What is the business model of Lava? How much is it making profits?

After a lengthy period of dormancy, shares of domestic cell phone manufacturers are once again in the spotlight. The cost of unlisted shares of one participant shot through the roof as investors celebrated the company’s “comeback”. 

With phones priced between Rs 6,999 and Rs 10,500, Lava International has re-entered the industry with its main brand ‘MyZ.’ Trading in the Lava share price has risen to Rs 400-425, up from Rs 220 a few months ago. It’s only worth about 0.7 times as much as its annual sales at the current unlisted price given.

On 31st March 2020, the company made Rs 5,264 crore in sales compared to Rs 5,108 crore in the same period of 2017. On this income, the company had a net profit of 107 crores, up from Rs 73 crore the year before. 

Despite the anti-China sentiment, off-market share dealers claim that the business is targeting feature phone customers who may be interested in upgrading to smartphones. It’s aiming for the lowest end of the market. As per Counterpoint Research, Lava had a phone market share of 6% in 2015 and is expected to fall to 1% by 2022.

Mobile manufacturing is the exclusive objective of the business. In the cheap market, insiders say it emphasizes 5G mobile phones. This is likely to be a major thrust in the future. Furthermore, a 4-6 percent PLI incentive is expected to increase capital expenditure. Additionally, profits for 2022 have been projected to rise by 55%.

Lava international business

An agreement for Lava to distribute Motorola-branded mobile phones under license from Lenovo was recently struck. A multi-year agreement with HMD Global has also been reached to design, produce, and distribute Nokia smartphones in India and elsewhere. Thailand, Sri Lanka, Bangladesh, Mexico and Indonesia are a few countries where it has a presence. 

With 13.4% in 2020-21, Lava is the third-largest smartphone company in India. F&S estimates that in 2020-21, it held a 10.2% share of the Indian market for phones priced under $70. By 2020, Lava expects to hold a 5% portion of the global feature phone market, ranking sixth overall, with the current Lava international share price listed as Rs 199 per equity share.

Lava International’s finances

From Rs 5,128.75 billion in 2018-19 to Rs 5,500 billion in 2020-21, the company’s overall revenue climbed significantly. Total mobile phone sales increased from Rs 3,750 crore to Rs 4,400 crore during this period, with the current Lava share price being at Rs 5 per Equity share at face value.

From 183.2 crore to 251.2 crores, EBITDA has grown at a compound annual rate of 17.1%. Profit after tax has increased from Rs 107 crore and Rs 73.18 crore in 2019-20 and 2018-19, respectively, to Rs 172.6 crore for 2020-21. 

In 2020-21, the company’s operations brought in Rs 5,512.8 crore in revenue. The Indian market accounted for 29.33% of this total, while the international market accounted for 70.67%. CAGR of 30% from Rs 2,300 crore in the fiscal year 2018-19 to Rs 3,900 crore in the financial year 2020-21 in international markets.

Smartphones manufactured by Chinese companies make up most of the market in India. Chinese enterprises’ combined market share declined by 9% in the second quarter of 2020 following the reaction against Chinese brands. 

Many of the brands have now rebounded from their initial decline. None of the non-Chinese manufacturers is among the top five, except for Samsung. To achieve this goal, Lava expects its new customizable phones and upgrade-after-purchase strategies to differentiate goods by 2021, accounting for 5% of the global smartphone market. 

Lava will release 5G phones in response to rising demand for 5G services and compatible handsets. It’s estimated that by the beginning of 2022, over a third of their inventory will be 5G-ready.

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