India’s second-largest smartphone maker Xiaomi and Bengaluru-based retailer Sangeetha Mobiles are in talks to acquire the 300-odd stores of Essar Group’s cellphone retail venture The Mobile Store, which is winding up operations due to working capital challenges in the absence of any fresh infusion from the parent.

If talks fructify, Xiaomi would use a local partner to acquire the business and convert the stores into its exclusive ‘Mi Home’ outlets and may eventually take up stake if its application for single-brand retail foreign direct investment (FDI) is approved.

Xiaomi eyes outlets of The Mobile Store

For Sangeetha, it will provide a national presence and quicken its expansion outside South, four senior industry executives said.

Both the buyers are particularly interested in the locations of The Mobile Store outlets, which are either in leading malls or at prominent highstreet places. The executives said both Xiaomi and Sangeetha Mobiles are hopeful of sealing the deal at a lucrative valuation since it’s a distress sale for Essar, which has already served termination notice to employees and has closed most outlets.

“Essar is exiting the cellphone retailing business after trying out various models, such as delivery of handsets in two hours, and due to its failure to get a strategic investor,” one of the executives said. “If there is no settlement over valuation, Essar would try to offer the retail locations since those are mainly in demand. The potential acquirer will mostly be interested in the locations, not the brand or resources.”

Emails sent to Essar Group and Xiaomi did not elicit any response till Tuesday press time, while Sangeetha Mobiles managing director Subhash Chandra declined to comment.

Earlier, Spice Group and some private equity funds had evaluated a buyout or picking up stake in The Mobile Store, but they couldn’t cut a deal due to differences over valuation and huge losses of the business. As per industry excutives, Essar Group was asking for around Rs 500 crore for the business in January. At present, it would be happy to sell the business even for the security deposit landlords owe it for the outlets’ space.

The Mobile Store was once the country’s largest cellphone retailer with over 1,000 stores, but it lost out after the entry of Reliance Retail and due to hefty online discounts on smartphones and funds drying up internally.

Reliance Retail has evolved as the largest retailer of consumer electronics and mobile phones with over 2,000 stores, followed by Sangeetha Mobiles, which has over 400 stores.

Xiaomi is rapidly expanding in offline retail by setting up its exclusive ‘Mi Home’ outlets besides also selling through multi-brand stores. The Chinese smartphone maker, with a 22% share in the Indian smartphone market, has closed the gap with market leader Samsung, which has a 23% share, as per Counterpoint Research data for the July-September quarter. Offline sales already account for 20% of Xiaomi’s revenue, and it wants to scale up its retail presence to overtake Samsung.

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