Micromax, India’s largest home-grown manufacturer of mobile phones, is close to selling a 25% stake to a consortium led by Ant Financial Services Group, China’s leading online financial services company that owns Alipay, valuing India’s No. 2 handset maker at around $4-5 billion (approximately Rs 24,000-30,000 crore), five people familiar with the matter said.
Alipay, China’s top online payment solution company and part of the Alibaba Group, is bringing in two to three partners, said one of the people cited. “More partners will give divergence of views and comfort to the lead investor,” this person said. The proposed deal would see both infusion of capital and exits, partial or total, by existing investors, said the people quoted earlier. An exit will give existing investors significant returns on their investments.
TA Associates, for instance, currently owns 15% in Micromax, for which it paid around Rs 225 crore five years ago when the company was valued at around Rs 1,500 crore.
However, bringing the deal to fruition would partly depend on resolving differences that are said to have cropped up between the company’s promoters and its chairman Sanjay Kapoor, a former CEO of Bharti Airtel’s Indian business, over the company’s future direction. The four founder promoters — Rahul Sharma, Rajesh Agarwal, Sumeet Kumar and Vikas Jain — own a little less than 80% of the company.
A person said that the “new guard”, mainly Kapoor, feels that Micromax should focus mainly on online sales, but the promoters differ, noting that 70% of its revenue still comes from offline, or traditional retail channels. “There are also disagreements over the positioning of the phones and technology adoption. Kapoor believes Micromax should increase its average selling price while promoters feel there is still immense potential in the mass market,” one of the people said. Despite the differences the deal with Ant Financial Services is on track, said the people cited above.
“There are differences but the fund raising plan is in kissing distance and should be sealed by June end, unless something suddenly emerges. Once the deal is done, Sanjay may exit,” one of the people said.
“An investment committee of Micromax, comprising its promoters, top management and existing investors, will take a final call by the end of the first quarter. Once the deal is done, new entrants will get entry into the company’s board,” the person said.
ET had reported in February that feelers about a possible deal had gone out to several Asian technology and communications companies, including Chinese ecommerce company Alibaba and Japanese communications giant Softbank.
Softbank was reported to have dropped out of the race subsequently, over differences in valuation.
Alipay and Micromax declined to comment on what they described as market speculation. However, Micromax, in a emailed statement on behalf of the company, its promoters and the chairman, added that Kapoor continues to be its chairman and an integral part of the company.
“Micromax board and management work under clear principles of consensus, and they are working cohesively (on all strategic & operational issues) with complete unanimity to build Micromax’s leadership in all our markets,” the company said.
Micromax had hired Kapoor in June 2014. It had also brought on board Samsung India’s mobile head Vineet Taneja and another Bharti Airtel veteran Badal Bagri to power growth and build a bigger brand before an IPO. The IPO plan has since been shelved in favour of bringing in a strategic investors. Micromax is keen to bring in strategic investors than pure financial ones, as the company is fairly cash rich, with revenue of over Rs 11,000 crore at the end of FY 2015.
Besides nearly 80% stake controlled by the promoters and 15% held by TA Associates, Sequoia Capital and Sandstone Capital own 2.68% each while Madison India Capital has around 0.4% in Micromax.
These apart, China’s Spreadtrum Communications, a fab-less semiconductor provider, invested $10 million for a minority stake.
One of the people said that to topple market leader Samsung and China’s fast growing Xiaomi in India and explore growth in markets outside India, Micromax needs to move fast into services, which an entity like Alipay can bring in.
In turn, the Chinese giant gets a stronghold in a “virgin territory and business segment” while it can integrate its services, getting access to millions of customers at one go, said this person.
Another person said that the services of Paytm, a mobile payment and commerce platform in which Alipay recently bought asignificant stake for around $575 million, could also be integrated into all Micromax handsets, if the deal goes through.
Paytm declined to comment on this. “We work with many handset makers to make Paytm mobile payment experience integrated into their eco system. We can’t name specific hardware makers we are working with.”
