Handsets: Maharashtra Organised trade to feel the heat

Akhilesh Shukla on Voice&Data, June 15, 2009 Published June 16, 2009

The proposed hike of VAT to 12.5% on mobile handsets in Maharashtra could hit the organised trade in the Maharastra. Organised trade, which is already hit by higher property rates, shirking margins and high trained employee cost and other operational costs, would loose customer to the unorganised trade.

The decision, on the other hand, will force the unorganised retail industry to switch trade in grey to survive. The sale of grey handsets, especially of higher end model will become more profitable for them and help them to maintain footfalls, as well.

In case the decision came into force, the price of handset costing Rs 20,000 will go by Rs 25,000. Buyers will prefer to buy the phone from grey market, as the difference would be phenomenal.

The organised trade contributes to 13% of the over all handset retail market in India. However, as per number of outlets they occupy 3% of the pie. The handset retail market is slowly and gradually moving towards organised trade. But the state government’s decision will hamper the shift.

Maharastra and Mumbai is one of the biggest handset retail market in the country commanding more than 13% of the market share in the country. As per the current market estimates around 120 mn handsets are sold in the country every year, Of which, 15.6 mn are sold in Maharastra alone.

As per Indian Cellular Association the state government, which is eying a huge revenue from VAT on handset, will loose money as well. ICA says that the state stands to loose at least 473.6 crore in the next three years, if the proposed 12.5 per cent VAT is implemented because of increased sale in the grey market.

The pioneer in mobile handset retail in India The Mobile Store is headquartered in Mumbai and have a strong presence in the region. Besides, HotSpot, another market leader, have a strong presence in the country.

See also: VAT hike on handsets may bring in less tax for state at http://telcobizpedia.wordpress.com/2009/06/08/vat-hike-on-ha…-tax-for-state/

 

VAT hike on handsets may bring in less tax for state

8 Jun 2009, 0003 hrs IST, Rashmi Pratap, ET Bureau

MUMBAI: The decision of the Maharashtra government to hike VAT (value-added tax) on mobile handsets could actually result in a drop in the state’s VAT collections, says Indian Cellular Association, the industry body for handset manufacturers.

In the state budget, the government last week proposed to increase VAT to 12.5% from 4% on mobile handsets without making the revenue targets from the move public.

According to ICA, the proposed hike in VAT will result in handset sales falling in the organised retail sector in Maharashtra. It is currently at 1.25 crore units annually and could reduce to as low as 8 lakh units. With reduced sales, the estimated VAT collection will also be down from Rs 168 crore annually to Rs 33.5 crore, as per ICA estimates.

Over a three year period, the Maharashtra government will lose around Rs 475 crore in revenue, if it imposes the proposed hike in VAT on mobile phones. The move will trigger increased grey market sales and could expose customers to phones of dubious quality. “A common man, who buys a Rs 1,500 entry-level phone will now have to pay Rs 127 more.

Our experience shows that Rs 30 is the point at which the consumer turns away from the official market to the grey market. If the proposal is implemented, retail outlets will be under pressure,” ICA national president Pankaj Mohindroo told ET. ICA has also written a letter to Maharastra chief minister Ashok Chavan requesting the government to take a closer look at the issue. Importantly, Maharashtra is the only state in the country to have a 12.5% VAT on mobiles — it is 4% in other parts of India.

According to industry estimates, Maharashtra has about 20,000 retailers and over 450 distributors. Over 1.5 lakh people are employed. “If the grey market resurfaces, the employment in the industry will be hurt, Mr Mohindroo said.

Infiniti Retail CEO & MD Ajit Joshi said at a time when mobile phone penetration was increasing, even in rural areas, such a step would not be viewed as positive.

“The government’s aim of taking broadband to rural areas will not be met, if handset prices go up due to the increase in VAT because Indian consumers are extremely price sensitive,” he said. Infiniti, a 100% subsidiary of Tata Sons, owns and runs the Croma chain of consumer electronics and durables. “Also, the government has clubbed mobiles with liquor and cigarettes, which also attract a 12.5% VAT. However, mobile is a tool for connectivity and not a luxury item,” Mr Joshi said.

Rajiv Agarwal, CEO of Essar-owned The MobileStore, said telecom is an essential part of the India growth story and has a direct connection with development. “One state having a differential VAT will create an anomaly. People will buy from neighbouring states and sell here. It is not beneficial for customers, who want warranties,” he said. He added that the decision was not one that augured well for the industry.

See also: Handsets: Maharashtra Organised trade to feel the heat at http://telcobizpedia.wordpress.com/2009/06/15/handsets-mahar…-feel-the-heat/

 

HotSpot to spend Rs 200 crore on expansion

17 May 2009, 1304 hrs IST, PTI

NEW DELHI: Spice Group’s mobile retailing arm HotSpot will spend Rs 200 crore this fiscal on acquisitions and expansion of its operations across the country, a company official said.

“We are looking at 1,200 stores by the end of this fiscal with focus on the smaller cities…The total capex for the fiscal is Rs 200 crore,” HotSpot CEO Sanjeev Mahajan said.

The company plans to almost double its number of stores from the present 614 to 1,200. The company has about 500 stores under its brand, while the rest still operate as Cellucom, a Dubai-based mobile retail chain which the Spice Group acquired earlier this year.

HotSpot is also examining the inorganic route to grow its business in India. “The time is opportune to acquire and grow business and we would definitely use the inorganic route to expand…We are talking to (various) companies and looking at firms with at least 200 stores,” Mahajan said.

The Spice Group firm would fund the expansion through internal accruals.

“Going ahead, the focus would be on value-added services like gaming and music as well as accessories… as the margins on handsets are slim,” Mahajan said, adding that the company would push content like movies and music.

Estimates put the Indian mobile handset market at about Rs 30,000 crore with most handsets being sold in the unorganised market. India has about 400 million mobile subscribers and the numbers are growing at about 9-10 million a month. Other players in the organised sector include The Mobile Store and Future Axiom Telecom.