Xiaomi India chief Manu Jain said that the depreciating rupee is putting pressure on the margins of smartphone makers at the launch of three smartphones by it. “We had factored the rupee at 63 and if this depreciation continues, we will have to look at increasing prices of our sub-₹10,000 phones,” he said.

Xiaomi, which was recently listed in the Hong Kong stock exchange, has stated that it is comfortable with operating margins of 5 per cent in hardware and hopes to make good on margins from software.

The company, however, did not disclose software margins but Jain said that Xiaomi’s India business has been profitable since the second year of operations. Xiaomi entered India in 2014. For smartphone makers, sales in India are billed in rupees while the components that are sourced are paid in US dollars.

Industry analysts opined that the hugely competitive smartphone market will have to figure out ways to counter the rupee movement. “Margins are wafer thin and with this kind of pummelling, it is just a matter of time before they will increase prices by one-three per cent,” said an analyst from a multinational firm who didn’t wish to be quoted.

While margins in the sub-₹10,000 smartphone segment seem to be tight, margins in the premium segment are not that squeezed. Emails to Samsung, OnePlus and Vivo on pricing strategies did not elicit any response.

According to a Kotak research, the USD-INR will now trade in the range 69-74 for the rest of 2019 financial year, unless RBI steps in.

All the components that go into a smartphone — from LCD to batteries — are sourced from outside the country, mostly through China. With a trade war between US and China, coupled with its impact on the rupee has resulted in costs going up.

Xiaomi has publicly said that it is assembling in the country with efforts including designing 95 per cent of the Printed Circuit Board (PCB) as a part of the “Make in India” initiative pushed by the government.

An industry watcher, who consults smartphone makers, added that some of the phone makers will figure out ways in which they will pass the cost on to end consumers, without necessarily increasing the price such as reducing their spend on physical retail stores or promotional activities.

The number of smartphone users in the country expected to reach 490.9 million by 2022 and 4G subscribers are expected to go up to 432 million by 2020.

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