To scale up, domestic phone-makers to dial private equity players for funds

After giving the multi-nationals a run for their money, home-grown phone makers are now looking to raise private equity (PE) investments to scale up.

As many as three of companies – Spice, Karbonn and Maxx – confirmed to Business Line that they are likely to opt for PE investments; others too may be in the fray. The total targeted fund mop-up could be over ₹400 crore, sources indicated.

2nd phase of growth PE investments would be for funding expansion, R&D, branding, and as working capital.

“For Indian vendors, this is the 2.0 phase (early second phase) of growth and these companies definitely need deeper pockets now. As a result, they need more funds for expansion purposes,” Faisal Kawoosa, Lead Telecom Analyst at Cyber Media Research, told Business Line .

The new entrant in this list of hopefuls is S Mobility that owns the “Spice” brand of handsets. It is looking to raise approximately ₹300 crore ($50 million) from PE funds over the next 6-9 months.

According to Dilip Modi, Chairman, S Mobility, funds will be used for branding purposes to “capture market share in strong markets” and “open up markets where the brand is not significantly present”

“The money will be used in strengthening our brand, design and product development activity in China, distribution and retail and after sales service,” he told Business Line in an emailed response.

According to Ajjay Agarwal, Chairman and Managing Director, Maxx Mobile, the company was looking to raise between ₹50 crore and ₹100 crore from PE placements.

A call in this regard was likely to be taken around September this year.

The funds would be used as working capital. Maxx has raised around ₹60 crore ($10 million) from Star Asia Holdings Pte Ltd, Singapore. While it received ₹30 crore earlier this year, a second tranche of equal amount is expected soon.

The other vendor that is exploring fund infusion is Karbonn Mobiles, India’s third largest vendor.

Shashin Devsare, Executive Director, Karbonn, indicated that fund infusion could be either by way of PE investments or by bringing in a new partner. The company is planning to offload a 15-20 per cent stake to fund overseas expansion.

A decision is likely to take place by the second half of this fiscal (around September).

Headquartered in Delhi, Karbonn is a 50-50 joint venture between Jaina Group (of Delhi) and Bangalore’s United Telelinks Ltd.

Interestingly, Micromax, India’s second largest vendor, the first to rope in PE funds in 2009-10 that included Sequoia Capital, Sandstone Capital and Madison Capital Management, is planning listing options to allow exit of PEs, sources said.

Micromax declined to comment on the issue.

Tough market However, market sources indicate that funding won’t be an easy call for most of the vendors. Earlier attempts by some to raise money fell flat because of depressed market conditions.

“Factors like future growth and technology base are crucial for PE fund,” a source said.

But with Indian vendors now accounting for over 50 per cent of the handsets sold in the market, private equity firms have kept them their radar.

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