finshiksha quick company analysis dixon technologies limited · • within consumer electronics...
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FinShiksha
Quick Company Analysis
Dixon Technologies Limited
Disclaimer
The purpose of this document is purely educational in nature. The idea is to help someone kick-start
their analysis on this company. However, this is not to be construed as a recommendation of any sort
on the company or its stock. All information has been sourced from publicly available data such as
annual reports and news items and the veracity of the sources has not been independently
established. Kindly use your judgement while analysing further or using this document.
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Contents Introduction ........................................................................................................................................ 2
Business............................................................................................................................................... 2
Revenue Drivers .................................................................................................................................. 9
Cost Drivers ....................................................................................................................................... 10
Ratio Analysis .................................................................................................................................... 11
Management’s Quality ...................................................................................................................... 14
Broad Valuation Parameters ............................................................................................................. 14
Introduction Dixon Technologies (India) Limited was incorporated in 1993 for manufacture of consumer electronics
such as colour televisions by Sunil Vachani.
Dixon Technologies (India) Limited, is the largest home‐grown design‐focused and solutions company
engaged in manufacturing products in the consumer durables, lighting and mobile phones markets in
India.
Business Dixon Technologies manufactures and supply products to well-known companies in India who in turn
distribute these products under their own brands.
It manufactures following products:
Consumer electronics
• Within consumer electronics Dixon manufactures products such as, DVD players, LCD and LED
TVs, and home theaters for its customers.
• Currently, the company produces 19 inch to 65 inch and 4K2K LED TVs. It also produces 2.1
channel and 4.1 channel home theaters for its customers.
• Company sold 1 million units in 2018 under this segment against 0.75 million units in 2017.
• The capacity in this segment is 1.9 million units as on 31st march 2018. In 2017-18, the
company started its LED TVs production at Tirupati facility. Company has increased its capacity
to 3.4 million units as on December 2018.
• In 2017 capacity in this segment was 1.2 million units and it had 62.60% capacity utilized
during the fiscal year ended March 31, 2017 against 52.6% capacity utilization during the year
2017- 2018.
• In 2018 Company commenced production of Liquid Crystal Module (LCM) line at Tirupati
facility which is in line with Company’s strategy of backward integration. This will be the India’s
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largest facility for LED TV panel manufacturing. Company is shifting its television
manufacturing operations from Dehradun to Tirupati.
• Customers for this segment:
o Panasonic ( Contributes approx.72% revenue in this segment in 2018)
o TCL
o Skyworth
o Reliance Retails ( Contributes approx. 9% revenue in this segment in 2018)
o Vijay Sales
o Haier
o Intex
o Lloyds
o Xiaomi (2.5Lacs order in 2019)
o Mitashi
• The revenue from this segment has grown at a CAGR of 11% from 2015 to 2018.
Home appliance
• Within home appliance company manufactures washing machines.
• The company currently manufactures semi-automatic washing machine ranging from 6.0 Kg
to 9.0 Kg.
• In 2017-18, company added 13 new models in washing machine vertical in addition to the
existing 140 models.
• Company sold 5.3 lakh units in 2018 under this segment against 3.76 lakh units in 2017.
• In 1QFY2019, capacity in the Home Appliances segment expanded from 7.6 lakh units in FY
17-18 to 12 lakh units in FY 18-19.
• In 2017 capacity in this segment was 0.6 million units and it had 68.12% capacity utilized
during the fiscal year ended March 31, 2017 against 69.7% capacity utilization in 2017-18.
• The Company is ready to experience a shift in model mix with the designing going on for fully
automatic washing machines.
• Customers for this segment:
18%
9%
11%
19%
17%
26%
Client concentration in FY18 by revenue
Panasonic Haier Godrej Intex Samsung Others
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o In 2019 company has an order from Samsung to manufacture 0.5 million units
o Other customers include Lloyd
• The revenue from this segment has grown at a CAGR of 33% from 2015 to 2018.
Lighting products
• Within lighting products company manufactures
o CFL Lamps (compact fluorescent lamp),
o Ballast (It helps to control, regulate and, ultimately, stabilize the light output of the
lamp),
o Tube lights,
o Batten (It is a single lamp holder connected/wired to the ceiling or wall),
o CFL PCB (Printed Circuit Board),
o Down lighters (light bulb that are mounted on or recessed into the ceiling),
o CFL/LED Drivers (It rectifies higher voltage)
• Product portfolio:
LED products LED bulbs 0.5W to 20 W
Down lighters 5W to 15W
Battens T- LEDs 20W to 24W
CFL Lamps CFL Lamps 5W to 27W
Lamp Drivers Indoor LED drivers 5W to 20W Outdoor
LED drivers 20W to 150W
Electronics lamp driver 10W to 40W
• Company sold 170 million units in 2018 under this segment against 102.5 million units in 2017.
The CFL business is in decline, and the management expects it to stop contributing to sales in
2019.
• In 2017-18, DTIL manufactured ~500,000 units per month of tube lights, ~100,000 units per
month of battens and ~80,000 to 100,000 units per month of down lighters.
• Dixon has scaled up its LED bulb capacity to 15 million units per month (largest in India) and
From 9 million units per month.
• Company has conducted backward integration of mechanical parts in lighting vertical.
Backward Integration include sheet metal, plastic moulding and wound components.
• Company currently exports CFL and LED lamps to Kenya, France, Poland, Netherlands, Dubai,
Malaysia, Thailand and Sri Lanka.
• The first customer that Dixon started its lighting business with was Philips India Limited.
Customers for this segment:
o Philips (Contributes approx. 82% revenue in this segment in 2018
o Syska
o Surya Roshni
o Crompton
o Usha
o Jaquar
o Orient
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o Ajanta
o RR Kabel
o Polycab
o Wipro
o Luberr
• The revenue from this segment has grown at a CAGR of 37% from 2015 to 2018.
Mobile phones
• Dixon entered mobile phone segment through its 50:50 Joint Venture with Padget Electronics
Private Limited in January 2016.
• The company currently manufactures feature phones and smart phones (2G, 3G, 4G/LTE,
VoLTE and CDMA).
• PCBs is one of the most important components of the smart phone, & contributes to nearly
50 percent of the value of the phone The company is planning to set up a plant for PCB in
Noida to help the company give a boost in the mobile phone segment.
• The total installed capacity of DTIL stood at 10.1mn units in 2018 while the sales in FY18 stood
at 2.7mn units against 3.5 million sold in 2017.
• In the mobile phone EMS industry (Electronics manufacturing services), Dixon has 8% market
share in India.
• Customers for this segment:
o Panasonic India Private Limited
o Gionee
o Karbonn
o Tambo
o Micromax
o Intex
o Mobistar
o Blaupunkt
Reverse logistics
• Under reverse logistics Dixon provides repair or refurbishment for various products. The
Company focuses on B2B reverse logistics, which is in line with the strategy of building
relationships with brand owners and OEM.
• It provides repair and refurbishment of set top boxes, mobile phones, LCD/LED TVs, LED panel,
home theatre and computer peripherals & other devices.
• In FY18 revenue from set-top box repairs accounted for 25% of total sales from this segment,
mobile phones accounted for ~65% of total sales while the remaining was driven by other
product categories like LED TV panel repairs.
• It has 7 Service centres (PY 17) and 98 Employees associated with ‘reverse logistics’ as on 31st
March, 2018.
• Company has 35 clients under its reverse logistics vertical.
• In 2017 capacity in this segment was 3.6 million units and it had 37.49% capacity utilized
during the fiscal year ended Mar 31, 2017.
• Customers for this segment:
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o Dish Infra Services Private Limited
o Airtel (order book for refurbishment of 250,000 to 300,000 units in FY19.)
o Sony
o Panasonic
o Haier
o Intex Technologies (I) Ltd
o Xiaomi
• The revenue from this segment has grown at a CAGR of 59% from 2015 to 2018.
Security systems
• In 2017 Dixon entered into a joint venture agreement with Aditya Infotech Limited for the
manufacture of security systems including CCTVs and DVRs. Aditya Infotech is the largest
player in the industry with a market share of 40% in FY18 and operates primarily under three
brands namely CP Plus, Dahua (a very large Chinese brand) and Panasonic (as CP Plus is the
brand licensee for Panasonic).
• In 2018, Company commenced manufacturing of security systems including CCTV’S & Digital
Video Recorders (DVR’s) at its new state of the art manufacturing facility at Tirupati.
• Company’s expects Rs.400 million investment in this new manufacturing capacity at Tirupati.
• Dixon is increasing its capacity from 150,000 cameras per month to 800000 cameras per
month in 2019 (and further to 900,000 in FY20) and DVRs from 30,000 per month to 150,000
per month to cater to rising demand
• Aditya Infotech is the only customer currently in this segment.
Consumer electronics industry synopsis
Consumer
electronics
Size- FY18
(Rs.billion)
CAGR
(FY10-
FY18)
Size in
units
(million)
Penetration
levels
World
penetration
level
Key
players
Colour TV 258 10.5% 13.7 65% 120% (china) Sony,
Samsung,
LG,
Panasonic
Washing
Machine
84 12.5% 5.8 13% 70% Voltas,
LG,
Daikin,
Blue star,
Hitachi
Mobile
phones
900 - 650
(300
smart
phones)
23%
(Smartphone
penetration)
50%
(Smartphone
penetration)
Samsung
Oppo
Xiaomi
Vivo
Lenovo
Source: Crisil, Industry, Nirmal Bang Equities Reseach, PWC reports & Business Standard & Livemint
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DTIL is also a vendor for in-house brands of retailers. It has well established relationships with
• ReConnect (in-house brand of Reliance Digital),
• Koryo (in-house brand of Future group)
• Vice (in-house brand of Vijay Sales)
• Marq (in-house brand of Flipkart)
Dixon is market leaders commanding market share in majority of its products.
Company is backward integrating its services by setting up in-house manufacturing of plastic moulding
for lighting products, LED TVs and washing machines; wound components for lighting products and
back light unit clean room for LED TVs. This will help company to improve its margins.
Dixon has two type of business models
• Original Equipment Manufacturing (OEM)
Under OEM Company provides services like global sourcing, manufacturing, quality testing, packaging
and logistics to its customers. This segment has an EBITDA margin of approximately 2%.
• Original Design Manufacturing (ODM)
Under the ODM model, company develops and design products in-house at its R&D centre and then
undertake manufacturing and supply of these products to companies in India. Company controls the
entire manufacturing cycle of a product including warranties with respect to defects in raw materials
and workmanship. This segment has a healthy EBITDA margin of 9% but the ODM model requires
additional investment in R&D as well as working capital.
In ODM business, orders are placed by customers directly by the way of purchase orders which do not
contain detailed terms and conditions as in the case of our OEM business.
In OEM business is a cost-plus model where complete cost is passed on to the customer. While in ODM
business company cannot pass on the entire cost to the customers as they are the owners of design.
• OEM sales continue to be a major source of company’s revenue. Company is planning to
gradually expand its share of the ODM model of manufacturing as ODM model provides higher
margins as compared to the OEM model.
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Company has nine state-of- art manufacturing facilities:
Plant
Location
Products manufactured Type
Noida LED bulbs, PCB assembly of CFL Lamps Leasehold
Noida Mobile phones Leasehold
Noida CFL Lamps, Reverse Logistics Leasehold
Noida LED bulbs and parts Leasehold
Dehradun* LED TVs CFL Lamps, LED bulbs, Battens, T-LEDs, Down Lighter, Ballast,
etc.
Owned
Dehradun Semi-automatic Washing Machines Rented
Dehradun Backward integration of plastic parts and sheet metal components Rented
Tirupati &
Chittoor
CCTV’S & Digital Video Recorders (DVR’s), Liquid Crystal Module (LCM)
for LED TV
Leasehold
*Unit to be shut down for TV business, will be used only for lightening business
Company has 1 subsidiary and 2 joint ventures as on 31st March 2018.
Company’s subsidiaries
• Dixon Global Private Limited
DGPL is authorised to carry on agency business in all its branches and to act as agents for Indian and
Foreign principals to, inter-alia, sell, purchase, import and export electrical appliances and gadgets of
all kinds.
DGPL reported a profit of Rs.53.56 Lakhs as against previous year profit of Rs.82.07 Lakhs.
Company’s joint venture
• Padget Electronics Private Limited (PEPL)
85%73% 78% 79%
15%27% 22% 21%
0%
20%
40%
60%
80%
100%
120%
FY15 FY16 FY17 FY18
Share of ODM and OEM in the total revenue
OEM ODM
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Joint Venture Company with Karbonn Group. PEPL is engaged in the business of manufacturing, selling,
exporting, repairing or dealing in mobile phones of all kinds and related components, parts, spares,
devices and accessories.
PEPL reported a profit of Rs.790.18 Lakhs as against previous year profit of Rs.586.80 Lakhs.
• AIL Dixon Technologies Private Limited (ADTPL)
It’s a Joint Venture between Aditya Infotech Limited and AIL Dixon Technologies Private Limited on
8th May, 2017. ADTPL is principally engaged in the business of assembling, manufacturing and selling
CCTV security cameras, DVRs, NVRs, IP cameras, cables, power supply, video door phones, bio metrics
and allied products.
ADTPL reported a Loss of Rs.116.08 Lakhs as against previous year loss of Rs.2.33 Lakhs.
Revenue Drivers • Company’s revenue grew by 31% CAGR from 2012 to 2018. In 2018 company’s revenue grew
by 14%.
• The company registered growth in almost all its segments other than mobile segment which
recorded a negative growth of 17%. The mobile phone division suffered because they lost
some important customers mainly Xiaomi in FY18. However Xiaomi is back in Q1 2019 and
now Dixon is the company partner is the brand S&C for Xiaomi.
• Revenue from Consumer electronics grew by 27%, lightening products revenue showed a
growth of 41%, revenue from home appliance division showed a rise of 33% and reverse
logistics revenue increased by 17%.
• However one must note that figures for revenue for consumer electronics, lightening products
and home appliance are not comparable as the excise duty as a component was included in
the revenue, in the last fiscal. In 2017-2018 the 9 months revenue does not include the GST
portion.
65%55%
34% 38%
25%31%
22%27%
9%9%
8%
9%
2%
33%24%
1% 3% 3% 3%
0%
20%
40%
60%
80%
100%
120%
FY15 FY16 FY17 FY18
Break up of revenue segment wise
Consumer electronics Lighting products Home appliances
Mobile phones Reverse logistics
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• Revenue from mobile phones have scaled up significantly from 2016 to become the third
highest contributor to revenue in a period of 2 years.
• Home appliance segment has the highest margins at 12% as it is 100% ODM business.
Note in lightening product segment LED bulb business is completely ODM, batten business is
completely ODM, tube light business is not ODM and driver business for the street light is not ODM.
Revenue Drivers for Dixon technologies is:
• Higher disposable income among Indian population leading to increase in consumption
expenditure in the country
• Increasing affordability in the economy and easy finance availability
• Increase in outsourcing of manufacturing activities by companies
• Demand for repair and refurbishment of electronics
Cost Drivers • The largest cost for the company is cost of raw material followed by employee benefit
expenses.
Cost as a percentage of sales 2015 2016 2017 2018
Cost of material consumed 90% 87% 89% 88%
Employee benefits expense 3% 4% 3% 3%
The Principal raw material for different segments are as follows:
Segments Principal raw material
Consumer electronics
Open cell (70% of the cost), electronic components, mechanical and
plastic parts.
Lighting products
PCB, electronic components including capacitors, mechanical and plastic
parts.
Home appliance Gears, timers and motors which are imported primarily from China.
4%9% 12%
6%12%
40%45%
40%
100% 100% 100% 100%
0%
20%
40%
60%
80%
100%
120%
2015 2016 2017 2018
ODM- revenue share as a percentage of revenue from that segment
Consumer electronics Lighting products Home appliance
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Mobile phones Touch panel, LCD, PCBAs, FPCs and front and back housing
Reverse logistics
Open cell, backlight units, electronic components including
microprocessors, ICs, COFs, touch panels, OCA glue, mechanical, plastic
parts and other consumables like paint and thinner
*Open cells are from suppliers who are located in China.
• Company generally do not enter into long-term firm price contracts for the supply of its key
raw materials. Therefore, fluctuations in the price and availability of these raw materials may
affect its business and it may not be able to pass on the costs to its customers.
• Company procures raw materials for its business from local suppliers as well from overseas
supplies. In 2018 nearly 40% of the total raw material was imported against 28% in previous
year.
• Under OEM business model, the raw material specifications are given by the customers and,
in some cases, the suppliers from whom the raw materials are to be purchased are also
identified by the customers. Under ODM business model, raw material procurement is directly
carried out by company.
Ratio Analysis • Company’s profit margins improved in 2018. This was mainly due to increase in margin of
lightening product segment, second largest revenue contributor in 2018. The possible reason
for expansion in margins from lightening product segment was backward integration and
23.4% YoY growth in ODM revenues.
• However the margins are still below the level of margin which it achieved in 2016. Company
had achieved superior margins in 2016 as ODM’s share in revenue was at peak at 27%.
• It is important to note than company’s margin from reverse logistic segment has declined form
20% to 8%. This is mainly due to write-offs. Company write off from set top box business was
around 150 to 160 lakhs.
Profitability Ratios 2015 2016 2017 2018
EBITDA Margin 2.8% 4.4% 3.7% 4.1%
EBIT margin 2.3% 3.7% 3.3% 3.6%
Net Profit Margin 1.1% 3.1% 1.9% 2.1%
Segment wise EBITDA Margin
Consumer electronics 2% 2% 3% 2%
Lighting products 3% 5% 3% 6%
Home appliance 6% 11% 17% 12%
Mobile phones -2% 1% 1%
Reverse logistics 19% 18% 20% 8%
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Con call transcript:
• Company is continuously reducing its debt. In 2018 company reduced its debt by 5%. Company
aims to reduce its debt by Rs.22 crore from its levels in 2017 out of the proceeds received
from initial public offering (As per company’s prospectus).
• Company’s interest coverage ratio has improved continuously which is a positive sign.
• Company’s cost of debt looks abnormal in 2017 and 2018. This is due to company’s foreign
currency borrowing from Standard chartered bank.
Stability Ratios 2015 2016 2017 2018
Interest Coverage Ratio 3 4 5 8
Debt to Equity Ratio 0.9 0.7 0.2 0.1
Long-term debt equity ratio 0.5 0.4 0.1 0.0
Cost of debt 12% 17% 33% 30%
• Company has a working capital intensive model, current assets forming nearly 80% of the
balance sheet while payables formed nearly 50% of the balance sheet in 2018.
• Company maintains nearly 40 days inventory.
• Company is expected to have high receivable days as company’s few customers’ account for
major chuck of revenue. In 2018, revenue from its three customers formed approximately
72% (Previous year 74%) of the company’s total revenue.
• As per company’s prospectus, in 2017 the top 3 customers were Panasonic, Philips and
Gionee.
3270
70109960
62303740
17270
24980
30810
1067313060
18803
25028
0
5000
10000
15000
20000
25000
30000
35000
2015 2016 2017 2018
ODM- Revenue share segment wise (In lakhs)
Consumer electronics Lighting products Home appliance
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• This is dangerous because it requires just one or two clients to pull back or postpone spending,
to materially impact financial performance.
• It is important to note that nearly 43% of the total receivable is from company’s subsidiary
and joint ventures while they contributed only 22% to the total sales in 2018. Company has
indicated that receivables from mobile phone business which is a joint venture forms a large
portion of total receivables.
• Company has a positive working capital indicating it requires money to fund its working
capital.
• Company’s cash conversion cycle has increased in 2018 by 4 days. This is a red flag as company
needs more money to funds its working capital.
• Working capital as a percentage of sales is quite stable, indicating company is efficient in
managing working capital.
Efficiency Ratio 2015 2016 2017 2018
Inventory days 34 36 41 41
Receivable days 17 23 41 38
Payable days 41 48 73 66
Cash conversion cycle 10 11 9 13
Working capital as a percentage of sales 3% 3% 2% 4%
• Company’s return ratio are affected primarily due to Initial public offering and reduced asset
turnover ratio.
• Company conducted an IPO in 2017, through which it received 60 crores as proceed from fresh
issue which increased its Equity. Thus affecting return ratio.
• Company’s asset turnover ratio suffered as company’s fixed asset have increased by 31% in
2018 on account of new facility in Tirupati.
Return Ratios 2015 2016 2017 2018
Return on net worth 15% 37% 24% 19%
Return on Capital Employed 21% 32% 40% 31%
Asset turnover ratio 3.7 3.5 3.2 2.9
Equity Multiplier 3.7 3.5 4.0 3.1
• Company’s cash flow from operations is higher than its profits indicating company has good
liquidity in the business.
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• Company’s cash flow from investing activity is negative indicating company is investing in
CAPEX.
• Company’s cash flow from financing activity is been negative till 2017 indicating company is
paying back its borrowing. In 2018 due to proceeds from IPO company has a positive cash flow
from financing activity.
Cash flow 2015 2016 2017 2018
Cash flow from operating activity
4450 4225 5288 6801
Cash flow from investing activity
-2227 -2161 -9972 -4342
Cash flow from financing activity
-2227 -2005 -842 4165
Management’s Quality • Promoter shareholding as on 31st march 2018 was 43.97%.
• Shareholding of top 5 shareholders
Particulars Shareholding as on 1st April 2017
Shareholding as on 31st March 2018
INDIA BUSINESS EXCELLENCE FUND 1 19.54% -
MRS. KAMLA VACHANI 11.15% 9.4%
VISTRA ITCL (INDIA) LIMITED 10.52% -
SBI MAGNUM GLOBAL FUND - 7.88%
STEADVIEW CAPITAL MAURITIUS LIMITED - 3.06%
• There are 6 board of member out of which 4 are independent directors.
• Management’s remuneration as a percentage of net profit is 10% in Fy18.
Broad Valuation Parameters • Market capitalisation- 2500 crore as on 25th February 2019
• EPS-54.51
• PE- 41
• Price to sales- 0.87