How Will Crackdown On Chinese Phonemakers Benefit Indian Manufacturers

One night I slept peacefully, knowing that everything was under control. The next morning, I woke up to a leaking roof, fused lights, jammed doors, and my entire furniture was infested by termites and bed bugs.

After a while, my mother called me saying her house had similar problems.

It was truly a devastating sight. I didn't know what and how to solve and where to even start.

Chinese mobile phone companies are facing a similar situation in India.

They have been brought under strict scrutiny by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA) and Foreign Exchange Management Act (FEMA).

The first one to be grilled by ED was Xiaomi. The ED seized Rs 55.5 bn belonging to Xiaomi.

Xiaomi had transferred money as royalties to its Chinese parent. Even the payments made to US-based companies, were ultimately benefiting the Chinese parent.

Hence, ED seized the money lying in Xiaomi's bank accounts.

The next in line was Vivo. The ED launched nationwide raids on 48 locations of Vivo India. The ED has reasons to believe that Vivo India had transferred 50% of its revenues to its parent company to avoid paying taxes. Hence, the ED froze all bank accounts of Vivo India.

However, later on the order of the high court, Vivo India was allowed to operate these accounts.

Vivo India was allowed to operate accounts on the condition that it could provide a bank guarantee worth Rs 9,500 m and also maintain a balance of Rs 2,510 m.

ED had strong reasons to believe the very popular Chinese mobile phone companies were behaving in a way that is detrimental to the interest of the Indian public.

Hence, due to these reasons, the government is probably taking steps to get these Chinese mobile phone companies to act lawfully.

Recently, the government has come up with a plan. The plan is to ban Chinese mobile phones for under Rs 12,000 in India.

Read on to find out how this probable ban will affect various Indian companies and what is the impact on India.

Ban on Chinese Mobile Phones under Rs 12,000!

According to a report published by Bloomberg, the Indian government may probably ban Chinese mobile phones for under Rs 12,000.

Now, this will be a big shakedown for Chinese mobile phone companies, especially for companies like Xiaomi, Realme, etc. whose major business is under the range of Rs 12,000.

66% of Xiaomi's product range is under Rs 12,000.

In June 2022, out of the total mobile sales in India, a third of the sales came from mobile phones under Rs 12,000.

80% of these sales were from Chinese companies.

Chinese mobile phone companies failed to abide by Indian laws. Hence the government may ban Chinese phones.

Two years ago in June 2020, the government banned 59 Chinese apps in India.

These moves by the Indian government are also perceived to be a reaction to the ongoing tension between the two countries.

Since the Galway Valley incident in 2020, in which 19 Indian soldiers and 5 Chinese soldiers were killed, a cold war has been going on between the countries.

Hence this ban might be a tight slap on the Chinese companies who were acting like India was their grandparent's home.

Let us now take a look into how the ban will impact Indian companies.

Impact On Indian Mobile Manufacturing Companies

Indian mobile manufacturing companies like Micromax, Karbonn, etc will be overjoyed by this ban.

If this ban is actually made effective, Indian mobile companies will have a big opening in the market with negligible competition.

One listed company to look forward to this time will be Dixon Technologies. Dixon Technologies is a local contract-based mobile manufacturer in India.

Dixon Technologies is already a contract-based manufacturing unit for many popular companies like Xiaomi, Samsung, etc.

It means the company already has an edge in manufacturing mobiles, all it needs is a good Indian company with its technology.

This may result in Dixon Technologies' revenues and profits to shoot up and be the next leg of growth for the company.

Shares of Dixon Technologies are trading in the green after the news became public. Investors looking to benefit can keep a watch on the company's stock for a few days and see how it reacts.

Who knows, Dixon might even turn out to be the multibagger stocks for 2025.

Interestingly, the news revolving ban comes at a time when Reliance Jio has laid out plans for a 5G enabled phone. This might be a game changer for the Indian mobile industry.

The Game Changer

Remember those times when getting 2GB of data per month was a sign of being a rich person? Most of us got only 1GB per month.

I still remember the days when I used to manage with 1-2 GB of data per month.

The situation changed drastically with the entry of Reliance Jio into the telecom industry.

Seems like Reliance is cooking a similar story once again.

A few days ago, after the 5G spectrum auctions, a report stated that Jio is all set to bring its 5G-enabled phone to India very soon.

The mobile phone shall have the latest features like Android 11, 6.5-inch display, 4 GB internal memory, 13-megapixel camera, etc. The phone will have a price range of Rs 9,000 to 12,000. Reliance has already confirmed that the handset is being manufactured.

Reliance was the largest purchaser of the 5G spectrum bands. Now it's manufacturing the 5G enabled phones in the same price range as Chinese mobile phones…which may be banned!

Looks like Reliance has cleared all its competition for its handset even before it is launched in the market.

Other local manufacturers will obviously have to upgrade themselves to meet Reliance's phone. Hence, this ban combined with Reliance's new phone will change the game in the Indian mobile industry.

Final Words

To conclude, this ban might be a big win for the Indian government's ‘Make in India' scheme.

China plus one policy will also get a boost by this ban because Indian mobile manufacturers will emerge as a big competition.

This ban will be a blessing for non-Chinese mobile manufacturers because India is the second largest market for mobiles. The exit of Chinese mobile companies will open up wide doors for all other brands.

Thus, this probable ban may be a boon for non-Chinese mobile companies.

However, a coin has two sides. If you look at the other side of this probable ban, you will see the customer may be a loser. Chinese mobile phones offer exotic features at cheap prices.

Indian mobiles lack exotic features, while other mobiles of American and Korean origin are pricey.

Stay tuned to Equitymaster for more such stories.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)