finshiksha quick company analysis dixon technologies limited · • within consumer electronics...

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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.


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.


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


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


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.


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.


during the fiscal year ended Mar 31, 2017.







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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


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





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