Dixon Technologies IPO - Inditrade

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Dixon Technologies

Snapshot OFFER PERIOD PRICE BAND SECTOR ISSUE SIZE MIN. QUANTITY NO. OF SHARES FACE VALUE BOOK VALUE P E RATIO

SEP 6 - 8 Rs.1,760-1,766 ELECTRONICS Rs.600 Crores 8 Shares 3.39 Million Rs.10 Rs.180 38.5

Post Issue SHARE CAPITAL MARKET CAP

11.3 Crores 2,000 Crores

Shareholding PROMOTERS KEY PERSONNEL RELATIVES DII PUBLIC

38.92% 4.12% 9.39% 5.83% 41.74%

Financial Information Rs. Crores For FY ended 31st Operating Income Other Income Total Income Operating Expenses EBIDTA EBIDTAM % PBIT PBT PAT PATM% EPS Debt: Equity ROCE % RONW %

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Mar-17 2456.76 1.50 2458.26 2366.02 92.24 3.75 81.61 68.84 50.38 2.05 45.86 0.22 67.84 25.48

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Background Dixon Technologies is the largest home-grown EMS (Electronics Manufacturing Services) company engaged in manufacturing products in the consumer durables, lighting and mobile phones in India. Its portfolio includes consumer electronics like LED TVs; home appliances like washing machines; lighting products like LED bulbs and tube lights, down lighters and CFL bulbs; and mobile phones. It also provides solutions in reverse logistics of set top boxes, mobile phones and LED TV panels. Its key customers include Panasonic India, Philips Lighting India, Haier Appliance India, Gionee, Surya Roshni, Reliance Retail, Intex Technologies, Mitashi Edutainment and Dish Infra Services. Investment Rationale The Indian Consumer Electronics (CE) market is expected to grow at a CAGR of 17.2% from FY 2016 to FY 2021 while the Consumer Appliances (CA) segment is expected to grow at a CAGR of 11.6% over the same period, resulting in a CAGR of 16.5% for the overall CEA market. The Mobiles phones represent the largest category followed by Televisions. But, the urgency to promote domestic manufacturing and cut the rising import bill puts domestic electronics manufacturing industry in a sweet spot, especially EMS players with lot of Govt. policy support. The EMS industry is poised to grow at 30.8% between FY 2016 and FY 2021 to touch 569 bln rupees according to Frost & Suvillian, which is nearly double the growth rate of CEA market. EMS players offer OEMs flexibility in product design, faster time to market, cost effectiveness, avoid manufacturing challenges besides value added services like design and aftermarket services. Valuation At the upper band, the issue is priced at 38.5X FY2017 earnings. Revenue and PAT of the Company have grown at a CAGR of 33.78% and 78.34% respectively between FY2013 and FY2017. The company is in to a futuristic business (EMS) with immense potential for growth with Govt. policy support also. Investors with a bit of risk appetite can subscribe to the issue. Key Risk The company’s growth depends on the performance of its key customers. There could be high volatility in earnings due to the nature of industry in which it operates.

About Company

Indian EMS Market Indian EMS market comprise of different tiers of companies, including global EMS companies with operations in India, large Indian EMS companies and mid/small Indian EMS Companies. The competition concentration is moderate as the top 3 companies account for 28.5% of the market. EMS companies in India have matured from being mere contract manufacturers to endto-end support partners today. Companies are observed to follow either of the two unique business models – High volume/low mix or Low volume/high mix and seldom do companies adopt a mixed approach. A number of global majors like Foxconn Technology (India), Flextronics Technologies (India) and Jabil Circuit (India) have been operating in India along with domestic majors like Dixon, steadily adding capabilities and capacities to cater to the domestic demand for electronics. Major Players in India EMS Market and their Market Share

Dixon Technologies is the largest home-grown design-focused and solutions company engaged in manufacturing products in the consumer durables, lighting and mobile phones in India. Its portfolio includes consumer electronics like LED TVs; home appliances like washing machines; lighting products like LED bulbs and tube lights, down lighters and CFL bulbs; and mobile phones. It also provides solutions in reverse logistics of set top boxes, mobile phones and LED TV panels. As per the Frost & Sullivan Report, Dixon is the leading manufacturer of lighting products of CFL, LED bulbs, LED TVs and semi-automatic washing machines. Its key customers include Panasonic India, Philips Lighting India, Haier Appliance India, Gionee, Surya Roshni, Reliance Retail, Intex Technologies, Mitashi Edutainment and Dish Infra Services. For FY2017 lighting, consumer electronics, home appliances, reverse logistics and mobile phones verticals have contributed 22.42%, 34.38%, 7.65%, 2.55% and 33% respectively to revenue. Favorable policy initiatives along with changing dynamics in global manufacturing landscape have shifted the focus on to India for being a preferred destination for electronics manufacturing. Spearheading the policy initiatives is the Make in India campaign which emphasizes electronics as one of the focus sectors with policy initiatives such as Modified special incentive package scheme (MSIPS), Electronic Development fund (EDF), Electronic Manufacturing Clusters (EMC), and Preferential market access scheme (PMA). The impetus for electronics manufacturing bodes well for electronics manufacturing services (EMS) sector, as EMS investments are expected to benefit from the enabling policy environment. Dixon Technologies has six state-of-the-art manufacturing facilities located in the states of Uttar Pradesh and Uttarakhand. Three are located in Noida while the other three are located at Dehradun. Backward integration process like plastic moulding, sheet metal, wound components and LED panel assembly are carried out at Dehradun facility. The company is in the process of setting up a new manufacturing facility in Tirupati, A P, for manufacture of LED TVs pursuant to an order passed by govt. of A P whereby it has been granted certain subsidies in relation to, inter alia, land rentals, capital subsidies like water and electricity as well as certain tax exemptions for a defined period.

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Business Prospects

Scope of Electronics Manufacturing in IndiaIndia has always been considered to be a high cost destination with lower ease of doing business. But, in the recent years, India has made quantum jumps in its global rankings to become a preferred destination for investment. The National Policy on Electronics (NPE) brought the spotlight on local value addition and an enabling environment was devised. At present, component sourcing is the key area where China is highly competitive, which forms 5060% of the overall manufacturing cost. In terms of Utility, Labour & overhead costs, India is already cost effective than China. In products such as Waching Machines, India has already achieved economy of scale that of China. With the Govt. focus on electronics manufacturing and large scale incentives, India is likely to become as cost effective as China in electronics manufacturing over the next 5 years (by 2021) according to a study by Frost & Suvillian. Domestic manufacturers will be unable to fulfil the growing demand for electronic goods in the country, with imports accounting for as high as 75% of the market by 2020. The demand of electronic products in India is expected to grow at a CAGR (compound annual growth rate) of 41 % during 2017-2020 to reach $ 400 billion by 2020, the domestic production, which is currently growing at a CAGR of 27%, may touch $ 104 billion leaving a huge gap for import to the extent of $300 billion, according to the joint study brought out by Assocham and NEC Technologies. If the situation is left un-changed, electronics import bill may very well surpass oil import bill by 2020. This calls for urgent boost to domestic manufacturing, which will largely benefit EMS players.

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A booming consumption economy where demand for consumer and industrial electronics is on an exponential rise has cast the Indian EMS market in the limelight. EMS players offer OEMs flexibility in product design, faster time to market, cost effectiveness, avoid manufacturing challenges besides value added services like design and aftermarket services. The need to offer a wider portfolio of models is necessary to achieve presence across the target markets. Wider portfolio also offers the risk of negating the benefits of economies of scale, which the EMS can help de-risk. While OEMs with smaller share of the market have naturally gravitated towards EMS to conserve their resources and maintain focus, larger players have also found merit in forging partnerships to retain their edge. Moreover, new players entering India find it easier to bank on EMS companies’ services while they focus on building the brand and establishing an effective distribution network. The Indian Consumer Electronics (CE) market is expected to grow at a CAGR of 17.2% from FY 2016 to FY 2021 while the Consumer Appliances (CA) segment is expected to grow at a CAGR of 11.6% over the same period, resulting in a CAGR of 16.5% for the overall CEA market. The Mobiles phones represent the largest category followed by Televisions. But, the urgency to promote domestic manufacturing and cut the rising import bill puts domestic electronics manufacturing industry in a sweet spot, especially EMS players. The EMS industry is poised to grow at 30.8% between FY 2016 and FY 2021 to touch 569 bln rupees according to Frost & Suvillian, which is nearly double the growth rate of CEA market. Dixon Technologies has Panasonic, Philips Lighting and Gionee as its key customers contributing to 75% of revenues in FY2017. While OEM sales continue to be a major source of revenue, Dixon Technologies plans to gradually expand share of the ODM (Original Design Manufacturer) model. Revenue from OEM contributed to 78.12% of revenue in FY 2017 and ODM contributed to 21.88%. As an ODM, the company will control the entire manufacturing cycle of a product from designing and responsible for all aspects of manufacturing, including planning and sourcing of raw materials and components. The ODM model of business requires additional investment in R&D as well as working capital but provides higher margins as compared to OEM model. Currently, 100% of home appliances revenue comes from ODM model while it is 45% in lighting products and just under 12% in consumer electronics.

Key Financial Highlights (Rs. Crores) Particulars for FY ended 31st Operating Income Other Income Total Income Operating Expenses EBIDTA EBIDTAM % PBIT PBT PAT PATM% Equity Net worth Total Debt Cash flow from operations ROCE % RONW %

Mar-17 2456.76 1.50 2458.26 2366.02 92.24 3.75 81.61 68.84 50.38 2.05

Mar-16 1389.41 1.76 1391.17 1330.72 60.45 4.35 52.01 50.60 42.57 3.06

Mar-15 1201.34 1.78 1203.12 1169.13 33.99 2.83 27.09 17.25 11.86 0.99

Mar-14 1093.72 3.37 1097.09 1067.73 29.36 2.68 24.02 18.22 13.51 1.23

Mar-13 766.92 1.12 768.04 746.81 21.23 2.76 16.53 5.06 4.98 0.65

10.98 197.73 42.86 54.61

3.1 122.81 77.05 42.25

3.1 84.85 79.87 44.5

3.1 73.61 86.86 10.4

3.1 61.55 87.87 44.9

37.06 25.48

28.53 34.66

16.66 13.98

15.50 18.35

11.06 8.09

Revenue composition:

Objects of the Issue Out of the net proceeds of Rs.60 crores from fresh issue of shares, the company intends to utilize Rs.22 Crores for repayment of loans, Rs.7.5 Crores for setting up of LED TV manufacturing unit in Tirupati, Rs.8.8 Crores for enhancement of backward integration capabilities in the lighting vertical at Deharadun plant and Rs.5.3 Crores towards up gradation of IT infrastructure. Promoter Background Promoter and Executive Chairman Sunil Vachani has been awarded the ‘Man of Electronics’ award by CEAMA in the 2015, the “Outstanding Citizen Award 2012” by the Sindhi Chamber of Commerce and one of the “Top 100 people influencing EMS” in 2012 by ventureoutsource.com. He has held positions like chairman of the Electronics and Computer Software Export Promotion Council of India and Co-Chair of the CII ICTE Committee and is currently the vice president of CEAMA.

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