Led by India unlocking pent-up demand and channel stocking for the festive season, Q2 FY21 mobile shipments recovered to pre-Covid levels, up 180% QoQ to 79 mn. Recovery was led by smartphones, which jumped 3x QoQ/16% YoY to 54 mn and at the highest-ever share of 69% of total shipments. Feature phone shipments were down 30% YoY to 25 mn, led by a sharp 89% YoY fall in 4G feature phones to 1 mn. CLSA forecasts India’s smartphone user base to expand from 403 mn in FY20 to 590 mn by Mar-23CL, driven by a pick-up in smartphone migration. CLSA believes Bharti Airtel is best placed to play the sector’s rising smartphone penetration.

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Q2 FY21 smartphone shipments jump:

IDC data for Q2 FY21 reveals India mobile shipments (smartphones + feature phones) although down 4% YoY, recovered a sharp 180% QoQ to 79 mn. Recovery was led by smartphone shipments, which grew 16% YoY and were up 3x QoQ to 54 mn, comprising 69% of total shipments (highest-ever share) and up 12ppt YoY. Feature phone shipments were down 30% YoY to 25 mn, led by a sharp 89% YoY fall in 4G feature phones and these were a mere 4% of total feature phone shipments. India in Q2 FY21 was 15% of world smartphone shipments, up from 7% in Q1 FY21.

Lower share of Chinese handsets:

Q2 FY21 saw normalisation post Covid-19, worldwide smartphone shipments were down 1% YoY (-17% YoY in Q1 FY21) and India was up 16% YoY (-51% YoY in Q1 FY21). Also India’s chorus to shun Chinese brands has resulted in Chinese handset share (although up 2ppt QoQ) remaining 7ppt lower than its peak of 77% in Q4 FY20.

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4G feature phone shipments plummet:

Feature phone shipments have declined 30% YoY to 25 mn units in Q2 FY21. Here 4G feature phones shipments are down 89% to a mere 1.1 mn from the peak 21 mn in end-FY18. Assuming a two-year replacement cycle, migration from feature phone to smartphone has jumped with quarterly feature-phone upgrades to 11.6 mn in Q2 FY21 up 54% YoY. However, share of smartphone shipments in the over-US $300 category fell 2ppt QoQ to 5% and sub-US $100 remained at 29% due to lower demand for higher-end phones.
Sector on strong growth trajectory:

Covid-19 hit 1QFY21 shipments (down 59% YoY), yet led by reopening, pent-up demand, and channel stocking, Q2 FY21 has seen shipments recover to pre-Covid levels. With a sharp jump in shipments, we forecast India’s smartphone user base to expand from 403 mn in FY20 to 590 mn by Mar-23CL driven by a pick-up in smartphone migration. Besides, smartphone migration will drive growth in data subscribers. Reliance Jio and Bharti Airtel are well placed to play rising 4G data penetration and ARPU growth.