IPO placement by Micromax founders. This is a common practice, and a pre-IPO placement ensures better valuation. If this is to be believed, Micromax's IPO will be the biggest in the recent times.
Micromax founder Rahul Sharma had earlier told this newspaper that the company was not in a hurry for an IPO as the market was not ready.
Last year, when Micromax roped in professionals like former Bharti Airtel CEO Sanjay Kapoor and Samsung's Vineet Taneja followed by a few more industry veterans, after about 15 years of operations, the indication was clear that the founders will take a back seat and the company will be run by the professionals for the next phase of growth. It was, reportedly, getting ready for the IPO.
Meanwhile, if Alibaba, which did not want to comment as a company policy, picks up a stake in Micromax, this would be its second investment in a mobile handset maker. It has, earlier this month, pumped in $590million in China's smartphone vendor Meizu Technology Corporation, as it part of its strategy to spread beyond e-commerce.