The weakening of the Indian Rupee against the American Dollar has cast repercussion among the mobile manufacturers of rising import bills thus, they are mulling about the most likely price hike on the entry and mid-segment smartphones to sustain this economic jolt during the upcoming festive season.
The falling Indian rupee against the US Dollar has sent shock waves across the industry verticals; mobile is one of them, that has started to feel the pressure of this economic slump. The mobile sellers in the country, especially the homegrown players, have echoed the ill effects of this decline in the valuation of the Indian currency. The prices of entry level and mid-segment mobile phones might go up in the coming days if the situation does not normalize soon. As the mobile manufacturers are approaching the festive season of Diwali, the demand for the inventories will shoot up leading to the excess imports which will ultimately affect the production cost to the company. The same burden would have to bear by the buyers if the mobile phone makers increase the maximum retail/online price of their inventories which seems very likely at the moment after September.
With rupee crashing to a record low against the US dollar, it is expected that prices of mobile phones might rise in mid of September, as INR 70 per USD is unsustainable to hold price increases any further. Not only the USD but, INR is also declining against the Chinese RNB in recent time.
“The mobile industry is already under tremendous pressure with the increase in cost of raw material and custom duty. We are currently operating on very thin margin. With the strengthening of the dollar vs rupee, the pressure on bottom line has further increased. As a relatively new player in the Indian mid-segment smartphone market, we are reviewing the impact of the situation on the market place and will take a decision on pricing post that,” said Sanjay Kalirona, CEO and Director, COMIO Smartphone.
While most of the big vendors have SMT facility in India, most of the components are still imported from China, and thus remains highly vulnerable to currency fluctuations. And with vendors which operate on very thin margins and are high volume churners, might fall from their appetite of absorbing this cost any further.
“Looking at the market scenario at the moment, with the increase of Dollar, which is even expected to rise further, the cost incurred in mobile handsets will increase and this will lead to an overall hike in the final cost of the handsets. Therefore, the impact of pricing on handset because of the rupee tumbling will affect the overall market economy,” said Nidhi Markanday, Director, Intex Technologies (India) Ltd.
For all smartphone vendors, the upcoming festive season is very important.
“Since a majority of the components are still imported, if the dollar prices continue to rise, it will have a definite impact on smartphone prices. Smartphone brands operating in the sub INR 20K price band will have to seriously look at increasing prices, since they operate with wafer-thin margins,” said Prabhu Ram, Head- Industry Intelligence Group at CMR.
Having said that, some vendors already have the inventories that would last until September which means they would not need to increase prices but, if the situation persists beyond a certain point, they will have to re-think about the pricing.
The industry experts believe that Premium smartphones should be able to resist increasing prices during the festive season, and garner maximum consumer interest through financing options; cash back offers, and aggressive promotional strategies.
Upasana Joshi, Associate Research Manager at IDC India said, “July-October time is a very crucial one for all vendors as it leads up to the all-important festival season, which typically starts in September with online sales and remains for entire October up till Diwali. These vendors might try to wrap the price hike via aggressive high decibel marketing, cash back and buy back offers and multiple financing schemes and thus drive overall affordability.”
Pankaj Mohindroo, Chairman of the India Cellular and Electronics Association, the apex body of handsets makers in India, said that there has been some cushioning because of negligible CBU (completely built units) import into India as significant value addition is being done locally.
“There has been a decline of 6 to 8 percent in the Indian currency which was around Rs 64 to Rs 66 but, has now gone upto Rs 70 and above. Meanwhile, the effect can be marginalized to an extent because local value addition has increased,” said Mr Mohindroo. Therefore, the net impact on the bottom line will range between 4 and 6 percent. “The hyper competition in the entry segment could be another reason to delay the price hike,” he added.
As per the latest research from IDC, the smartphone shipments reached to 33.5 million units in the second quarter of 2018, a growth of 20 per cent year-on-year basis. The feature phone market saw shipments of 44 million units in the said quarter, a growth of 29 per cent over the year-ago period.