New Delhi: China’s Alibaba Group Holding Ltd is close to finalizing a near $1 billion deal to acquire a significant stake in Indian mobile phone maker Micromax Informatics Ltd.
If the deal goes through, Alibaba will invest $500-600 million of fresh capital in the company, two people said. It will also buy $400 million of secondary stock from existing investors, primarily Sequoia Capital, one of the two added. Both spoke on condition of anonymity.
The deal, if completed, could value the company at $3.5 billion post-money and will take Alibaba’s stake in Micromax to as much as 25-26%.The Chinese e-commerce giant plans to push its services and operating software through Micromax devices.
“The $600 million is just the primary money and is expected to be the first tranche of an eventually long-term strategic partnership committed to Micromax,” one of the two persons, who is directly involved in the deal, said.
If it goes through, it will be Alibaba Group’s second big investment in the country after its payment arm Alipay Singapore E-commerce Pvt. Ltd in February picked up a 25% stake for $200 million in Vijay Shekhar Sharma’s One97 Communications Ltd, which owns payments services company Paytm, in February.
While a Micromax spokesperson said the company does not comment on market speculation, Alibaba declined to comment. A Sequoia executive couldn’t be reached for comment.
According to media reports, Micromax has been in talks with several strategic investors including Japan’s SoftBank Corp., a deal with which fell through on the valuation table, Reuters reported in May.
Gurgon-based Micromax, which reported revenue of about Rs.10,000 crore in the year ended 31 March, expects to increase sales by as much as 50% in the current fiscal year. The company is betting big on selling cheaper smartphones in the country.
Globally, phone manufacturers are getting a large part of their revenue from mobile applications, software and other bundled products that offer better margins. A strategic partnership with Alibaba will help Micromax in strengthening its services business and also help in international expansion.
Alibaba has its own operating system, Aliyun, which the company hopes to push in India through Micromax.
Started in 2008, Micromax was founded by Rahul Sharma, Vikas Jain, Sumeet Arora and Rajesh Agarwal.
It currently sells in overseas markets such as Nepal, Sri Lanka, Bangladesh and Russia. The company is looking to expand its presence to some other parts of Asia and markets such as Africa and the Middle East. “The (expected) deal shows strength in India’s manufacturing capability and that investors are showing interest in companies beyond software,” said Sumir Verma, founder of investment bank Merisis. “With Alibaba on its side, Micromax has now the capability of becoming a strong global brand”.
Micromax led the smartphone market in India with a 22% share, ahead of Samsung Electronics Co. Ltd’s 20%, in the three months ended 31 December, according to a February report by Canalys, a technology researcher.
Micromax on Monday signed a strategic partnership with mobile travel search firm Ixigo to strengthen its presence in application services.
The company in May said it would invest between $500,000 and $20 million in over 20 start-ups in the coming year. For this objective, Micromax has also set up a mergers and acquisitions team, which has been actively working with start-ups across major technology markets such as the US, Europe, Israel and India to bring in the best products and capabilities.
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