About the Company

Dixon Technologies (India) Limited is the largest homegrown design-focused and solutions company engaged in manufacturing products in the consumer durables, lighting and mobile phone markets in India. Its diversified product portfolio includes Consumer electronics like LED TVs, Home appliances like washing machines, Lighting products like LED bulbs and tube lights, downlighters and CFL bulbs, Mobile phones like feature phones and smartphones, Security Surveillance Systems like CCTV & DVRs.  The company manufactures and supplies these products to well-known companies in India who in turn distribute these products under their own brands.

Q2FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 1473 1167 26.22% 466 216.09% 1939 2103 -7.80%
PBT 66 42 57.14% 2 3200.00% 69 73 -5.48%
PAT 48 38 26.32% 2 2300.00% 50 58 -13.79%

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 1639 1405 16.65% 517 217.02% 2156 2552 -15.52%
PBT 72 48 50.00% 2 3500.00% 74 84 -11.90%
PAT 52 43 20.93% 2 2500.00% 54 67 -19.40%

Detailed Results

  1. The company had a great quarter so far with Q2 revenues rising 17% YoY and profits rising 21% YoY.
  2. The EBITDA margin for the company has fallen by 80 bps to 5.5% in Q2FY21 & EBITDA has risen 36% YoY.
  3. Segment-wise Q2 Revenue performance is as follows:
    1. Consumer Electronics: Up 30% YoY       (59% of current revenues)
    2. Lighting Products: Up 4% YoY                 (18% of current revenues)
    3. Home appliances: Up 4% YoY                  (9% of current revenues)
    4. Mobile Phones: Up 2% YoY                       (12% of current revenues)
    5. Security Systems: Down 9% YoY              (2% of current revenues)
    6. Reverse Logistics: Down 5% YoY              (0.2% of current revenues)
  4. The company had a cash conversion cycle of 0 days.
  5. Net Debt was at Rs 17.13 Cr with net debt to equity at 0.03 times.
  6. It had a ROCE of 26.9% and ROE of 20.7%.

Investor Conference Call Highlights

  1. Dixon hopes to achieve an ROCE of 30%+ and an ROE of 25%+ in forthcoming quarters and years.
  2. LED TV revenues were at Rs 957 Cr vs Rs 738 Cr last year, strong growth of 30% YoY. Operating profit margins also expanded from 2.4% to 2.8% YoY on the back of the scale, a higher level of backward integration, the expansion of PCB capacity, and improved sales mix towards larger sizes of above 43 inches.
  3. Dixon completed the capacity expansion to 4.4 million TVs including backward integration and LCM which is around 30% of the Indian LED TV market. This capacity is expected to be increased to 5.5 million units by the end of FY21.
  4. The decision to increase LED TV capacity was taken due to the imports on complete LED televisions being shifted to the prohibited category.
  5. The latest customer addition in the customer portfolio of LED television is Vu, which is a significant domestic player in LED television. The production for Vu is going to start in November.
  6. Another new customer in the LED TV category is OnePlus. Production for OnePlus will start from Q4.
  7. Dixon already has a capacity of almost 200 million to 250 million LED bulbs, which is more than 40% of the Indian requirement.
  8. Dixon has expanded its capacity of battens from 250,000 in Phase 1 to 1.5 million. In downlighters, capacity has expanded from 150,000 per month to 600,000 per month and will go up to 1.2 million per month by Q1FY22.
  9. Around 1/3rd of LED bulbs will be made through automation from Oct onwards.
  10. Dixon presently has 40-odd models in washing machines and has an annual capacity of 1.4 million in 6 kgs to 10 kgs. In Q3, Dixon will be launching a new 10 kg model and also an electronic panel model.
  11. The expansion plan for a fully automatic top loading washing machine is on track in the Tirupati location.
  12. There are approximately 30 variants in the fully automatic category to start with and the annual capacity is at 6 lakhs. Commercial production should start in Q4.
  13. The details of the mobile phone PLI scheme are:
    1. Domestic companies are incentivized for mobile phones of less than $200, that’s INR 15,000, which is a special carve-out for domestic companies with a CapEx investment of INR 200 crores over 4 years.
    2. Eligibility will be subject to thresholds of incremental sale of manufactured goods.
    3. Incremental sales of manufactured goods over the base year for the financial year ’21 is INR 500 crores, financial year ’22 is INR 1,000 crores, financial year ’23 is INR 2,000 crores, ’24 is INR 3,500 crores and ’25 is INR 5,000 crores.
    4. The revised ceilings for ’21 is INR 2,000 crores, ’22 is INR 4,000 crores, ’23 is INR 6,000 crores. For financial year ’24 is INR 8,000 crores and the financial year ’25 is INR 10,000 crores.
  14. Dixon is planning to increase mobile phone capacity from the current 3 million to 15-16 million in the next 2 years.
  15. According to management, this PLI development should generate cumulative revenues of Rs 28,000-30,000 Cr in the next 5 years.
  16. The company has already delivered 5.2 lakh cable and hybrid set-top boxes for Jio dish and SITI Cable and has generated revenues of Rs 35 Cr. It has a strong order book of almost 0.3 million per month from October onwards.
  17. In medical devices, Dixon dispatched its first set of 40 machines.
  18. Margin profile in set-top boxes is around 3-3.2%. in medical devices, the company expects to earn margins of 20-22%.
  19. Margin profile for mobile phones was higher on account of anchor customers for 2G phones.
  20. The operating margin in the mobile phone business should be at 3%.
  21. The company expects Vu & OnePlus to have volumes of 0.8 million to 0.9 million TVs per annum.
  22. The management has stated that the existing 3 customers should be enough for meeting the ceiling numbers under the PLI.
  23. The mobile phone capacity is fungible with a 1:3 ratio for smartphones:2G respectively.
  24. The company can also make set-top boxes and medical devices using the same line as mobile phones.
  25. The topmost customer contributes around 30-32% of revenues and the 2nd one does around 17% of revenues.
  26. Utilization in lighting in Q2 was at 81% and for LED TV it was at 78%. In-home appliances it was 80%, in mobile phones on the 2G side, it was almost 68%, and on the smartphone side, it was 35%.
  27. ODM share in lighting was at 90% while in home appliances it was at 100%.
  28. The management remains confident of reaching Rs 1000 Cr in set-top boxes in FY22 given the current order book. The management expects this business to have revenues of Rs 400-450 Cr in H2.
  29. In AC PCB, Dixon is supplying to Daikin and has partnered with Rexxam Japan, which is a global partner of Daikin.
  30. Volume growth in TVs was at 14% YoY while in lighting, the company did 571 lakh units as against 508 lakh units last year.
  31. In mobile phones, volumes were at 96 lakhs phones vs 16 lakhs a year ago.
  32. In CCTV, Dixon did around 6.6 lakh units as against 6 lakhs last year.
  33. The LED TV business is OEM and all cost increases are passed on with no lag to customers.
  34. Debtor days were almost unchanged at 58 days while inventory days fell to 28 days from 45 days. Creditor days were at 86 days from 93 days in June.
  35. QoQ growth in washing machines was at 15%+.
  36. 100% of the new customer business from Vu and One Plus will be coming to Dixon.

Analyst’s View

Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company has done well to scale up its different diverse divisions: lights, consumer appliances, mobiles, etc. It has also acquired many marquee customers along the way including Vu & OnePlus in Q2. The current quarter was good for the company despite the production shutdown during the lockdown. Demand has come back fast in all of its segments and the company is also hopeful of expansion in mobiles on the back of the PLI scheme and LED exports. The company remains confident of reaching the ceiling numbers for the PLI scheme from its existing customers. It remains to be seen whether the company will be able to expand aggressively in the medical devices space and what obstacles it will face that may threaten to halt its growth momentum in its emerging segments. Nonetheless, given the list of marquee customers that the company has gained and retained over the years and its continuous efforts to expand existing capacities like consumer electronics and adding new product lines like disruptive medical devices, Dixon Technologies is cementing its place as a good growth-story in the outsourced manufacturing sector in India.

 


Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 466 936 -50.21% 768 -39.32%
PBT 2 31 -93.55% 40 -95.00%
PAT 2 20 -90.00% 30 -93.33%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 517 1147 -54.93% 857 -39.67%
PBT 2 36 -94.44% 37 -94.59%
PAT 2 24 -91.67% 28 -92.86%


Detailed Results

    1. The company had a dismal quarter so far with Q1 revenues remaining falling 55% YoY and profits falling 92% YoY.
    2. The EBITDA margins for the company have fallen by 130 bps to 3.3% in Q1FY21.
    3. Segment-wise Q1 Revenue performance is as follows:
      1. Consumer Electronics: Down 32% YoY         (67% of current revenues)
      2. Lighting Products: Down 76% YoY                 (15% of current revenues)
      3. Home appliances: Down 76% YoY                  (5% of current revenues)
      4. Mobile Phones: Down 63% YoY                      (10% of current revenues)
      5. Security Systems: Down 80% YoY                  (3% of current revenues)
      6. Reverse Logistics: Down 42% YoY                  (0.3% of current revenues)
    4. The company had a positive cash conversion cycle of 9 days. The cash conversion cycle was distorted due to weak revenues in Q1. This expected to normalize in Q2.
    5. It had a ROCE of 26.1% and ROE of 20.8%.

Investor Conference Call Highlights

  1. The company had 0 revenues in April and was back to 70% of normalized revenues in June.
  2. The company has a strong order book in LED TVs which is greater than its current capacity. Post capacity expansion, the company expects to service 33-34% of the total demand of 14 million in India.
  3. In Lighting, the company is back to 85-90% of normal levels currently. In July, it sold almost 13 million LED bulbs and almost 1 million battens.
  4. In Washing Machines, the company has an order book of almost 120,000 machines a month.
  5. The third line for washing machines is expected to be operational within August.
  6. The company has a cash balance of Rs 64 Cr.
  7. The company has filed 2 applications for the PLI scheme for smartphones.
  8. Dixon has acquired new customers in LED TVs like Samsung, Nokia, Toshiba, Hisense, and the private label of Flipkart.
  9. The company expects to offer full solutions in the smart category soon to a very large brand.
  10. The capacity expansion on the PCBA side is expected to be completed within August.
  11. The company has completed capacity expansion in the lighting division. It has added a major customer in the private label of Reliance in this segment in Q1.
  12. The company’s expansion and the new factory in the Tirupati campus for fully automatic top loading is on schedule. The company expects to complete trials in this location by December.
  13. The company has built up an order book of almost 800,000 to 1 million set-top boxes per month which is expected to generate a revenue of almost Rs 1,000 Cr next year.
  14. The company is expected to start making Quattro RT-PCR analyzer machine for COVID-19 within August.
  15. The budgetary allocation of incentive in the mobile PLI scheme is around Rs 41,000 Cr to be distributed within 5 companies. The turnover limits in this scheme are around Rs 500 Cr to Rs 2000 Cr with a 6% incentive. Despite TCL setting a factory in Tirupati, the management is not worried and is confident of Dixon maintaining cost competitiveness.
  16. The management remains confident that the company should be able to set up the plant and get it running within the next 4 months and achieve the threshold turnover and cross-sell within the next 7 months.
  17. The management expects to see a slight improvement in margins in the coming quarters in lighting and TV segments. This is primarily due to the ongoing shift towards larger screen sizes.
  18. The company already is installing 7 automated lines in the Lighting segment currently at its Noida plant. The margin improvement from these new lines is expected to be around 1.5-2%.
  19. The net debt as of the end of Q1 was at Rs 55+ Cr. Gross debt is at Rs 125+ Cr.
  20. The normal capex run rate for Dixon is at Rs 80-90 Cr per year. If the company gets approved for the PLI scheme, then these figures shall rise to Rs 130-140 Cr.
  21. The company will raise additional debt if it fails to meet the higher capex run-rate using internal cash generation.
  22. The management expects to see significant growth in ROCs coming mainly from this mobile strategy from next year.
  23. If the company gets approved for 1 PLI scheme, then it expected to make around 50-60% for exports. The end product mix shall then shift towards high-end phones.
  24. The management expects to generate smartphone sales of Rs 3000-4000 Cr by year 4 or so.
  25. The impact on working capital was mainly from delay on shipments, which led to a delay in production and delay in booking the sales. All this started due to a delay in custom clearances for both Samsung and Xiaomi.
  26. The company is not looking to do any capex to expand the Set-top box segment.
  27. The 7 automated lines in lighting in Noida are expected to account for 1/3rd of the total volumes going forward.
  28. Jio remains a strategic customer for Dixon and it will be looking to explore further opportunities with Jio in the future. Currently, it has contracts to make only set-top boxes for Jio. It is doing both the hybrid set-top box and the cable set-top box now.
  29. The expansion in the fully automated washing machine is expected to be completed by Q3 with trials in December. The company is launching 40-45 models here and has already gotten an anchor customer for this line.
  30. The company has already shipped its first consignment for anchor customers in LED exports to the USA & Indonesia. It is also in talks with large retail chains. The management remains confident of wins in the coming quarters in lighting exports.
  31. Per unit realization for sub $200 mobiles for the company remains at around Rs 5000-6000.

Analyst’s View

Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company has done well to scale up its different diverse divisions: lights, consumer appliances, mobiles, etc. It has also acquired many marquee customers along the way. The current quarter was dismal for the company mainly due to production shutdown during the lockdown. Demand is expected to come back fast in all of its segments and the company is also hopeful of expansion in mobiles on the back of the PLI scheme and LED exports. The company has also successfully installed 7 fully automated production lines in Lighting in Noida plant which should margin appreciation in the future. It remains to be seen whether the company will qualify in its application for the PLI scheme and what obstacles it will face that may threaten to halt its growth momentum. Nonetheless, given the list of marquee customers that the company has gained and retained over the years and its continuous efforts to expand existing capacities like consumer electronics and adding new product lines like disruptive medical devices, Dixon Technologies is cementing its place as a good growth-story in the outsourced manufacturing sector in India.

 


 

 

Q4 FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 768 725 5.91% 810 -5.17% 3681 2530 45.49%
PBT 40 21 91.57% 30 31.19% 142 84 69.31%
PAT 30 14 120.87% 22 36.93% 111 56 96.22%

 

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 857 861 -0.39% 996 -13.89% 4405 2990 47.33%
PBT 37 24 52.64% 35 5.08% 157 94 67.11%
PAT 28 17 66.85% 26 4.87% 121 63 90.21%


Detailed Results

    1. The company had a mixed quarter so far with Q4 revenues remaining flat YoY and profits rising 67% YoY.
    2. FY20 performance for the company was phenomenal with consolidated revenues rising 47% YoY and profits rising 90% YoY in the same period.
    3. The EBITDA margins for the company have improved by 190 bps to 6.5% in Q4FY20.
    4. PAT margins had a similar rise of 130 bps to 3.2% in the quarter.
    5. Segment-wise Q4 Revenue performance is as follows:
      • Consumer Electronics: Up 22% YoY (46% of current revenues)
      • Lighting Products: Down 16% YoY (30% of current revenues)
      • Home appliances: Down 3% YoY (10% of current revenues)
      • Mobile Phones: Down 10% YoY (7% of current revenues)
      • Security Systems: Down 20% YoY      (6% of current revenues)
      • Reverse Logistics: Up 84% YoY       (0.5% of current revenues)
    6. Segment-wise FY20 Revenue performance is as follows:
      • Consumer Electronics: Up 76% YoY (48% of current revenues)
      • Lighting Products: Up 24% YoY     (26% of current revenues)
      • Home appliances: Up 6% YoY        (9% of current revenues)
      • Mobile Phones: Up 51% YoY     (12% of current revenues)
      • Security Systems: Up 93% YoY    (5% of current revenues)
      • Reverse Logistics: Down 48% YoY (0.4% of current revenues)
    7. The company has a negative net debt of Rs 13.49 Cr on 31st March ’20 vs a positive net debt of Rs 96.92 Cr on 31st March ’19.
    8. The company has a cash position of Rs 95.66 Cr and free cash flow from operations in FY20 of Rs 91.51 Cr.
    9. The company had a negative cash conversion cycle of 4 days.
    10. It had a ROCE of 33% and ROE of 26%.

Investor Conference Call Highlights

  1. The loss from lockdown in March was Rs 165 Cr in revenues and Rs 10 Cr in EBITDA.
  2. The company saw margin expansion in all verticals in FY20.
  3. The company has signed an MoU with MoIbio for the manufacturing of the RT-PCR test device which is used for COVID-19 testing. This device provides results within 55 mins of taking a swab. This product is approved by ICMR and commercial production is expected from August onwards.
  4. The company does not require any additional Capex for this product. The company will be using its DVR and security surveillance plant in Tirupati to make this product. This marks the foray of Dixon in the medical devices segment.
  5. The company will increase its PCBA & assembly lines to increase LED TV capacity to 4.4 million. This is expected to be done by Q2.
  6. The capacity utilization in the TV unit was 35% in May and is expected to be around 65% in June.
  7. In the lighting division, the company has acquired Reliance private labels as a customer. It is also looking to add retail chains in the EU and the USA as customers.
  8. The utilization in this unit was at 50% post lockdown. Labour availability is proving to be an issue in this unit.
  9. The company is confident of adding the top-loading plant in the washing machine segment in Tirupati. The company also closed an agreement with a large MNC in this segment recently.
  10. In the mobile phone segment, the company has reached only 70% utilization post lockdown due to labour constraints. Commercial production for Jio set-top boxes has started already.
  11. The company is aggressively bidding for a production linked incentive (PLI) scheme in mobile phone manufacturing. It has already fled its application for it. The incentive here is from 4-6%. The company is also receiving big traction from large global brands for both the domestic markets and exports.
  12. The demand for TV has not been down in the lockdown for the company as the anchor customer in this product segment has a huge online presence and has managed to sell big volumes in May. The order book for June and July is also quite strong according to the management.
  13. Sales in washing machines, on the other hand, have gone down and demand is expected to normalize after a few months.
  14. The company has added LG as a big customer and DishTV as a customer in set-top boxes.
  15. Around 50-60% of foreign sales liability is hedged. Thus the company had to incur forex losses during the lockdown.
  16. The major Capex for FY21 is for capacity expansion in washing machines where Rs 45-50 Cr is already committed. The other one is for expansion in the TV segment which was mentioned earlier. The company needs this expansion on TV as it has added 3 new customers in Toshiba, Hisense and Nokia and also a big order from Xiaomi.
  17. The company is also looking to do Capex into automation to reduce dependence on labour. This will include Rs 200 Cr over 4 years. Total CapEx for FY21 will be around Rs 90-120 Cr.
  18. The management guides for margins of 8-8.5% from the lighting segment.
  19. The first order book for the RT-PCR device is of Rs 130 Cr for 1000 devices. This machine is expected to be in very high demand as it can be used to test 4 samples at a time and it can be used to test for 27 infectious diseases.
  20. The management is confident of qualifying for the PLI scheme. The incentive provided for the first year of the scheme is 6% of revenues.
  21. Net debt levels are expected to rise in the next 2 months due to working capital requirements and the company will start bringing them down after the festive season.
  22. Margins in the washing machine segment are expected to be severely impacted in Q1 due to the negative forex impact from sales to Samsung. But the management expects volumes to sustain going forward due to the addition of Voltas and Reliance private labels (Kelvinator and BPL) as customers in this segment.
  23. The management does not expect the margins of >10% in the lighting segment to be sustainable. This is because of the CAPEX to be done in automation in this segment and the increased costs from implementing social distancing in the production line.
  24. The company is aiming to become a complete solutions provider in the TV ODM segment and capture the market here is the same way as it has done in the lighting segment in the future.
  25. The company sees a lot of potential in the mobile phone segment mainly due to the addition of Samsung, LG, and Infocus (in-house brand of Foxconn) as customers. It is also aiming to add large global customers and take advantage of the PLI scheme here.
  26. The company is currently making feature phones for Samsung. It will start making smartphones for Samsung from July onwards.
  27. Market share of the company in various products is:
    1. LED Bulbs: 30%
    2. Light batons: 12-13%
    3. Downlighter: 7-8%
    4. Bulbs: 30-35%
    5. TV: 15%
    6. Washing Machines: 27-28% (semi-automatic) (12% Overall)
    7. Mobile Phones: 25% (excluding smartphones)
  28. In the lighting segment, the automation implementation is expected to be done in 8-9 months and is expected to improve productivity from 32 per man-hour to 55 per man-hour.
  29. The requirements for the PLI scheme are being a domestic company, a CAPEX of Rs 50 Cr, and threshold sales of Rs 500 Cr or above in the sub $200 mobile segment. Currently, Dixon is one of the few players in the market who can fulfill all these criteria.
  30. Apart from cost reduction exercises, the company is focussing on converting most of its fixed costs to the variable cost structure.
  31. The CAPEX for Q4 was higher than normal and thus FCF for 9M and FY20 turned out to be similar.
  32. The order book increase from the addition of 3 new customers on TV is expected to be around 60,000-70,000 units per month.
  33. The management expects all labour issues to be normalized by the end of July.
  34. The smartphone customers added recently are all for the mid to high-end category.
  35. The total mobile phone volumes can scale up to 2 million feature phones and 0.3-0.4 million smartphones.

Analyst’s View

Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company has done well to scale up its different diverse divisions: lights, consumer appliances, mobiles, etc. It has also acquired many marquee customers along the way. The company has done well to keep up the growth momentum in its existing segment by acquiring new customers. It is also investing in automation of its labour-intensive lines which is a good sign of passive productivity increase over the long term. The company has also forayed into medical devices by signing an MoU with MoIbio for manufacturing of RT-PCR test device which can deliver COVID-19 test results in just 55 minutes. This represents a big opportunity for the company as testing for COVID019 is expected to ramp up fast in the near future. Additionally, this device can test for 27 other infectious diseases which ensure that demand for the product remains steady in post COVID times. It remains to be seen whether the labour issue the company is facing in a specific segment will be resolved as the management has envisaged and what obstacles it will face that may threaten to halt its growth momentum. Nonetheless, given the list of marquee customers that the company has gained and retained over the years and its continuous efforts to expand existing capacities like consumer electronics and adding new product lines like disruptive medical devices, Dixon Technologies is cementing its place as a good growth-story in the outsourced manufacturing sector in India.


 

 

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 809.87 617.82 31.09% 1166.91 -30.60% 2912.67 1804.77 61.39%
PBT 30.14 22.59 33.42% 41.7 -27.72% 102.87 63.47 62.08%
PAT 22.18 14.34 54.67% 37.6 -41.01% 80.24 42.62 88.27%

 

Consolidated Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 995.64 794.55 25.31% 1404.81 -29.13% 3547.93 2129.39 66.62%
PBT 35.46 27.22 30.27% 48.35 -26.66% 119.5 69.41 72.17%
PAT 26.23 17.64 48.70% 43.04 -39.06% 92.91 46.84 98.36%


Detailed Results

    1. The company had a good quarter so far with Q3 revenues rising 25% YoY and profits rising 49% YoY.
    2. 9M performance for the company was phenomenal with consolidated revenues rising 67% YoY and profits rising 98% YoY in the same period.
    3. The EBITDA margins for the company have improved by 40 bps to 5.4% in Q3FY20.
    4. PAT margins had a similar rise of 40 bps to 2.6% in the quarter.
    5. Segment-wise Q3 Revenue performance is as follows:
      • Consumer Electronics: Up 58% YoY        (46% of current revenues)
      • Lighting Products: Up 18% YoY        (28% of current revenues)
      • Home appliances: Down 26% YoY  (7% of current revenues)
      • Mobile Phones: Down 8% YoY     (14% of current revenues)
      • Security Systems: Up 98% YoY        (5% of current revenues)
      • Reverse Logistics: Up 46% YoY        (0.5% of current revenues)
    6. Segment-wise 9M Revenue performance is as follows:
      • Consumer Electronics: Up 96% YoY        (48% of current revenues)
      • Lighting Products: Up 44% YoY        (25% of current revenues)
      • Home appliances: Up 9% YoY           (9% of current revenues)
      • Mobile Phones: Up 66% YoY        (13% of current revenues)
      • Security Systems: Up 273% YoY      (5% of current revenues)
      • Reverse Logistics: Down 61% YoY (0.3% of current revenues)
    7. The company has a negative net debt of Rs 23.76 Cr on 31st Dec ’19 vs a positive net debt of Rs 96.92 Cr on 31st March ’19.
    8. The company has commenced the production of home appliances for Voltas Beko.
    9. It has also commenced the production of Samsung feature phones from 1st Nov ’19.
    10. It is set to commence the production of LED TVs for Samsung from Feb ’20.
    11. The company has commenced production of the entire range of Lighting products for HPL Electric & Power.
    12. The company has got an order to manufacture Jio cable Set-Top boxes.
    13. It has also added Havells as a customer for LED lighting products.

Investor Conference Call Highlights

  1. The delivery of the set-top boxes for Jio Cable will start from March 2020.
  2. The company is going to be using one of its mobile plants which had low utilization to make these set-top boxes. The company will be using the same machinery as before and it has to do minimal Capex to make the plant ready to make these new products.
  3. The company is expanding its capacity from 3.6 to 4.8 million units in Consumer Appliances. The capacity expansion is expected to be done by May 2021.
  4. The company is also doubling its capacity for PCA to 2 million units.
  5. The company is in discussion with 2 MNC brands for further orders.
  6. The company saw margin expansion in the lighting division to 8.6% in the current quarter. All the brands for the company are on the Original Design Manufacturer (ODM) basis.
  7. The company now boasts of a large capacity of 20 million bulbs per month in the lighting division which is around 25% of the industry requirement.
  8. The company has added Havells as a customer for its lighting business where it provides Havells with emergency bulbs.
  9. The company has seen good margin expansion in washing machines as a result of the company’s internal initiatives.
  10. The company is going to add a facility of 600k capacity top loading fully automatic washing machines in Tirupati plant.
  11. The management is confident that a large portion of the Voltas Beko washing machine requirements will be met by the company.
  12. The focus on LED segment is to include emergency bulb solutions in the smart portfolio. In the industrial engineering side, the focus is to be on automation to reduce labour intensity in business.
  13. The company is also looking to develop its product portfolio and supply chain skillset for global customers. The first shipment for international customers is going out in March 2020.
  14. In baton lights, the company is around 1 million in capacity and the market is around 6-7 million. The company expects to raise its market share to this proportion.
  15. In downlighters, the company was making 100-150k per month for one large customer. The market for this segment is around 5 million units. Here the company is expanding capacity to almost 1 million a month.
  16. The company is targeting 20-25% in the next 2 years in the lighting division.
  17. The capex for FY21 is expected to be around Rs 60-65 Cr.
  18. The company’s China dependent supply chain has not been affected too much since the company does not have much activity in this area till March. Thus any impact if possible will be reflected in the next quarter onwards only.
  19. The LED sales volumes were around 4.5 lacs, washing machines were 1.4 lacs, security systems were 11.6 lacs. The company also sold almost 4.6 Cr LED bulbs in the quarter.
  20. The management remains confident of delivering current margins going forward.
  21. The Capex expected in the expansion of the washing machine segment is expected to be around Rs 50-55 Cr in total over two years.
  22. The company is expecting cash flows of Rs 30-35 Cr more in Q4.
  23. The debt levels should thus go down along with interest payments going forward. The management has also mentioned that the company will be funding its Capex from internal accruals only.
  24. The management has said that Q4 order book is good and the production for the 10 kg machines for Samsung will start from FY21 onwards.
  25. The management expects the share of products made for Samsung should rise in the future for the company.
  26. The management expects that it will take some time but by FY22, exports shall emerge as a major contributor for the company.
  27. The management has mentioned that the drop in working capital is mainly due to increased efficiency and processes on part of the company.
  28. The working capital intensity is expected to be at current levels.
  29. The management expects Samsung TV volumes to be around 500k-600k this year. The Voltas Beko volumes is difficult to estimate and Havells volumes are going to be small as the business arrangement between the companies has just started. The Jio order size is around Rs 150 Cr.
  30. The management expects growth in LED bulbs should be >10% while the baton and other segments should grow a lot faster. This is because the company will be looking to expand export sales in the LED bulb segment which may take time to scale.
  31. In the semi-automatic washing machine segment, the company is now making around 830-840k volumes and next year this can go up to 1.1 million. Most of this is expected from the existing customer set which already represents a significant portion of the outsourcing companies in the market.
  32. The company is also looking to supply products to Reliance under the Kelvinator brand and orders from Flipkart are also coming in. The company is also getting orders from Croma which is in small volumes at present.
  33. The management has confirmed that around 60-70% of capacity of fully automatic machines (0.6 million capacity) for the company is already booked with orders from MNCs and the company is in talks with other brands to book complete capacity after the capacity expansion is over.
  34. The management has guided that margins of 11.5-12% in home appliances are sustainable for the company and the final say will be dependent on commodity prices.
  35. The management has mentioned that the reason for the drop in home appliances revenues for the quarter is a seasonal drop in demand for washing machines after Diwali. In the case of mobile revenues falling, the management has mentioned that the 2 main customers that were being serviced through most of its capacity had a bad performance which impacted the company’s orders.
  36. The new plant for Samsung was operational in November and was not able to bring up the total volumes for the division significantly. The capacity utilization for Samsung plant has been 110% since opening.
  37. The management is confident of more than doubling the sales volumes in the LED TV segment as compared last year. Going forward, the consumer electronics division will see addition of a few marquee customers in FY21 which should help the company bring this business on the growth track with the rest of the company.
  38. In mobile sales volumes, 10.6 lacs phones were sold split between feature and smartphones vs 9 lacs last year. The proportion of smartphones has gone down due to the customers Gionee and Panasonic not doing well this year.
  39. In LED bulbs, the total capacity is around 16-17 million/month. Downlighter capacity is 200k/month which is set to be expanded to 1 million/month. Baton capacity is at 1 million/month and is expected to be expanded to 1.5 million/ month by April after which it will expand again to a final capacity of 2 million/month.
  40. The baton capacity utilization is around 100% currently. The market share of LED business is around 14-15%.
  41. The company expects major growth in the near future to be coming from batons and downlighter and exports. This is because the company is looking to expand capacity in these segments to rapidly capture market share.
  42. The company is expecting sales volumes of around 2.2 million in LED TVs in FY20 and 35% growth in the next year.
  43. In the case of lights and washing machines, 40-45% of raw materials is imported from China. In TVs, 80% of raw materials is imported from China.
  44. In reverse logistics, the 2 main product lines are TV panel repair and set top boxes. The major customer in this business is Xiaomi. Because of the acquisition of Xiaomi as a customer in this business, the margin and numbers for this business has grown very fast in the year so far. As per the present order book visibility, the management expects this division to grow in the future.
  45. With the current order book size for the panel and TV repair division, the company is expecting a monthly run rate of Rs 70-80 Lac EBITDA. The total capital deployed in this business is Rs 7-8 Cr and thus this has turned into a good margin business for the company.

Analyst’s View

Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company has done well to scale up its different diverse divisions: lights, consumer appliances, mobiles, etc. It has also acquired many marquee customers along the way. The company has also managed to acquire global electronics conglomerates like Samsung as a customer in different business segments. The company is also looking to capitalize its expertise and market reach to expand into export markets where there is a lot of potential for growth, especially for an electronics ODM. It remains to be seen whether the way forward for the company in the export market will be as smooth as the domestic one. The company also imports a visible majority of its raw materials for its many divisions from China and the effects of the recent coronavirus scare will only be reflected if the trade shutdown persists for more than a quarter. Nonetheless, given the list of marquee customers that the company has gained and retained over the years and its outstanding cash-generating ability, Dixon Technologies is a thus a good growth-story in the outsourced manufacturing market of India.

 

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