Stock Update

Dixon Technologies (India) Ltd

On a strong growth trajectory
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3R MATRIX + = - Summary
Š We retain Buy on Dixon Technologies (Dixon) with a revised PT of Rs5309 as the company remains
Right Sector (RS) ü one of the key beneficiaries of the Government impetus on increasing domestic manufacturing
through PLI schemes.
Š Dixon Technologies (India) Limited (DIXON) reported Q1 FY22 topline in line with our estimates
Right Quality (RQ) ü with revenue/ EBITDA/ PAT at Rs 1867 cr/ Rs 48 cr/ Rs 18 cr (+261%, +184%) respectively. The
performance can be attributed to strong growth across all segments.
Right Valuation (RV) ü Š The government has approved PLI scheme for IT hardware manufacturing which puts the
company at an advantage as it already has the capacities required.
+ Positive = Neutral - Negative Š Dixon has a strong balance sheet which enables them to invest in the long-term development of
the company. As on June 2021, the company has cash & cash equivalent of Rs 174 cr vs Rs 164 cr
last year and net debt of Rs 54 cr.
What has changed in 3R MATRIX
Dixon Technologies (India) Limited (DIXON) reported Q1 FY22 topline in line with our estimates
Old New with revenue/ EBITDA/ PAT at Rs 1867 cr/ Rs 48 cr/ Rs 18 cr (+261%, +184%) respectively. The
performance can be attributed strong growth across all segments. Gross margins were reported at
RS  7.4% (-~460 bps y-o-y) whereas OPM stood at 2.6% (-70 bps y-o-y). In Q1 FY22, margin contraction
was due to adverse operating leverage and accumulated inventories due to the slow demand
and advances for securing components/ raw materials as supply constraints remain elevated.
RQ  In consumer electronics segment, y-o-y performance grew by 262% as the demand scenario for
LED TV remained resilient. In the lighting products segment, demand was impacted due to weak
RV  demand on account of the lockdown. The y-o-y performance grew by 92%, but overall contribution
to the topline reduced. The segment was impacted due to accumulated inventories due to slow
demand and advances for securing components / raw materials as supply constraints remain
Reco/View Change elevated. In home appliances segment, y-o-y performance increased by 193% and the impact
of commodity prices have been passed on to principal customers. The mobile and EMS division
Reco: Buy  grew by 476%, however margins contracted due to adverse operating leverage and an initial ramp
up of the cost in the Mobile business. The management remained optimistic on high growth for
CMP: Rs. 4,513 FY2022 with increased share of global revenues although did not quantify the same on account
of COVID-led impact on the domestic demand in near term. Domestically, the management is
Price Target: Rs. 5,309 á hopeful of demand pick up from May 2021 end as more states come out of COVID led restrictions.
In consumer electronics, Dixon has increased capacities of TV sets, PCBAs, apart from plans of
á Upgrade  Maintain â Downgrade backward integration and new vertical LED monitors. In lighting, it would be increasing capacity
of downlighters from 600k to 1.5mn. In home appliances, it will start production at 6 lakh p.a. top
loading washers unit at Tirupati from September 2021. Dixon Technologies (India) is one of the
Company details 14 companies (domestic & international) which has been granted approval under the PLI scheme
of Government of India for IT hardware manufacturing. The scheme proposes production linked
Market cap: Rs. 26,432 cr incentives to boost domestic manufacturing and attract large investments in the value chain of
these IT hardware products. Dixon has cash & cash equivalent of Rs 174 cr vs Rs 164 cr last year
52-week high/low: Rs. 4588/905 and net debt of Rs 54 cr. We believe Dixon is on a strong growth trajectory led by the broadening
and deepening its product portfolio along with applications for new PLI schemes in its domain. We
NSE volume: maintain our Buy rating on the stock with a revised PT of Rs5,309 on account of a strong earnings
0.3 lakh
(No of shares) growth outlook.

BSE code: 540699 Key positives

NSE code: DIXON Š Healthy revenue growth outperformance led by growth across almost all segments.
Š Venturing into new segments within the domain viz. Telecom, IT and AC components
Free float:
3.8 cr Key negatives
(No of shares)
Š OPM affected by increase in raw material price in lighting and home appliances.
Shareholding (%) Our Call
Valuation – Retain Buy with a revised PT of 5,309: Dixon Technologies had been one of the key
Promoters 35.0 beneficiaries from the government’s impetus on increasing domestic manufacturing through PLI
schemes. The company has been continuously expanding capacities in its existing verticals and is
FII 19.9 now in process of venturing into other verticals within the domain through PLI schemes. The company
is on a strong growth trajectory over the next three to four years with management targeting to triple
DII 9.5 its size. The company is trading at 54x/ 39x FY23/FY24E EPS. We maintain our Buy rating on the stock
with a revised PT of Rs. 5,309 on account of strong earnings growth outlook.
Others 35.6
Key Risks
Price chart Š Delay in the commissioning of its capex project, slowdown in consumer discretionary spends, and
discontinuation of business from key customers might affect revenue growth.
5,000 Š Adverse raw-material prices, delay in the ability to pass on price hikes adequately, and adverse
4,000
forex fluctuations might affect margins.

3,000 Valuation (Consolidated) Rs cr

2,000 Particulars FY21 FY22E FY23E FY24E
1,000 Revenue 6,448 10,816 17,177 26,840
OPM (%) 4.4 4.8 4.5 4.3
Mar-21
Jul-20

Jul-21
Nov-20

Adjusted PAT 159 321 488 676

% y-o-y growth 33% 101% 52% 39%
Price performance Adjusted EPS (Rs.) 27.2 54.8 83.3 115.4
(%) 1m 3m 6m 12m P/E (x) 165.8 82.3 54.2 39.1
P/B (x) 35.8 25.3 17.4 12.1
Absolute 0.3 15 49 207
EV/EBITDA (x) 92.2 50.5 33.7 24.5
Relative to
-0.7 9 6 39 RoCE (%) 27.4 38.6 43.3 43.9
Sensex
RoNW (%) 21.6 30.7 32.1 33.8
Sharekhan Research, Bloomberg
Source: Company; Sharekhan estimates

July 27, 2021 2

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Strong performance across segments: Dixon Technologies (India) Limited (DIXON) reported Q1 FY22
topline in line with our estimates with revenue/ EBITDA/ PAT at Rs 1867 cr/ Rs 48 cr/ Rs 18 cr (+261%, +184%)
respectively. The performance can be attributed strong growth across all segments. Gross margins were
reported at 7.4% (-~460 bps y-o-y) whereas OPM stood at 2.6% (-70 bps yoy). In Q1 FY22, margin contraction
was due to adverse operating leverage and accumulated inventories due to slow demand & advances for
securing components/ raw materials as supply constraints remain elevated. In the consumer electronics
segment, y-o-y performance grew by 262% as the demand scenario for LED TV remained resilient. In the
lighting products segment, demand got impacted due to weak demand on account of lockdown. The y-o-y
performance grew by 92%, but overall contribution to the topline reduced. The segment was impacted due
to accumulated inventories due to slow demand & advances for securing components / raw materials as
supply constraints remain elevated. In home appliances segment, y-o-y performance increased by 193% and
impact of commodity prices have been passed on to principal customers. The mobile and EMS division grew
by 476%, but margins contracted due to adverse operating leverage and the initial ramp up cost in mobile
business.
Growth momentum to remains intact: The management remained optimistic on high growth for FY2022 with
increased share of global revenues although it did not quantify the same on account of the COVID-led impact
on domestic demand in the near term. Domestically, the management is hopeful of demand pick up from May
2021 end as more states come out of COVID-led restrictions. The management reiterated its three to four
guidance of tripling its size. In consumer electronics, Dixon will be increasing capacities of TV sets, PCBAs,
apart from plans of backward integration and new vertical LED monitors. In lighting, it would be increasing
capacity of downlighters from 600k to 1.5mn. In home appliances, it will start production at 6 lakh p.a. top
loading washers unit at Tirupati from September 2021. In mobile phones it has an aggressive target of reaching
50mn p.a. capacity from current 3.5-4mn. Dixon Technologies (India) is one of the 14 companies (domestic &
international) which has been granted approval under the PLI scheme of Government of India for IT hardware
manufacturing. The scheme proposes production linked incentives to boost domestic manufacturing and
attract large investments in the value chain of these IT hardware products. We believe Dixon is on a strong
growth trajectory led by broadening and deepening its product portfolio along with applications for new PLI
schemes in its domain.
Q1FY2022 Concall Highlights
Š The management has mentioned Dixon has an extremely healthy order book for Q2 FY22 ahead of
festive season.
Š During the quarter, Gross margins and OPM contraction was driven by a change in segment mix with
higher contribution from LED TV which has lower margin, lower turnover and higher commodity price.
Š Going ahead, the company will be able to address margin pressure thanks to a combination of pricing
action and inventory planning. They are hopeful that the pressure on margins will normalize going ahead.
Š Dixon has cash & cash equivalent of Rs 174 cr vs Rs 164 cr last year and net debt of Rs 54 cr
Š Consumer electronics: The segment reported y-o-y growth of 262% with EBITDA growth of 243% y-o-y.
The growth in this segment was led by strong volume and pricing action. The current capacity stands at
4.4 million TV sets including backward integration in both LCM and SMT, expansion plan to be executed
by next month. This will take the overall capacity to 5.5 million which will take care of 35% of Indian
requirement. Also, SMT line capacity increased to 2.7 million from 1.8 million. The LED manufacturing for
two largest global brands will commence from Q3 of current fiscal.
Š Lighting Products: The segment reported y-o-y growth of 98% with EBITDA growth of 19% y-o-y. The
management mentioned that they have a strong order book in this segment. Dixon has expanded capacity
of battens to 5 million in a month against the Indian requirement of around 9 million a month.
Š Home appliances: The segment reported y-o-y growth of 193% and reported EBITDA at Rs 4.4 cr vs Rs
40 lacs. The facility for washing machine is ready and trials completed, mass production to start from
September 2021. In this category, Dixon has 96 variants across 6-10 kg category with an annual capacity
of 6 lacs.

July 27, 2021 3

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Š Mobile & EMS Division: The segment reported y-o-y growth of 476% with EBITDA growth of 107% y-o-y.
In the current quarter, revenues for set-top-box and medical equipment business was 55 Crores and 3.5
crores respectively. Margins contracted in the business due to adverse operating leverage and the initial
ramp up cost in mobile business.
Š PLI: The PLI scheme for IT hardware, which was notified on March 3, 2021, provides an incentive of 1 to 4%
to eligible companies on net incremental sales over the base year of FY 2019-20 of goods under target
segments that are manufactured in India for a period of four years (FY22 to FY25). The contours for PLI in
IT hardware are that the company need to invest Rs 20 cr over 4 years with an incentive outlay Rs 110 cr
for domestic companies.

Results (Consolidated) Rs cr
Particulars Q1FY22 Q1FY21 YoY (%) Q4FY21 QoQ (%)
Total Income 1,867.3 516.9 261% 2,109.7 -11%
EBITDA 47.9 16.9 184% 79.8 -40%
Other Income 0.4 0.2 81% 1.0 -61%
Interest 9.1 5.7 60% 7.1 28%
Depreciation 15.0 9.3 63% 12.3 22%
PBT 24.1 2.2 - 61.4 -61%
Total Tax 5.9 0.6 - 17.1 -65%
Reported PAT 18.2 1.6 - 44.3 -59%
Adjusted PAT 18.2 1.6 - 44.3 -59%
Adjusted EPS 3.1 0.3 - 7.6 -59.0%
Margin BPS BPS
EBITDA Margin 2.6% 3.3% -70 3.8% -122
PAT Margin 1.0% 0.3% 66 2.1% -113
Tax Rate 25% 26% 28%
Source: Company; Sharekhan Research

July 27, 2021 4

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Outlook and Valuation

n Sector view - Demand outlook encouraging, healthy growth prospects
The Indian electronics and consumer durable industry is ~Rs 4,00,000 crore and growing rapidly.
Manufacturing can be a significant growth driver from a medium to long-term perspective, providing enormous
opportunities owing to the shift in manufacturing bases outside China and the government’s incentives to
enhance manufacturing through the Make in India initiative like the PLI scheme which aims to kick-start the
process, with strong industry participation.
n Company outlook - Promising outlook ahead
Dixon’s leadership position is a key benefit in the electronic outsourcing business. The company’s Tirupati
facility is expected to add a new dimension to growth prospects as it will foray into new business verticals,
expand product portfolio of existing business verticals, and penetrate further into South India by forging
an alliance with original equipment manufacturers (OEMs) and add them as clients. Expanded capacity in
consumer electronics and home appliances coupled with a PLI scheme licence for mobile phones is likely to
drive revenue growth momentum, while margin may expand due to economies of scale and automation in
the lighting business. The company is also applying for PLI schemes in 1) IT (laptops, tablets, hardware) 2)
Lighting (extrusions, batons, plastics, mechanicals) 3) AC components and 4) Telecom (modems, routers, IoT
devices) which augurs well for long term growth opportunities
n Valuation - Retain Buy with a revised PT of 5,309
Dixon Technologies had been one of the key beneficiaries from the government’s impetus on increasing
domestic manufacturing through PLI schemes. The company has been continuously expanding capacities
in its existing verticals and is now in process of venturing into other verticals within the domain through PLI
schemes. The company is on a strong growth trajectory over the next three to four years with management
targeting to triple its size. The company is trading at 54x/ 39x FY23/FY24E EPS. We maintain our Buy rating on
the stock with a revised PT of Rs. 5,309 on account of strong earnings growth outlook.

One-year forward P/E (x) band

100.0

90.0

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

-
Jul-18
Aug-18

Jul-19
Aug-19
Oct-18

Jul-20
Aug-20
Oct-19

Jul-21
Oct-20
May-18

Nov-18

Apr-19
May-19

Nov-19

Apr-20
May-20

Nov-20

Apr-21
May-21
Sep-18

Feb-19

Sep-19
Jan-19

Feb-20

Sep-20
Jan-20

Feb-21
Jan-21
Mar-19

Mar-20
Jun-18

Mar-21
Dec-18

Jun-19

Dec-19

Jun-20

Dec-20

Jun-21

1yr Fwd PE (x) Avg 1yr fwd PE Peak 1 yr fwd PE Trough 1 yr fwd PE

Source: Sharekhan Research

July 27, 2021 5

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About company
Founded by Mr. Sunil Vachani, Dixon is a leading manufacturer of products for key consumer durable brands
in India. The company currently has 10 state-of-the-art manufacturing units, four in Noida (Uttar Pradesh) and
three each in Dehradun (Uttarakhand) and Tirupati (Andhra Pradesh). The company manufactures products
with a capacity of 3.4 million LED TVs per year in the consumer durables segment, 20 million LED bulbs per
month in the lighting segment, 1.2 million washing machines per year in home appliances, mobile phones,
7 lakh CCTVs, and 1.5 lakh DVDs per month in the security devices segment in India. The company also
provides solutions in reverse logistics i.e., repair and refurbishment services of STBs, mobile phones, and
LED TV panels. Based on a report, ‘Project Rise’ by Frost & Sullivan India, Dixon is the largest home-grown,
design-focused products and solutions company.

Investment theme
Local manufacturing is expected to get a boost given the strong 17% CAGR in demand during FY2016-FY2021
in the consumer electronics market in India. The EMS industry is expected to witness a higher CAGR of 30.8%
during the same period, as players scale up their offerings from assembly-only to design-led manufacturing.
Dixon stands to benefit in the electronic outsourcing business with a leadership position in key business
segments. The company’s Tirupati facility is expected to add a new dimension to the company’s growth
prospects, as it will foray into new business verticals, expand product portfolio of existing business verticals,
and penetrate further into southern Indian market by forging alliance with OEMs and add them as clients.
Moreover, eyes are on the PLI scheme in the mobile phones vertical for which the company has filed two
applications.

Key Risks
A delay in the commissioning of capex projects, slowdown in consumer discretionary spends, and the
discontinuation of business from key customers might affect revenue growth. Adverse raw-material prices,
delay in the ability to pass on price hikes adequately in time, and adverse forex fluctuation might affect
margins.

Additional Data
Key management personnel
Sunil Vachani Executive Chairperson
Atul B. Lall Executive Director
Saurabh Gupta Chief Financial Officer
Abhijit Kotnis Chief Operating Officer
Ashish Kumar Company Secretary & Compliance Officer
Source: Bloomberg

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 SBI Funds Management Pvt Ltd. 6.83
2 Reliance Capital Trustee Co Ltd. 5.7
3 Steadview Capital Mauritius Ltd. 3.87
4 Goldman Sachs Group Inc 1.73
5 ICICI Prudential Asset Management 1.60
6 ICICI Prudential Life Insurance Co 1.50
7 Mankani Sunita 1.47
8 Vaswani Geeta 1.44
9 Sippy Shobha 1.32
10 Edelweiss Asset Management 1.07
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

July 27, 2021 6

Understanding the Sharekhan 3R Matrix
Right Sector
Positive Strong industry fundamentals (favorable demand-supply scenario, consistent
industry growth), increasing investments, higher entry barrier, and favorable
government policies
Neutral Stagnancy in the industry growth due to macro factors and lower incremental
investments by Government/private companies
Negative Unable to recover from low in the stable economic environment, adverse
government policies affecting the business fundamentals and global challenges
(currency headwinds and unfavorable policies implemented by global industrial
institutions) and any significant increase in commodity prices affecting profitability.
Right Quality
Positive Sector leader, Strong management bandwidth, Strong financial track-record,
Healthy Balance sheet/cash flows, differentiated product/service portfolio and
Good corporate governance.
Neutral Macro slowdown affecting near term growth profile, Untoward events such as
natural calamities resulting in near term uncertainty, Company specific events
such as factory shutdown, lack of positive triggers/events in near term, raw
material price movement turning unfavourable
Negative Weakening growth trend led by led by external/internal factors, reshuffling of
key management personal, questionable corporate governance, high commodity
prices/weak realisation environment resulting in margin pressure and detoriating
balance sheet
Right Valuation
Positive Strong earnings growth expectation and improving return ratios but valuations
are trading at discount to industry leaders/historical average multiples, Expansion
in valuation multiple due to expected outperformance amongst its peers and
Industry up-cycle with conducive business environment.
Neutral Trading at par to historical valuations and having limited scope of expansion in
valuation multiples.
Negative Trading at premium valuations but earnings outlook are weak; Emergence of
roadblocks such as corporate governance issue, adverse government policies
and bleak global macro environment etc warranting for lower than historical
valuation multiple.
Source: Sharekhan Research
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