Dixon Technologies: Leading the Charge in India's Electronics Revolution

Driven by increasing population and surge in disposable income in India, consumer durables sector is experiencing explosive growth, and Dixon Technologies is at the forefront of this revolution.

The consumer electronics champion recently announced steps to fuel its growth and support India's digital expansion.

Dixon Technologies has signed an agreement with Nokia to develop and manufacture telecom equipment.

The equipment will include fixed wireless access points and routers, to be developed for Nokia.

The deal is expected to earn the company a massive amount of Rs 15 billion (bn).

According to the vice chairman and managing director of Dixon, the product development is at its final stages, and commercial production will start from June or July of 2024.

Innovation Boom for Consumer Durables

The demand for a wide range of consumer durable goods is growing because of the ongoing increase in disposable income and technological innovation in India.

India is viewed by multinational organizations as one of the primary markets from which future growth is likely to originate in consumer durable sector.

In FY23 (April-November), electronics exports grew by 13.8%, the highest in the last 6 years.

With robust growth, India aims to achieve electronics manufacturing worth Rs 25 trillion (tn) in electronics exports of Rs 10 tn by FY26.

By 2025, India's consumer electronics and appliances industry is predicted to be the fifth largest in the world.

The Indian appliances and consumer electronics (ACE) market is predicted to nearly double in the next 3 years.

Moreover, the government has visioned India becoming a global export hub. It anticipates the Indian electronics manufacturing sector to reach Rs 25 tn by the end of FY25.

Dixon: A Crucial Player

Dixon Technologies: Leading Electronic Manufacturing Services (EMS) company specialises in consumer electronics, lighting, home appliances, CCTVs, and mobile phones.

It also undertakes reverse logistics operations. Besides, it manufactures security surveillance equipment, wearables & audibles, AC-PCBs.

The company operates on two models namely, Original Equipment Manufacturer (OEM) and Original Designing Manufacturer (ODM).

It has an annual capacity of 30 million smartphones and 50 million feature phones.

In terms of the financials, revenue has grown by a (compounded annual growth rate) CAGR of 40%, while the profit has grown by a 3-year CAGR of 29%.

The management is bullish on growth across verticals, especially the mobiles segment which contributes 60% of the topline.

ROE and ROCE were at 25.6% and 35.6% respectively in December 2023.

Management expects to maintain these return ratios going forward given better profitability, working capital management and higher asset turnover in the mobile and IT hardware segments.

Dixon Financial Snapshot (2019-23)

	FY19	FY20	FY21	FY22	FY23
Revenue Growth (%)	5.03%	47.43%	46.55%	65.89%	13.98%
Net Profit Margin (%)	2.11%	2.73%	2.48%	1.78%	2.09%
Return on Capital Employed (%)	27.33%	34.20%	32.83%	25.90%	27.98%
Return on Equity (%)	18.35%	26.41%	25.25%	22.20%	22.63%

Data Source: Screener.in

Dixon's share price has grown by 8.7% in the last month and a massive 185.8% in the past year.

Why Consider Dixon for Your Watchlist?

We believe these are some of the reasons the company could be worth considering in your watchlist:

• Building Blocks for Expansion are in Place

  Dixon has added two mobile clients and is in talks with worldwide brands about producing IT hardware under the government's production-linked incentive (PLI) plan.

  It is also undertaking backward integration in televisions with LED bars and injection moulding, as well as vertical integration to boost its mobile business.

• Focusing on Design-Based Products

  The company is looking to design its own products.

  It previously operated on a high volume, low margin basis, but is now exploring new product categories with higher margins.

  Some of the topics covered in its annual report include electric vehicles, defense, drones, medical electronics, and telecom infrastructure.

• Strong Capex Plans are Paving the way

  The company intends to undertake capex in the range of Rs. 3 bn -4 bn p.a., over the next two years, partly funded by external debt.

• Focus on Paying off the Debt

  The company is estimated to have debt repayment obligations of Rs 900 m -1.1 bn p.a. in FY25 and FY26.

Peer Comparison

Company	Market Cap (INR m)	Current Market Price (INR)	5-Yr Net Profit CAGR (%)	ROE (%)	P/E (x)
Dixon Technologies	505.3	8,441	33	22.5	143.3
Voltas	436.7	1,319	-14	4.4	174.9
Crompton Greaves Consumer Electricals	21.9	341	7	18.1	50
KEI Industries	342.8	3,796	14	20.3	58.8
Orient Electric	49.1	230	3	13.5	67.6
Polycab India	888.9	5,914	28	20	53
Syrma SGS	85.2	480	NA	11.2	73.4
V-Guard Industries	153.9	354	6	12	76
Blue Star	294.6	1,430	17	21	71
Havells India	1,059.40	1,689	10	18.1	83.4

Data Source: Screener.in

Conclusion

With a good industry outlook and an emphasis on innovation and expansion, the company's share price and earnings have grown consistently.

However, there are plenty of checks that need to be undertaken before considering any stock to be investment worthy.

Before evaluating any company for investment, investors should always conduct extensive research and use their own judgment.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...