IPO-bound Xiaomi phone maker in India faces tough challenge from a prowling Samsung

• Foxconn Technology Group’s Indian subsidiary Bharat FIH has filed for ₹5,000 crore IPO with SEBI.
• The IPO comprises a fresh issue of ₹2,500 crore and an offer for sale of ₹2,500 crore.
• In the last three years, the revenues from Xiaomi have been shrinking because of increased competition in the mobile phone market from large players like Samsung.

Taiwan-based Foxconn Technology Group’s Indian subsidiary Bharat FIH, which manufactures Xiaomi phones in the country, has filed for a ₹5,000 crore initial public offering (IPO) with India’s market regulator – the Securities and Exchange Board of India (SEBI). The IPO comprises a fresh issue of ₹2,500 crore and an offer for sale (OFS) of ₹2,500 crore.

Bharat FIH is among the largest electronic manufacturing services (EMS) providers in India, with approximately 15% market revenue share in the financial year 2020-2021 (FY21). It runs operations across three campuses in India, which integrates manufacturing, warehousing, logistics and accommodation facilities.

The company derives most of its revenue from Xiaomi, which is the leader in the Indian smartphone industry with 27% market share by volume in FY21, according to its draft red herring prospectus (DRHP).
In the last three years, the revenues from Xiaomi have been shrinking because of increased competition in the mobile phone market. The company is losing market share to companies like Samsung, Vivo and Oppo.
“The concentration of our sales in Xiaomi exposes us to a number of risks that could have a material adverse effect on our revenue and profitability. Sales of our services to Xiaomi could decline as a consequence of several factors, such as lower demand for Xiaomi’s mobile phones in the Indian market on account of changing consumer preferences or an increase in the market share of Xiaomi’s competitors, or on account of our inability to fulfil Xiaomi’s purchase orders in the required quantities or quality and on schedule,” the company said in its DRHP.

The company is also expanding business into industries other than mobile phones, with a focus on high-growth industries that benefit from market tailwinds, including mechanics, electric vehicles, televisions, and hearables.

In the electric vehicle segment, it supplies critical electronics components such as infotainment, battery management system, engine control systems, hands-free communication system etc for manufacturing of electric vehicles.

In fact, it wishes to expand this segment of business and intends to apply for the electric vehicles (components category) and hearables’ production-linked incentives (PLI) schemes when applications are available.

The electronic manufacturing services (EMS) player will utilise the IPO proceeds towards funding capital expenditure requirements for upgradation and expansion of existing campuses.

Another unit of Foxconn, which is FIH Mobile, is listed in the Hong Kong market.

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