As we noted first thing this morning, Mizuho downgraded Apple to neutral from buy, slashing its price target on the world’s largest company to $160 to $150 on the view that robust sales growth for the next product cycle has already been factored into the company's share price. Among other things in its report, Mizuho took a look at some of the company's key growth markets - notably India - to try and quantify the potential for sales growth in the coming years. It found that the iPhone's ability to gain market share in the world's most populous country could be problematic to say the least, and will likely be constrained by the high "opportunity costs" that buyers associate with these products.

Some observations:according to Mizuho, “the amount spent on the iPhone 6S would pay for one month’s rent for a two-bedroom apartment in a large metropolitan city." These prohibitively high costs make it extremely unlikely that the Indian market will swell to hundreds of millions of users of Apple products in the near, or not so near term, like the company hopes.

“In the exhibit below, we provide added perspective by evaluating the opportunity cost of buying an iPhone in India based on an average smartphone user’s living expenses. For instance, the amount spent on iPhone 6S could allow a consumer to purchase five round-trip cross-country air tickets or pay for one month’s rent for a two-bedroom apartment in a large, metropolitan city." “Similarly a consumer can pay for one year’s worth of groceries, or four years’ worth of cell phone payments with the same amount. In contrast, in the US, smartphone users finance their phones with only $200-300 paid up-front.”

A handful of other "opportunity cost" comparisons can be found in the chart below: The price of an iPhone 6S is also equivalent to 4 months of K-12 school tuition, four years of monthly cable bills, one year of gas spending and one year of grocery bills.

The bank also calculated an iPhone "affordability index" that compares the cost of an iPhone six to average monthly wages. It found that Apple commands a greater than 10% market share in regions where the index is greater than 1.5% - though China, largely thanks to high wealth disparity, is a notable exception.

When compared to average local wages in India, iPhones have an affordability index of less than 0.25%, something which Mizuho believes will be a significant barrier to any meaningful market penetration. Furthermore, the Japanese bank found that about 75% of the phones shipped in India sell for less than $250, and 95% of the phones sell for less than $500 - meaning that phones manufactured by Chinese companies like Huawei, Xiaomi and Vivo are at a significant advantage in terms of pricing.

And while Apple products are expected to become more affordable as the country modernizes and wages rise, this shift likely won't happen quickly enough to contribute to any meaningful growth in near-term sales.



Ultimately, Mizuho believes that in a best case scenario India could contribute around $3-4 billion in 2017 rising to around $9-10 billion by 2020 (CAGR of about 35-40%). To put this in context, revenues from India would represent about 4-5% of Apple’s total revenues over the next few years through 2020. In absolute terms, these revenue numbers from India represent strong growth; however, the contribution is unlikely to have a material impact on the company as a whole, especially if the risky adoption does not materialize and the India "penetration" experiment blows up in Tim Cook's face.