Global currency wars made it more expensive for Xiaomi to sell phones in India

• The Chinese smartphone manufacturer, which is one of the primary contenders in the Indian market tripled its profits in FY 18 to $276 million.
  
• The cost of sales for smartphones increased by 45.4%, the company said.
  
• One of the reasons for the increase was the appreciation of the US dollar against the Indian rupee.
  
• Even so, the share of revenue from overseas in Xiaomi’s total revenue increased from 28% in FY17 to 40% in FY18.
  

The impact of the US-China trade war on Apple and Samsung is well known but Xiaomi, which has been leading in the Indian market for six consecutive quarters, seems to have felt the brunt as well.

While the company tripled its net profits to $276 million for FY18, its cost of sales — basically how much it costs to build a device — for smartphones increased by 45.4%, the company said in its regulatory filings.

According to its annual report, the increase was primarily due to the rise in sales of smartphones and the appreciation of the US dollar against the Indian rupee.

But despite the increase in costs, Xiaomi singled out overseas markets for their impact. Revenue from markets outside of China grew by 118.1, increasing their share in Xiaomi’s total revenue from 28% to 40% between 2018 and 2017.

The way that Xiaomi manufacturers smartphones only leaves a meagre 6.2% profit margin. But, since the company runs of a ‘triathlon’ business model — its three segments being hardware, software and retail — potential profit from smartphones is about more than just the sale of the device itself.

The software and retail part of its business model have their own profit margins from users consuming app services and in-app ads on Xiaomi devices.

That being said, smartphones are still the company’s primary source of revenue accounting for 65.1% of its overall revenue.

Rupee falls no more

Since last year, the Indian rupee has picked back up and is currently the best currency in Asia. In fact, according to Bloomberg, the increased optimism of investors with respect to the coming general elections and the India-Pakistan tensions is what’s fueling the robust flow. So much so, that the carry-trade returns on the rupee were the highest in the world last month.

Xiaomi’s annual report also noted that the company will continue its international expansion in an attempt to replicate the smartphone manufaturere’s success in India. In February last year, the company also launched their smart TVs in India which were well received — reportedly the largest in terms of online TV shipments.

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