We recently met with the management of S Mobility to understand the reasons behind the recent slide in performance
of the group. S Mobility (previously Spice Mobility) is a mid tier mobile handset manufacturer with 887 retail stores
across India spread over 145 cities. The company also has strong online presence. It also provides VAS to different
telecom service provider's customers through Voice, IVR, SMS and applications etc. In FY12 the company's revenue
grew by 10.6% to INR 22.3bn as against 92% CAGR over FY08-11. Here are a few excerpts:
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Telecom Subscriber - Big Market
S Mobility is building its growth on a strong mobile subscriber
base. The remarkable growth in the number of subscribers in
India is due to (i) One of the lowest mobile tariffs globally (ii)
Local mobile manufactures and cheap Chinese models. The
company is planning to capture the data driven growth in mobile
business emanating from the onset of the 3G and broadband
technologies, hence increasing the application usage by the end
customer resulting in a strong growth in Smartphone sales.
HotSpots in a Hot Market
S Mobility is one of the leading players in the Organized retail
under the brand Spice Hotspot for selling mobile and laptops
through its 887 stores (240 in Delhi). Organized retail contributes
13% to the overall retail market with ~2500 outlets across 15
players. The company, in-order to differentiate itself is moving
away from accessories and phone sales towards application
demos and customer experience.
Smartphone sales pick up
The company sold 3.8lakh smartphones in Q4FY12 as against
2.2lakh in Q3FY12 growing at 70% sequentially. As the ASP (Average
Selling Price) of smartphones is much more than a normal phone
it contributes better to the topline. However due to technical
advancements and increasing competition the ASP for
smartphones saw a sequential decline of -11%. In order to boost
its smartphones sales, the company through its retail outlets is
increasing application awareness among the customers. The
overall smartphone market is expected to contribute 45% to the
delta growth of the handsets in the next 3 years. The mobile
subscriber base is expanding at 8mn users per month from the
present 678mn, thus presenting a big opportunity in the
smartphone sales market.
Balance Sheet
S Mobility has no debt and a cash of INR 702mn (FY11 B/S). 30% of
its balance sheet is constituted by goodwill emanating out of a
fully owned subsidiary "Hindustan Retail India Pvt. Ltd.". It has a
healthy RoE of 14%, though the conversion of EBITDA into Operating
Cash has been lower at 7% due to increase in working capital on
the back of an expanding business.
VAS - significant growth potential
The company through its partnerships with various TSPs (Telecom
Service Providers) is providing end customers VAS through Voice,
IVR, SMS and applications etc. both locally (83%) and
internationally (17%). Mobile VAS revenues are expected to grow
at 31.6% CAGR over FY10-15E to INR 482mn.
Outlook & Valuation
S Mobility derives 90% of its revenue from Mobile devices and the
rest from services. The data as a % of mobile revenues in India
has been 15% which is much lower compared to 30% in China or
UK, thus there is a huge market in the VAS business along with
growth potential in Smartphone sales. The company is rightly
positioned at the brink of this growth, but needs to bring its costs
under control which has ballooned due to expansion across
various businesses by the company. Once the company is able to
identify its niche, it could give significant returns.
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