Xiaomi will have to work hard to defend its position in India

Hong Kong

INDIA will test Xiaomi's two-pronged strategy. The Chinese group is known for selling affordable smartphones but even a scaled-down valuation target for its initial public offering (IPO) hangs on success in more profitable Internet services such as music and video streaming.

Xiaomi is rolling these offerings out in its top overseas market, but may struggle to make an impact. Xiaomi's subsidiary in India generated roughly US$950 million in sales in the three months to March.

That's nearly half the company's international revenue and a fifth of the overall total. It is already a top-selling brand in India with a 30 per cent share of smartphone shipments, Counterpoint estimates. The data-tracker reckons the market for these devices is set to grow 17 per cent this year.

That pace looks sustainable: researcher eMarketer reckons barely a quarter of the population will use a smartphone by the end of the year. By contrast, shipments in China fell 8 per cent in the first quarter of 2018, the highest year-on-year decline. Even so, Xiaomi will have to work hard to defend its Indian position. Huawei, for one, wants a 10 per cent market share by the end of this year, according to local news outlet NDTV.

Things will be even tougher in services. Xiaomi recently launched three apps in India. It has also picked up stakes in local startups, including music-streaming outfit Hungama.

That's different from the approach in China, where Xiaomi risks less of its own capital by partnering Web giants for games and online videos. Falling prices for mobile data in India have unleashed a bruising battle for online content.

Hungama is up against Apple, Amazon and local upstart Gaana. India's richest man Mukesh Ambani, whose Reliance Jio mobile network has started to sell its own reasonably priced phones, has also acquired a music-streaming service, and owns stakes in film and television producers.

After postponing a mainland China share sale that was supposed to coincide with its Hong Kong IPO, Xiaomi is now expecting to be valued at between US$55 billion and US$70 billion, down from $100 billion.

The company's ability to grow in India and beyond may warrant more consideration.

Xiaomi plans to raise as much as US$6.1 billion in its Hong Kong IPO by selling about 2.2 billion shares for between HK$17 and HK$22 apiece, Reuters reported on June 20, citing unnamed sources.

The Bejing-based, Cayman-domiciled company plans to bring in eight cornerstone investors to buy about 13 per cent to 15 per cent of the shares being offered, according to the report.

They include US chipmaker Qualcomm, Chinese express delivery company SF Holding Co Ltd, domestic telecom provider China Mobile and state-run conglomerate China Merchants Group Ltd, Reuters reported.

Xiaomi lowered its likely valuation to a range of US$55 billion to US$70 billion, according to an earlier Reuters report, following a decision to delay an expected mainland offering of Chinese depositary receipts.

International sales accounted for 36 per cent of Xiaomi's total revenue at the end of March, up from 28 per cent at the end of last year.

Xiaomi doesn't break out sales by country, but says India is its largest market outside mainland China. REUTERS

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