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.

Q1FY22 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q1FY22 Q1FY21 YoY % Q4FY21 QoQ %
Sales 1531 466 228.59% 1841 -16.82%
PBT 24 2 905.42% 62 -61.08%
PAT 18 2 901.10% 45 -59.51%
Consolidated Financials (In Crs)
  Q1FY22 Q1FY21 YoY % Q4FY21 QoQ %
Sales 1867 516 261.82% 2111 -11.56%
PBT 24 2 1011% 61 -60.66%
PAT 18 2 1035% 44 -58.73%

Detailed Results:

  1. The company had a decent quarter with Q1 revenues rising 261% YoY and profit rising 1035%. This was mainly due to the low base in Q1FY21.
  2. The EBITDA margin for the company has fallen by 70 bps YoY to 2.6% in Q1FY22 & EBITDA has risen 182% YoY due to the low base last year.
  3. Segment-wise revenue performance in Q1 was as follows:
    1. Consumer Electronics: Up 262% YoY (68% of Q1 revenues)
    2. Lighting Products: Up 98% YoY (8% of Q1 revenues)
    3. Home appliances: Up 193% YoY (4% of Q1 revenues)
    4. Mobile Phones: Up 476% YoY (16% of Q1 revenues)
    5. Security Systems: Up 462% YoY (4% of Q1 revenues)
  4. The company had a cash conversion cycle of 0 day.
  5. It had a ROCE of 31.5% and ROE of 27.1%.
  6. As of 30th June 2021, Dixon has a cash balance of Rs 174 Cr.
  7. Total cash flow from operations in Q1FY22 was at Rs 37.52 Cr.
  8. The company’s net debt has risen to Rs 54.35 Cr in June from a negative net debt of Rs 8.04 Cr in March.

 

Investor Conference Call Highlights:

  1. The utilization of lighting products is expected to come back to 85-90% in August.
  2. Gross & EBITDA margin contraction YoY was driven by changes in the segment mix with a higher increase in the share of low margin LED TVs during the quarter. The company also faced negative operating leverage which also put pressure on margins.
  3. Rising commodity costs since November last year continued in Q1 and hampered the operating margin of the ODM business.
  4. Inventory levels have risen due to weak demand and securing raw materials and components in advance due to the ongoing supply chain and logistics issues in the world.
  5. Dixon currently has a capacity of 4.4 million TV sets including backward integration in LCM and SMT lines. It has started production of large screen sizes like 70, 75, and 85 inches in the current quarter for anchor customers.
  6. Its capacity expansion to 5.5 million will be executed by August, adding new automated 65 inches integrated lines with LCM and FA and 1 more high-speed SMT line. The increased capacity of 5.5 million is expected to account for 35% of domestic demand.
  7. The capacity of the SMT line has also been increased to 2.7 million per year from 1.8 million previously.
  8. Dixon is aiming to set up a capacity of 1 million LED monitors and the production will be commencing by Q3. The margins here are expected to be similar to LED TV. The initial volume for this product is expected to be at 0.5 million which is expected to increase to 1 million per year in the next 2 years.
  9. Margins in the lighting business were negatively affected by reverse operating leverage due to a drop in volumes, a rise in input costs, and a lag in passing on price increases.
  10. In the LED bulb segment, Dixon has a capacity of 300 million which is almost 50% of the Indian requirement.
  11. Dixon is in the process of developing outdoor lighting solutions, and its first project will be launched by September ‘21 which also includes streetlights.
  12. The company has 160-odd models in washing machines and the largest product portfolio ranging from 6 to 12 kgs across the semi-automatic category. It is also increasing its capacity from 1.2 million to 1.5 million units in August.
  13. The facility for top-loading fully automatic washing machines in Tirupati is ready and the mass production will start from September ’21 with a product portfolio of 96 variants across 6 to 10 kg categories.
  14. Dixon has begun exporting mobile phones for Motorola to Southeast Asia and North America.
  15. Around 65-70% of revenues in the mobile phone PLI scheme are expected to come from Motorola.
  16. Dixon is in talks with another big mobile phone player in North America.
  17. Production has started for Samsung 4G phones and Dixon has an order book of almost 1 million 4G phones per month in Q2.
  18. Dixon has manufactured almost 6 lakh set-top boxes for Jio, Dish TV, Siti Cable, and others for Q1. The order book in this vertical is at 0.5 million set-top boxes per month but there are supply challenges due to the unavailability of semiconductors.
  19. In Medical electronics, Dixon sold 145 units of the RT-PCR machines in Q1.
  20. The company is planning to create a capacity of 0.6 million DC category initially in the refrigerator category which will be ramped up to 1 million.
  21. Dixon is also eligible for the IT hardware PLI scheme and has partnered with a large brand to move forward in this business opportunity.
  22. Dixon has entered into a JV with Bharti Enterprises to make telecom and network application products. The JV will have 74% ownership by Dixon and 26% by Bharti Enterprises. The operations will be managed by Dixon.
  23. On Wearables and hearables, Dixon has started manufacturing TWS for boAt.
  24. The company is also looking to apply for the AC components PLI scheme for PCB assembly.
  25. The telecom JV is expected to reach revenues of almost Rs 2000 Cr in the next 2 years.
  26. In the PLI for AC-PCB, revenues are expected to reach Rs 400-450 Cr in the next 2 years. In the PLI for IT products, the revenues are expected to reach Rs 800-1000 Cr and in the refrigerator business, revenues are expected to reach around Rs 500-600 Cr, given sales volumes of 0.5 to 0.6 million.
  27. In the new businesses (telecom, laptops, etc.) the operating margins are expected to be at 2.8% to 3.5%, including the benefits from the PLI schemes. In the refrigerator ODM business, the operating margin is expected to be at 8% to 10%.
  28. The management expects the margins in the lighting business to come back to 8-9%.
  29. The management expects Motorola to source 8-10% of its global requirement from Dixon.
  30. Although there are significant challenges in sourcing raw materials and components in almost all businesses, Dixon has enough stock in inventory to ride out the situation according to the management.
  31. The company is waiting to get safety approvals for its lighting products from various countries after which it can start exports of its lighting products. It will be exporting primarily to USA and Western Europe initially.
  32. The order book for both lighting products and washing machines had fallen in Q1 due to local lockdowns and both have risen back to previous levels now. The washing machine order book has even risen to 150k in Aug & Sep from the normal level of 100k-110k per month.
  33. The management expects a normalized margin profile of 3.5-3.75% as most of the incremental growth will be driven by the new business lines.
  34. The management expects to achieve 3x revenue growth from FY21 to FY24 with revenues for FY22 expected to be at 11,500-12,000 Cr.

 

Analyst’s View:

Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company had a decent quarter despite challenges and margin contraction due to RM price increases and local COVID lockdowns. The company is participating in multiple PLI schemes like mobile phone PLI, IT hardware PLI, AC components PLI, and Telecom products PLI. It is looking to expand aggressively in these new business lines and is also looking to add refrigerators to its ODM portfolio. The management has set an ambitious target of achieving 3x revenue growth from FY21 to FY24. It remains to be seen what obstacles it will face that may threaten to halt its growth momentum, how will the RM price situation pan out, and whether the export ambitions of Dixon bear fruit as expected. 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, adding new product lines, and participating in multiple PLI schemes, Dixon Technologies is cementing its place as a good growth story in the electronics manufacturing sector in India.

 


 

Q4FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 1841 768 139.71% 1897 -2.95% 5677 3681 54.22%
PBT 62 40 55.00% 76 -18.42% 206 142 45.1%
PAT 45 30 50.00% 57 -21.05% 152 111 36.94%

 

Consolidated Financials (In Crs)
Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 2111 857 146.32% 2183 -3.30% 6450 4405 46.42%
PBT 61 37.0 65% 82 -26% 217 157 38%
PAT 44 28 57% 62 -29.03% 160 121 32.23%

Detailed Results

  1. The company had a phenomenal quarter with Q4 revenues rising 146% YoY and profits rising 57% YoY.
  2. The EBITDA margin for the company has fallen by 270 bps YoY to 3.8% in Q4FY21 & EBITDA has risen 45% YoY.
  3. Segment-wise Q4 & FY21 Revenue performance is as follows:
    1. Consumer Electronics: Up 200% YoY in Q4 & 83% YoY in FY21 (60% of FY21 revenues)
    2. Lighting Products: Up 50% YoY in Q4 & down 3% YoY in FY21 (17% of FY21 revenues)
    3. Home appliances: Up 63% YoY in Q4 & 9% YoY in FY21 (7% of FY21 revenues)
    4. Mobile Phones: Up 381% YoY in Q4 & 56% YoY in FY21 (13% of FY21 revenues)
    5. Security Systems: Up 100% YoY in Q4 & 1% YoY in FY21 (3% of FY21 revenues)
    6. Reverse Logistics: Down 18% YoY in Q4 & 14% YoY in FY21 (0.2% of FY21 revenues)
  4. The company had a cash conversion cycle of 0 day.
  5. It had a ROCE of 31.4% and ROE of 25%.
  6. Total cash as of 31st March 2021 was at Rs 63.94 Cr.
  7. Total cash flow from operations in FY21 was at Rs 170.11 Cr.
  8. The company has negative net debt of Rs 8.05 Cr.
  9. The company announced a final dividend of Rs 1 per share for FY21.

Investor Conference Call Highlights

  1. Gross & EBITDA margin contraction was primarily driven by an increase in the share of business during the quarter from LED TVs, which is an OEM business with a lower margin, and from steep price increases on the commodity side.
  2. In the ODM business also, there was a negative impact from commodity price increases as there is a lag in passing on the price increases to the customer.
  3. Dixon currently has a capacity of 4.4 million TV sets, including backward integration in both LCM and SMT, which is the largest capacity in India. It has already started production of large-screen TVs like 70, 75 inches, and 85 inches for its anchor customers.
  4. Dixon is adding a new automated 65-inch integrated line with LCM and FA and increasing the total capacity to 5.5 million units.
  5. Dixon’s PCB capacity with the new line of SMT is going to further increase from 1.8 million to 2.8 million.
  6. It has also tied up with 2 large global brands for manufacturing LED monitors. And the production will commence from Q3 of FY22. Dixon is aiming to set up a capacity of 1 million LED monitors by the start of Q3. The operating margin in this space is expected to be at 2.7-2.9%.
  7. Dixon is in the process of developing outdoor lighting solutions, namely street lights, and commercial lights, and these will be launched in Q2FY22.
  8. The company has 140-odd models and the largest product portfolio ranging from 6 to 12 kgs across the semi-automatic category. It is also increasing its capacity from 1.2 million to 1.5 million units.
  9. The new facility for fully automatic top loading in Tirupati has been set up already. Commercial production should start here by the start of Sep with nearly 40 models in the range of 6-10 kgs. Samples have been submitted to the anchor customer Bosch for approval already.
  10. Dixon commenced production for Motorola in mid-March and for Nokia in Feb. It has a strong order book from Motorola with 60-65% of these orders for exports.
  11. Dixon is the first Indian mobile manufacturing company, which has an Indian infrastructure and is capable of building the 5G phone as per any global requirement according to the management.
  12. Dixon made 6 lakhs set-top boxes in the last quarter and 21 lakhs in the whole year. The order book in this vertical looks very healthy with almost 0.5 million set-top boxes per month. But due to a shortage of components, Dixon will only be able to deliver around 0.35 million per month starting Q2.
  13. In Medical and electronics, Dixon made almost 550-odd units of RT-PCR machines.
  14. The company has decided to go ahead with the refrigerator product in the direct cool categories. It will initially be creating a capacity of 0.6 million which will be ramped up to 1 million. The category will be 170-220L. the target for production commencement in Q3FY23.
  15. Dixon has entered into a JV with Bharti Enterprises to make telecom and network application products. The JV will be owned 74% by Dixon and 26% by Bharti.
  16. The company is targeting to start exporting the 5G phone to the U.S. for Motorola from August or September.
  17. The revenue potential of the set-top box business is around Rs 450-500 Cr with a reduced delivery capacity of 0.35 million units per month. The company is supplying to Jio, Den, hatchway, SITI & DishTV in this space.
  18. The medical devices revenue potential should be around Rs 12-13 Cr per year according to the management.
  19. The company is looking to participate in the PLI schemes for lighting, IT hardware, network products & AC components.
  20. The total capex for FY21 was at Rs 167 Cr. The capex for FY22 will be much higher than FY21 as the company will be looking to participate in different PLI schemes.
  21. The total capex for refrigerators is expected to be at Rs 100 Cr in the next 1.5 years.
  22. The mobile sales in Q4 were marginally lower due to the shortage of chipsets and displays and other supply chain issues.
  23. The management expects the deliveries to Bosch to start around Oct and the formal launch of the products by Bosch by Dec or Jan. the initial deliveries will be in the 6-8 kgs category.
  24. The total capacity for fully automatic washing machines is around 6 lacs and the company will be targeting to reach sales of Rs 550-600 Cr in the next 2-2.5 years considering 80% capacity utilization. Operating margins in this segment will be in the low double digits.
  25. The company is going to look into backward integration for lighting products in the direction of plastics. It will require a capex of Rs 50-60 Cr across 4-5 years and should help in margin appreciation of 2-6%. By this time, the batten capacity is expected to rise to 5 million units.
  26. The company has a tie-up with boAt for wearables and it will be pursuing this segment aggressively as this is a high growth space in India.
  27. The market opportunity for Dixon in the telecom and network products space is around Rs 1600-1800 Cr per year.
  28. The current business in AC PCBs is around Rs 110-120 Cr.
  29. The management expects the overall margin profile to be in the range of 4-4.5%.

Analyst’s View

Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company had a phenomenal quarter with revenues rising 146% YoY and profits rising 57% YoY from last year. The company is looking to start exporting 5G smartphones for Motorola from Sep this year already. It is also looking to apply for 4 PLI schemes which are Mobile Phones, AC components, Lighting, and Telecom & Network Products. Despite the issues of components shortage for the TV industry, Dixon is confident of being able to complete its commitments without many hiccups. It remains to be seen whether the company will be able to expand aggressively as it has done in the recent past and what obstacles it will face that may threaten to halt its growth momentum in its emerging segments like refrigerators & street lighting. 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.

 


 

Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 1897 810 134.20% 1473 28.78% 3836 2913 31.69%
PBT 76 30 153.33% 66 15.15% 145 103 40.78%
PAT 57 22 159.09% 48 18.75% 107 80 33.75%

 

Consolidated Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 2183 996 119.18% 1639 33.19% 4339 3548 22.29%
PBT 82 35 134% 72 13.89% 156 120 30.00%
PAT 62 26 138% 52 19.23% 116 93 24.73%

Detailed Results

  1. The company had a phenomenal quarter with Q3 revenues rising 119% YoY and profits rising 138% YoY.
  2. The EBITDA margin for the company has fallen by 80 bps to 4.6% in Q3FY21 & EBITDA has risen 89% YoY.
  3. Segment-wise Q3 Revenue performance is as follows:
    1. Consumer Electronics: Up 199% YoY        (62% of current revenues)
    2. Lighting Products: Up 26% YoY                 (16% of current revenues)
    3. Home appliances: Up 68% YoY                  (5% of current revenues)
    4. Mobile Phones: Up 114% YoY                        (14% of current revenues)
    5. Security Systems: Up 10% YoY              (3% of current revenues)
    6. Reverse Logistics: Down 3% YoY              (0.2% of current revenues)
  4. The company had a cash conversion cycle of 1 day.
  5. It had a ROCE of 31.7% and ROE of 23.8%.

Investor Conference Call Highlights

  1. The EBITDA margin contraction in Q3 was primarily driven by a substantial change in the segment mix with a higher increase in the share of business during the quarter from LED TVs and due to certain input price increases.
  2. The management expects the cost pressure to continue in the near to medium term.
  3. The company has completed the automation of 1/3 of its capacity for LED bulbs.
  4. It has also decided to expand capacity at a new site in Dehradun in an adjacent plot of land for semi-automatic washing machines from 1.2 million to almost 1.6 million.
  5. The plant in the Tirupati campus for fully automatic top loading is almost complete. The lines are being laid, and the trials will begin in February and early March. It will have a capacity of 600,000 units.
  6. Dixon has closed agreements with new global customers Motorola and Nokia. The commercial production for Nokia has already started.
  7. The capacity for smartphones is expected to be at 20 million units per year for the next 2 years which should yield sales of Rs 25000-28,000 Cr in the next 5 years.
  8. In set-top boxes, Dixon manufactured 9 lakhs set-top boxes for Jio, DISH, and SITI Cable in Q3. It has an order book for 3-4 lac units per month for the next few quarters.
  9. The order book and the forecast given by Motorola is consuming almost all of the ceiling that the government offers in the mobile phone PLI scheme.
  10. The management has stated that the business should become sustainable by the time the PLI scheme is over in 2025 as the goal of the scheme is to create a stable environment for local companies to be able to compete globally.
  11. The management expects TV volumes sold to be at least 20-25% up from last year.
  12. The main issue in the TV business is not the demand but it is the supply chain challenges like the availability of open cell in glass.
  13. The company is already near full utilization in the new capacity in battens and downlighters.
  14. The LED TV market in India has shifted from 32 inches to 43 inches. Thus unit sale value has gone up by 14-15k in last 2 quarters.
  15. The wearables market in India is expected to be at Rs 5000 Cr. Dixon has tied up with boAt to create a new brand in this space.
  16. In Q3, in the mobile business, 75% of revenues have come from Xiaomi and Samsung. Rest 25% came from all other brands.
  17. The management expects sales volumes for Samsung to reach 0.7 million in the next fiscal year.
  18. The set top box market opportunity is expected to be around Rs 350-400 Cr for Dixon. This is mainly from domestic sales and the company is not looking at export options for it at the moment.
  19. The management shouldn’t have any problems sourcing the components for the mobile phones as they are sourced and procured by the brand owner.
  20. The company is not expected to be affected by the rise in duty for some input materials for PCBs as the rise in duty is for a small part of the overall PCB and this minor cost increase will anyway be passed on to the customer.
  21. The company has done capex of Rs 104 Cr in 9M, most of which was for the full auto washing machine plant and the mobile PLI project. The overall capex for Fy21 is expected to be around Rs 145-155 Cr.
  22. In terms of sales volumes, the company sold 6 Cr light bulbs, 45 lac battens, 14 lac downlighters, 46-47 lac of other lighting products. It also sold 2.4 lac washing machines and 75 lac phones of which 72 lac were feature phones and 3 lac were smartphones. It also sold 9 lac CCTVs and 9 lac set top boxes.
  23. Given the company’s capabilities in the lighting business, the management feels that it can venture into export markets. The company already has a full portfolio of lighting options and is already #3 or #4 in terms of LED bulb volumes in the world.
  24. The global lighting market is around $8 billion and the company will be aiming for a $500 million slice of this pie in the next 4-5 years.
  25. The management has guided that EBITDA margins should be at 4.5% at least in FY22.
  26. The main international competition other than China for contract manufacturing for India are Vietnam, Thailand, and Philippines according to the management.

Analyst’s View

Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company had a phenomenal quarter with revenues and profits doubling from last year. Demand has come back fast in all of its segments and the company has already acquired Motorola and Nokia as customers for mobile phones whose volumes should help Dixon reach the volume ceiling for the PLI scheme easily. Despite the issues of components shortage for the TV industry, Dixon is confident of being able to complete its commitments without many hiccups. It remains to be seen whether the company will be able to expand aggressively as it has done in the recent past 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.


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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