According to a report by Bank of America (BofA), India’s mobile phone exports have recently experienced a remarkable surge, making global headlines and positioning the country as a credible alternative in the global supply chain for mobile phones and electronics. As per the report, co-authored by Amish Shah, managing director & head of India research at BofA, the exports have grown at an impressive rate, reaching 2.2 times year-on-year (YoY) and totalling a significant $1 billion per month.
Following are the key highlights from of the report:
India: a supply chain alternative; 68 global stocks exposed:
India’s mobile phones’ exports (2.2x YoY/ $1 billion/month) made global headlines recently. Exports mix in local production also expanded from 16 per cent to 25 per cent YoY. We believe India could be a credible global supply chain alternative for mobile phone/electronics. Success in other sectors is also likely. We believe India’s efforts to cut imports/step-up exports, could improve its macro-outlook, particularly, a) cut current account deficit by $112 billion over five years, b) provide stability for rates and Indian rupee (INR), c) accelerate growth for capex/credit /logistics sector. Besides, it could help diversify supply chains for global brands/contract manufacturing firms. The report sees exposure for 68 stocks globally on the back of this theme.
Electronics: $158bn market, 1/5th trade deficit; localising:
India consumed $158 billion of electronics in FY23 (11 per cent CAGR over FY17-23), supply for which, was largely met by imports. At $77 billion, it is India’s second largest import bill and 1/5 of its trade deficit. Hence, in line with India’s broader goal to cut imports/expand exports , the sector has seen increased policy focus. To push localisation/exports, almost half of the $37 billion production-linked incentives (PLI) has been allocated to this sector.
Mobile phones: a success story; India prioritising scale:
Mobile phones are 21.5 per cent of India’s electronics domestic demand pie and are growing faster at 15 per cent CAGR. Mobiles’ PLI scheme, among other policies to fix India’s production cost gap vs peers is already a success: since FY17, mobile phones production/exports are up 3.9x/65x, while imports are down to a third. India’s low production value add at 18 per cent is a key criticism (China/Vietnam: 38 per cent/24 per cent). However, our analysis suggests 70 per cent of mobile phones’ cost (display/memory/chips) is hard to localise near term as it requires large capex and high-end technology. Analysis of China/Vietnam’s journey also shows that focus on higher scale initially, helped them expand value add ratio long term.
India to meet its FY26 targets of 3x production, 5x exports:
Given India’s focus on scale, its PLI scheme targeted large players: Samsung and contract manufactures of Apple, which contributed 80 per cent of its $11 billion mobile phones exports in FY 2023. We believe India can meet its ambitious target: 3x domestic production/5x exports at $126 billion/$55 billion, by FY26, which could help create a vendor ecosystem overtime. Policy stability, labour productivity and last mile connectivity, are key factors to watch. Apple may shift >18 per cent iPhone production to India by FY25 targets under the PLI scheme may drive Apple to shift at least 18 per cent of its global iPhones production to India by FY25 (7 per cent in FY23, negligible pre-PLI). Apple’s share may expand further if larger scale incentivises its vendors to also expand in India. Apple could also see share gains (4 per cent now) within India’s mobile phone market on improving affordability of locally made iPhones & shift in favour of premium products. We see India contributing >5 per cent of Apple’s global iPhone sales by CY25 & register 21 per cent CAGR over CY22-25.
