One of India’s Leading Contract manufacturer in Electronics Technology Industry Dixon Technologies’ (CMP: Rs 5,981; Market Cap: Rs 6853 crores) operational execution was solid in the March quarter in spite of difficulties. The organization is very much ready to scale further in the coming a long time as hardware fabricating is a key concentration for the Indian government.
Dixon Technologies Ltd’s main vision is that India to become a global hub of contract manufacturing for consumer electronics as organizations focus more on branding and distribution of its products and services.
Dixon Technologies an ace contract manufacturer of lighting, televisions, mobile smartphones, and home appliances for Xiaomi, Samsung, Voltas, LG, Flipkart, and Foxconn.
Dixon Technologies’ consumer ancillary business is drawing large contracts and global investors from global companies for the ‘Make In India’ drive that the Government is beating on during its recent clash with Chinese troops in Ladakh. Renowned global clients and Scale of Economies is influencing its stock price to move higher and higher.
Incomes for Q4FY20 were level regardless of gracefully chain disturbances in China and request obliteration because of the lockdown. Operating Profit spiked by more than 49 percent as margins extended fundamentally on the rear of considerate ware costs, an adjustment in sales blend, and economies of scale. Profit after assessment hopped from a low base and was bolstered by a lower powerful expense rate. Income development would have been right around 20 percent if the organization had not lost Rs 160 crore in missed deals because of the lockdown.
Portions of this contract manufacturer are enjoying some real success on India’s arrangement to decrease import reliance and move manufacturing to India, combined with the internationally declining inclination for assembling in China
The consumer electronics gadgets like the Televisions fragment had another strong quarter on the rear of the solid volume deals with Xiaomi, Dixon’s stay customer for this fragment. Lighting items incomes and deals were tepid, however, margins were more grounded because of expanded commitment from high-edge ODM (original design manufacturer) business and lower product costs. Home machines plunged possibly as Dixon’s stay customer’s offtake was affected by higher channel stock and repressed economic situations. Cell phone incomes baffled. Be that as it may, an adjustment in income booking approach and in reverse combination supported section margins. The security frameworks (CCTVs and Digital Video Recorders) business was drowsy and invert coordinations saw a turnaround.
Experts state the stock holds a solid guarantee. The mid-top stock is Dixon Technologies (India).
The stock, recorded in 2017, has risen 125 percent in most recent one year, sagaciously outflanking Sensex, which dropped 17 percent in a similar period. The stock exchanged at Rs 5,981 on Tuesday, touching the new milestone of its new 52-week high of Rs 6,000 hit on 23, June 2020.
Post COVID-19 Business Model
The organization has initiated manufacturing at all nine of its plants during the first and second weeks of May 2020. While the offtake across business fragments has been in front of the executives’ desires, work imperatives and new working techniques (to consent to social distancing protocols) are the key difficulties in inclining up manufacturing capacities. In May 2020, Dixon created around 1.3 lakh TV sets. Given the current pipeline, June and July look much better in contrast with May as its grapple customer (Xiaomi) appreciates a solid a dependable balance in the web-based business segment. Be that as it may, the log jam is obvious in the home apparatuses portion as Dixon is making just 44-45,000 washing machines, lower than the typical month to month run-pace of 70-80,000 units. Lighting is better on a relative premise and June creation rate is 25-30 percent lower than prior levels. Cell phone creation is likewise down 25-30 percent for the most part by virtue of work shortage. The interest for security frameworks is poor and this section is relied upon to stay under tension because of the optional idea of the item. Passing by the current situation, the administration anticipates that the organization should scarcely make back the initial investment – at the working level – in the June quarter.
“It is totally the narrative of Make in India and Atmanirbhar Bharat,” which will help this mid-cap marvel to transform into a MultiBagger opportunity in the Future.
“Dixon is the greatest producer of LED boards in India. It additionally fabricates private name brands. The move from assembling in China to ‘Make in India’ is a key driver for the stock,” as per our research team.
Foraying into Manufacturing of Medical Electronics
Dixon has signed an agreement from Molbio Diagnostics for assembling and production RT-PCR (Reverse translation polymerase chain response) gadgets utilized for testing 30 sicknesses, including COVID-19 and tuberculosis. Preliminary runs are foreseen to begin in July and the business creation will begin once the gadget passes the important quality and administrative necessities. While the underlying request size in little (Rs 30 crore), this opens up more current business openings in the clinical gadgets hardware producing fragment in both local and global markets.
High Capital Expenditure Plans in Financial Year 2021
Working capital improvement (negative 4 days in FY20 versus positive 7 days in FY19) has supported the decrease in net obligation levels and intrigue costs. During FY20, the organization produced a free income of Rs 91 crore and its net money position toward the finish of March quarter remained at Rs 13 crore.
Dixon’s CAPEX for FY21 has pegged between Rs 90-120 crore and this will be subsidized through a mix of obligation and inner gatherings. The greater part of speculation would be utilized to set up a production line that will make completely programmed top-load clothes washers. The organization additionally hopes to spend Rs 50 crore to fabricate another local versatile assembling plant under the Production Linked Incentive (PLI) plot.
Boycott China, Advantage India
The stock should keep on performing, taking a gander at the change in outlook in assembling plans from China to India. The organization’s outcomes have been promising also.
The pushback against Chinese assembling following the US-China exchange war has strengthened after the coronavirus episode.
While this might be political acting, the pattern of expanded assembling outside China depends on monetary essentials.
The business contended that even as China has become the world’s biggest maker as more than 50 percent of electronic items by esteem are delivered in China and has all-around incorporated flexibly chains, high work costs at multiple times that of India have driven worldwide producers to search for choices.
“Nations, for example, India and Vietnam are probably going to pick up a portion of this move of assembling and manufacturing facilities. Since Land and Labour is the greatest supporter of fixed costs, Electronics producing administration organizations are especially advantaged to manufacture scale dependent on work intensity.
Future Outlook and Growth Projections
In spite of the effect of coronavirus, which is probably going to slow development over FY21, We are forecasting that development is probably going to skip back to 30 percent levels over FY21-25 since the general auxiliary interest is probably going to stay unaltered.
“The necessity to remain at home longer (because of lockdowns) may give a fillip to residential apparatuses, including that we expect 28 percent deals development over FY20-25 on the rear of expanding volume share.
Contract Manufacturing is a profoundly dynamic segment with energizing open doors with regards to the administration’s pushed on ‘Make in India’. Dixon is extending its item run, concentrating on obtaining a new customer base and developing existing connections to drive income development. As time goes on, Dixon’s business has various tailwinds as low entrance of consumer electronics gadgets and the expanded focal point of brand proprietors in re-appropriating creation.
High reliance on China for inputs, absence of lucidity on the foreseeable demand, and change in utilization designs are the key issues financial specialists must screen in the short term horizon. In the medium too, since quite a while ago run, we stay idealistic on the business attributable to the development of product portfolio, in reverse reconciliation and economies of scale.
“Dixon has various development alternatives, remembering up and coming open doors for electronic assembling, which is all not caught in close term income in FY20-22E as per our research team.
On June 2, Dixon Technologies revealed to the Press Trust of India that it is intending to contribute Rs 250 crore and recruit 2,500 individuals over the next 8-9 months to grow tasks to exploit the item connected motivating force (PLI) government-backed scheme.
Indian Smartphone Manufacturer Lava to Shift Handset Production to India from China; will Invest Rs 800 Crores over 5 years
Gadgets producing organizations will get 4-6 percent incentives dependent on certain gradual deals each year. Under the plan, the administration means to pull in the top 5 worldwide versatile assembling organizations that control 80 percent of the worldwide market in the section and furthermore elevate five nearby organizations to extend the business as national heroes.
From Artificial Intelligence to Blockchain to Machine Learning this Indian Multinational Conglomerate $2-Billion Bet will Become a Tech MultiBagger in Next 10 Years
Dixon’s stock has run up strongly as of late as the business has exhibited quality in a difficult situation. The stock is exchanging close to its 52-week highs and the current valuations (multiple times FY20 income) appear to factor in the dominant part of the positives. While we perceive the general strong essentials, we take an increasingly wary view on the stock given an unsure full-scale standpoint, milder development patterns, and grand valuations. The organization remains our favored play to ride the “Make in India” theme and, in this manner, financial specialists should save the stock on their radar for accumulation during sharper corrections in the market.
As we witnessed Q4FY20 Revenues were flat Year-on-Year. Consumer electronics has led the topline growth. Benign input costs, operating efficiencies have helped the company to improve margins. Short term demand forecasts remain unpredictable. Unique bet in Mid-cap space to ride the Make-in-India Wave.