PEs exit Micromax via buyback, valuation crashes 93% in 4 years

Micromax Informatics’ valuation has crashed about 93% in roughly four years from a peak of Rs 21,000 crore in 2015 to less than Rs 1,500 crore now, with major private equity investors including TA Associates and Sandstone Investment exiting the Indian handset maker.

PE players are selling 6.9% in the company for Rs 93.65 crore to the promoters, whose holding will increase to more than 85%, Micromax said in its latest regulatory filings with the Registrar of Companies (RoC).

The four promoters — Vikas Jain, Rahul Sharma, Sumeet Kumar and Rajesh Agarwal — hold 19.57% each before the buyback and their holding will go up proportionately after the transaction is completed.

Once the poster boy of Indian smartphone industry Micromax has now been pushed to the fringes, having failed to counter the onslaught of Chinese rivals such as Xiaomi and Vivo. Its revenue had shrunk to Rs 4,345 crore in 2017-18 from Rs 11,041 crore in 2014-15 while net profit slumped to Rs 103 crore from Rs 3,362 crore during the same period. Financials for FY19 are not yet available.

“With the onslaught of Chinese companies, Micromax lost both market share and ability to make profit,” said Mohit Yadav, founder of business intelligence platform Veratech Intelligence that analysed Micromax’s RoC filings for ET. “In this situation, investor seems to think Micromax is unlikely to recover and hence are willing to take a dip in valuation and take a quick exit,” he said.

Experts said the current valuation of Micromax will not be more than Rs 1,358 crore, considering the share price for the buyback will not exceed Rs 26.34 per unit.

This is a fraction of the valuation in 2010 when Micromax had roped in these private equities by selling equity shares at Rs 2,390.62 per share and preference shares at Rs 2,812.5 per share, as per Veratech Intelligence.

Emails sent to Micromax, Sequoia Capital, Sandstone Capital, Madison India Capital and TA Associates did not elicit any response till Wednesday press time.

The following shareholders are selling their shares in Micromax in the buyback as per RoC filings: Wagner Ltd, an affiliate of TA Associates, which once owned 14.82% but has pared stake in tranches; Madison India Capital HC, which owns 0.39%; Milestone Trusteeship Services Pvt Ltd, in its capacity as a trustee of Madison India Opportunities Trust Fund that owns 2%; Sandstone Investment Partners I fund, holding 2.65%; SCI Growth Investments II, a fund of Sequoia Capital owning 0.65%; and Sequoia Capital India Investment Holdings III that has 250 residual shares.

Chinese semiconductor firm Spreadturm Hong Kong Ltd remains invested in the firm with 1.17% stake, as per the filing.

Yadav of Veratech said Indian law does not permit sale of shares at a price below the fair market value. “Hence, Micromax’s valuation will be a minimum of Rs 515 crore,” he said. “In 2010, the minimum valuation was anywhere between Rs 1,250 crore to Rs 1,450 crore.”

Navkendar Singh, research director at IDC India, virtually ruled out a comeback for Micromax, saying Chinese mobile phone brands are now more experienced and seasoned to work in a diverse market like India.

“All this makes it next to impossible for India brands like Micromax to make a comeback and stay relevant directly as a brand,” he said.

Chinese brands today control more than 75% of the Indian smartphone market as per Counterpoint.

Singh said Micromax is trying to stay relevant by partnering with other brands for marketing and distribution tieups, using their manufacturing capacities and capabilities to produce phones for some other brands or markets outside India.

Micromax has also diversified into the consumer durables segment while one of its promoters is venturing into electric vehicles.