Best EMS Stock: Dixon Technologies vs PG Electroplast

Since it was once an underdeveloped country, India is now a prominent electronic manufacturing hub.

The industry has been experiencing rapid growth driven by government initiatives such as product linked incentive scheme (PLI), growing demand, and availability of skilled workforce at a competitive cost.

The industry is expected to double in the next five years to reach US$ 250 billion (bn), with strong growth from exports.

With strong demand from across the globe, India has the potential to become a global leader in electronics manufacturing, especially in mobile phones, air conditioners, and television.

In this vital industry, two of the primary players are Dixon Technologies and PG Electroplast.

Let's compare them across various parameters to see who is a better player.

Business Overview

#Dixon Technologies

Dixon Technologies is one of India's leading electronics manufacturers.

The company operates as an original equipment manufacturer (OEM) and original designing manufacturer (ODM) for several industries, including LED TVs, consumer durables, lighting products, home appliances and security systems.

It has largest capacity in various stock keeping units (SKUs) and the largest product portfolio ranging from 6 kgs to 14 kg appliances.

Apart from manufacturing electronics, it offers repair and refurbishment services for the same.

Dixon Technologies' clients include Samsung, Xiaomi, One Plus, Havells, Bajaj, Acer, Lenovo, and Godrej.

#PG Electroplast

PG Electroplast is a leading Indian electronic manufacturing service provider and specialises in ODM, OEM, and plastic injection moulding.

It manufactures a wide range of products including washing machines, air conditioners, coolers, and electronics.

The company also manufactures moulds for applications in automotive appliances, white goods, and home and kitchen appliances.

It caters to leading Indian and global brands such as Usha, Whirlpool, Carrier, LG Electronics, Jaguar, and SMR.

Particulars	Dixon Technologies	PG Electroplast
Market Cap (in Rs billion)*	791	132.2

Source: Equitymaster|*27th August 2024

In terms of marketcap, Dixon Technologies is leading with a marketcap of Rs 791 bn, as against a marketcap of Rs 132.2 bn for PG Electroplast.

Dixon Technologies also has extensive manufacturing capacity across various products spread across 22 facilities and three research and development centres (R&D) in India and China.

It is also the largest LED TV manufacturer in India and the largest ODM player in lighting.

PG Electroplast, on the other hand, is the second largest ODM for air conditioners and washing machines.

It has eight manufacturing facilities across India and is planning to set up more in the near future.

If we compare the two companies in terms of stock market performance, then PG Electroplast is leading with a 183% return in the last year. Dixon Technologies, on the other hand, gave a 168% during the same time.

Both the stocks are multibagger stocks and gave a higher return than the Nifty 50 which gave a 30% return in the last one year.

#Revenue

Dixon earns the majority of its revenue from manufacturing mobile phones, followed by consumer electronics.

In both categories, Dixon Technologies has a well-established manufacturing capacity. It can produce over 30 million (m) smartphones and 50 m feature phones in a year.

In the last five years, the company's revenue grew by a compound annual growth rate (CAGR) of 32.1% on account of diversified revenue streams and strong volume growth in the mobile phones segment.

PG Electroplast, on the other hand, earns the majority of its revenue from manufacturing air conditioners, washing machines, and coolers.

Being the second largest ODM for washing machines and air conditioners, it saw a revenue growth of 33.8% CAGR in the last five years.

This is primarily due to steady growth in revenue from the products business.

Between the two companies, PG Electroplast is clearly leading with a small margin compared to Dixon Technologies.

Going forward, both companies are expecting steady revenue growth on account of strong demand for electronics and consumer durables.

Revenue

Net Sales (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Dixon Technologies	44,001	64,482	1,06,971	1,21,920	1,76,910	32.10%
PG Electroplast	6,394	7,032	11,116	21,599	27,460	33.80%

Source: Equitymaster

#Profitability

Profitability can be assessed through earnings before interest tax depreciation and tax (EBITDA) and net profit growth and profit margins.

In the last five years, Dixon Technologies' EBITDA and net profit grew at a healthy rate of 24.6% and 25.5% respectively on account of a ramp up in operations leading to economies of scale.

In contrast, PF Electroplast, saw a whooping 43.9% and 120.3% CAGR growth in EBITDA and PAT due to strong growth in revenue.

The EBITDA and PAT margins of the company also expanded by 3-4% during the same period and averaged at 8.7% and 4% respectively.

In contrast, for Dixon Technologies, the EBITDA and PAT margin averaged at 4% and 2% respectively.

Profitability

EBITDA (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Dixon Technologies	2,327	2,935	3,881	5,219	6,980	24.60%
PG Electroplast	424	524	934	1,804	2,620	43.90%
PAT (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Dixon Technologies	1,205	1,598	1,903	2,551	3,750	25.50%
PG Electroplast	26	116	374	775	1,350	120.30%
Gross Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Dixon Technologies	5.30%	4.60%	3.60%	4.30%	3.90%
PG Electroplast	6.60%	7.50%	8.40%	8.40%	9.50%
Net Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Dixon Technologies	2.70%	2.50%	1.80%	2.10%	2.10%
PG Electroplast	0.40%	1.60%	3.40%	3.60%	4.90%

Source: Equitymaster

#Debt Management

Both Dixon Technologies and PG Electroplast have debt on their balance sheet.

The net debt of Dixon Technologies at the end of March 2024 is Rs 540 m, as against Rs 1,781.5 m of PG Electroplast.

Both companies have funded their expansion in the past, majorly through debt.

Dixon Technologies is planning to invest Rs 6,000 m in capex in the next one year for inorganic and organic expansion.

PG Electroplast, on the other hand, plans to invest Rs 3,800 m in capex.

Both companies are likely to use debt to fund the capex. So, the debt-to-equity ratio is expected to go up in the medium term.

At present, Dixon Technologies' and PG Electroplast's debt-to-equity ratios stand at 0.3x and 0.4x, respectively.

Debt Management

Debt to Equity Ratio (x)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Dixon Technologies	0	0.1	0.3	0.1	0.3
PG Electroplast	0.4	0.5	0.6	0.6	0.4

Source: Equitymaster

#Financial Efficiency

The two important metrics to measure a company's financial efficiency are return on equity (RoE) and return on capital employed (RoCE). A high ratio is considered better.

The RoE and RoCE of Dixon Technologies averaged 20.9% and 29.6%, respectively, whereas PG Electroplast's ratios averaged 11.7% and 15.8%, respectively.

Clearly, Dixon Technologies is leading in terms of financial efficiency.

Financial Efficiency

ROCE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Dixon Technologies	35.80%	30.90%	23.70%	28.90%	28.80%
PG Electroplast	9.80%	12.10%	15.00%	23.60%	18.70%
ROE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Dixon Technologies	22.40%	21.90%	19.30%	20.10%	24,7%
PG Electroplast	1.50%	6.10%	12.10%	19.80%	18.80%

Source: Equitymaster

#Dividend

A company that pays regular and high dividends is considered stable as it indicates it is generating consistent profits.

To assess the dividend of a company we look at three metrics, namely, dividend per share, dividend yield, and dividend payout ratio.

In the last five years, Dixon Technologies' dividend per share increased by a CAGR of 101.6%, its dividend yield averaged 0.04%, and its dividend payout averaged 5.2%.

PG Electroplast, on the other hand, doesn't pay any dividends to its shareholders.

Both companies aren't dividend paymasters. However, Dixon Technologies is leading in terms of dividend payments.

Dividend

Dividend Per Share (Rs)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Dixon Technologies	0.2	1	2	3	5	101.60%
PG Electroplast	0	0	0	0	0	NM
Dividend Yield	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Dixon Technologies	0.10%	0.00%	0.00%	0.10%	0.00%
PG Electroplast	0.00%	0.00%	0.00%	0.00%	0.00%
Dividend Payout Ratio	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Dixon Technologies	0.80%	3.70%	6.20%	7.00%	8.10%
PG Electroplast	0.00%	0.00%	0.00%	0.00%	0.00%

Source: Equitymaster

#Valuation

It is important to understand a company's valuation metrics to know if it overvalued or undervalued when compared to its peers.

The two valuation metrics are price to earnings ratio (PE), and price to book value ratio (PB).

Dixon Technologies' PE and PB are 182.8x and 43.8x, respectively, whereas PG Electroplast's PE and PB is 70.3x, and 12.1x respectively.

If we compare the three-year average, Dixon Technologies' PE and PB are 134.5x and 35x, whereas PG Electroplast's ratios averaged 54.2x and 17.3x.

Clearly, Dixon Technologies' shares are overvalued compared to PG Electroplast's shares.

However, if we compare the ratios with the industry average, then both companies are overvalued.

Valuations	Dixon Technologies	3-Year Average	PG Electroplast	3-Year Average
PE (x)	182.8	134.5	70.3	54.2
PB (x)	43.8	35	12.1	17.3

Source: Equitymaster

Which is a Better EMS Stock: Dixon Technologies or PG Electroplast?

In terms of revenue growth, profit growth, profit margins, and valuations, PG Electroplast is leading against Dixon Technologies.

However, in terms of debt management, financial efficiency, and dividend payment, Dixon Technologies outpaced PG Electroplast.

Dixon Technologies, one of the largest electronics players, is continuously working to expand its business.

It is planning to invest Rs 6,000 m in capex to set up a new factory for washing machines with a capacity of 2.4 m units.

The company is also planning to invest in acquiring companies for growth. It recently acquired Ismartu India to strengthen its presence in the mobile phone industry.

Dixon Technologies also plans to acquire new customers across various product categories to increase its revenue and profits.

PG Electroplast, on the other hand, plans to invest Rs 3,800 m in capex to manufacture new products. It is also investing in setting a new manufacturing plant in Rajasthan.

Apart from this, it is focussing on R&D, expand its product offerings, and capacity enhancement for existing products.

To improve its profitability and meet its sustainability goals, the company has tied up with a solar power plant to meet over 40% of its peak electricity requirement.

All this shows that both companies are gearing up for their next leg of growth.

With the government supporting electronics manufacturing through the PLI scheme and subsidies, both companies stand to benefit from the growing demand for electronics.

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.