CELLPHONES: Alibaba Eyes India Mobile Market With Micromax

Bottom line: Ant Financial’s bid for a stake in Indian smartphone maker Micromax reflects Alibaba’s recent focus on India, as it seeks to expand to markets where it can quickly grow and justify its high valuation.

Alibaba unit eyes Micromax investment

E-commerce giant Alibaba (NYSE: BABA) appears to have its sights set on India, with word that the company’s financial arm is leading a group that could invest $1 billion or more for a stake in local smartphone giant Micromax. The reported bid is being led by Ant Financial, which is separately run from Alibaba and has no equity relationship with the US-listed e-commerce giant. But such a bid would clearly be part of Alibaba’s broader global expansion, as it tries to justify its lofty valuation following a record IPO last September.

This latest move shows that India is rapidly emerging as the “flavor of the day” for Chinese Internet companies and smartphone makers, as they look for markets where they can realistically expect to make quick gains. Smartphone sensation Xiaomi was the first to seriously target the market nearly a year ago, and has achieved big rewards for its relatively early arrival. (previous post) Chinese smartphone makers Oppo and Coolpad (HKEx: 2369) are also active in the market.

According to the latest reports, Ant Financial is leading a group that would buy 25 percent of Micromax, in a deal that would value the company at $4-5 billion. (English article) That would imply a total investment of $1 billion to $1.25 billion, with Ant as the largest of 3 or 4 investors in the round. The reports indicate a deal is still in negotiations and that some differences still exist over the company’s future direction.

That seems to indicate there’s still potential for the talks to collapse, and that there’s internal debate within the company over whether it should focus on online or off-line sales. In an interesting footnote, the reports note that Japan’s Softbank, which was one of Alibaba’s earliest investors, was originally interested in the deal but later dropped out. That would mark a relatively rare divergence between Alibaba and Softbank, whose names have become closely linked in a wide range of deals.

The deal would mark the latest in a growing series of investments for Alibaba in India this year. In February Ant Financial, which owns Alibaba’s Alipay electronic payments unit, bought 25 percent of Indian electronic payments firm One97. And last month reports emerged saying Alibaba was one of several companies interested in buying a stake in local rising e-commerce player Snapdeal, which was selling 20 percent of itself in a deal that would have valued the company at about $5 billion. (previous post)

Earlier this year Alibaba also paid $590 million for a minority stake in Chinese smartphone maker Meizu, which is also targeting India for big growth. A company official said last month that Meizu is aiming to sell 700,000 smartphones in India this year as it enters the market, which is a relatively big figure for a new entrant of its size. (previous post)

From a broader perspective, this latest deal appears to show that Alibaba is trying to enter India on multiple fronts, first in its traditional strengths in e-commerce and electronic payments and now in its more recent focus on smartphones. It’s interesting to note that none of its investments so far involves an outright acquisition. That probably reflects Alibaba’s acknowledgement that it has little or no experience in the market and would prefer to let local partners run the show for now.

Alibaba’s India focus looks like a relatively smart move strategically, as India is far less competitive than more mature western markets and shares many characteristics with China. If things go well, Alibaba could potentially make one or more eventual bids to completely acquire some of these Indian investments and ultimately roll them into one big local company. But that would be years away, and things could easily change over that time for such a rapidly evolving market like India.

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