About the Company

Dixon Technologies (India) Limited is the largest homegrown design-focused and solutions company engaged in manufacturing products in the consumer durables, lighting and mobile phone markets in India. Its diversified product portfolio includes Consumer electronics like LED TVs, Home appliances like washing machines, Lighting products like LED bulbs and tube lights, downlighters and CFL bulbs, Mobile phones like feature phones and smartphones, Security Surveillance Systems like CCTV & DVRs.  The company manufactures and supplies these products to well-known companies in India who in turn distribute these products under their own brands.

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 809.87 617.82 31.09% 1166.91 -30.60% 2912.67 1804.77 61.39%
PBT 30.14 22.59 33.42% 41.7 -27.72% 102.87 63.47 62.08%
PAT 22.18 14.34 54.67% 37.6 -41.01% 80.24 42.62 88.27%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 995.64 794.55 25.31% 1404.81 -29.13% 3547.93 2129.39 66.62%
PBT 35.46 27.22 30.27% 48.35 -26.66% 119.5 69.41 72.17%
PAT 26.23 17.64 48.70% 43.04 -39.06% 92.91 46.84 98.36%


Detailed Results

    1. The company had a good quarter so far with Q3 revenues rising 25% YoY and profits rising 49% YoY.
    2. 9M performance for the company was phenomenal with consolidated revenues rising 67% YoY and profits rising 98% YoY in the same period.
    3. The EBITDA margins for the company have improved by 40 bps to 5.4% in Q3FY20.
    4. PAT margins had a similar rise of 40 bps to 2.6% in the quarter.
    5. Segment-wise Q3 Revenue performance is as follows:
      • Consumer Electronics: Up 58% YoY        (46% of current revenues)
      • Lighting Products: Up 18% YoY        (28% of current revenues)
      • Home appliances: Down 26% YoY  (7% of current revenues)
      • Mobile Phones: Down 8% YoY     (14% of current revenues)
      • Security Systems: Up 98% YoY        (5% of current revenues)
      • Reverse Logistics: Up 46% YoY        (0.5% of current revenues)
    6. Segment-wise 9M Revenue performance is as follows:
      • Consumer Electronics: Up 96% YoY        (48% of current revenues)
      • Lighting Products: Up 44% YoY        (25% of current revenues)
      • Home appliances: Up 9% YoY           (9% of current revenues)
      • Mobile Phones: Up 66% YoY        (13% of current revenues)
      • Security Systems: Up 273% YoY      (5% of current revenues)
      • Reverse Logistics: Down 61% YoY (0.3% of current revenues)
    7. The company has a negative net debt of Rs 23.76 Cr on 31st Dec ’19 vs a positive net debt of Rs 96.92 Cr on 31st March ’19.
    8. The company has commenced the production of home appliances for Voltas Beko.
    9. It has also commenced the production of Samsung feature phones from 1st Nov ’19.
    10. It is set to commence the production of LED TVs for Samsung from Feb ’20.
    11. The company has commenced production of the entire range of Lighting products for HPL Electric & Power.
    12. The company has got an order to manufacture Jio cable Set-Top boxes.
    13. It has also added Havells as a customer for LED lighting products.

Investor Conference Call Highlights

  1. The delivery of the set-top boxes for Jio Cable will start from March 2020.
  2. The company is going to be using one of its mobile plants which had low utilization to make these set-top boxes. The company will be using the same machinery as before and it has to do minimal Capex to make the plant ready to make these new products.
  3. The company is expanding its capacity from 3.6 to 4.8 million units in Consumer Appliances. The capacity expansion is expected to be done by May 2021.
  4. The company is also doubling its capacity for PCA to 2 million units.
  5. The company is in discussion with 2 MNC brands for further orders.
  6. The company saw margin expansion in the lighting division to 8.6% in the current quarter. All the brands for the company are on the Original Design Manufacturer (ODM) basis.
  7. The company now boasts of a large capacity of 20 million bulbs per month in the lighting division which is around 25% of the industry requirement.
  8. The company has added Havells as a customer for its lighting business where it provides Havells with emergency bulbs.
  9. The company has seen good margin expansion in washing machines as a result of the company’s internal initiatives.
  10. The company is going to add a facility of 600k capacity top loading fully automatic washing machines in Tirupati plant.
  11. The management is confident that a large portion of the Voltas Beko washing machine requirements will be met by the company.
  12. The focus on LED segment is to include emergency bulb solutions in the smart portfolio. In the industrial engineering side, the focus is to be on automation to reduce labour intensity in business.
  13. The company is also looking to develop its product portfolio and supply chain skillset for global customers. The first shipment for international customers is going out in March 2020.
  14. In baton lights, the company is around 1 million in capacity and the market is around 6-7 million. The company expects to raise its market share to this proportion.
  15. In downlighters, the company was making 100-150k per month for one large customer. The market for this segment is around 5 million units. Here the company is expanding capacity to almost 1 million a month.
  16. The company is targeting 20-25% in the next 2 years in the lighting division.
  17. The capex for FY21 is expected to be around Rs 60-65 Cr.
  18. The company’s China dependent supply chain has not been affected too much since the company does not have much activity in this area till March. Thus any impact if possible will be reflected in the next quarter onwards only.
  19. The LED sales volumes were around 4.5 lacs, washing machines were 1.4 lacs, security systems were 11.6 lacs. The company also sold almost 4.6 Cr LED bulbs in the quarter.
  20. The management remains confident of delivering current margins going forward.
  21. The Capex expected in the expansion of the washing machine segment is expected to be around Rs 50-55 Cr in total over two years.
  22. The company is expecting cash flows of Rs 30-35 Cr more in Q4.
  23. The debt levels should thus go down along with interest payments going forward. The management has also mentioned that the company will be funding its Capex from internal accruals only.
  24. The management has said that Q4 order book is good and the production for the 10 kg machines for Samsung will start from FY21 onwards.
  25. The management expects the share of products made for Samsung should rise in the future for the company.
  26. The management expects that it will take some time but by FY22, exports shall emerge as a major contributor for the company.
  27. The management has mentioned that the drop in working capital is mainly due to increased efficiency and processes on part of the company.
  28. The working capital intensity is expected to be at current levels.
  29. The management expects Samsung TV volumes to be around 500k-600k this year. The Voltas Beko volumes is difficult to estimate and Havells volumes are going to be small as the business arrangement between the companies has just started. The Jio order size is around Rs 150 Cr.
  30. The management expects growth in LED bulbs should be >10% while the baton and other segments should grow a lot faster. This is because the company will be looking to expand export sales in the LED bulb segment which may take time to scale.
  31. In the semi-automatic washing machine segment, the company is now making around 830-840k volumes and next year this can go up to 1.1 million. Most of this is expected from the existing customer set which already represents a significant portion of the outsourcing companies in the market.
  32. The company is also looking to supply products to Reliance under the Kelvinator brand and orders from Flipkart are also coming in. The company is also getting orders from Croma which is in small volumes at present.
  33. The management has confirmed that around 60-70% of capacity of fully automatic machines (0.6 million capacity) for the company is already booked with orders from MNCs and the company is in talks with other brands to book complete capacity after the capacity expansion is over.
  34. The management has guided that margins of 11.5-12% in home appliances are sustainable for the company and the final say will be dependent on commodity prices.
  35. The management has mentioned that the reason for the drop in home appliances revenues for the quarter is a seasonal drop in demand for washing machines after Diwali. In the case of mobile revenues falling, the management has mentioned that the 2 main customers that were being serviced through most of its capacity had a bad performance which impacted the company’s orders.
  36. The new plant for Samsung was operational in November and was not able to bring up the total volumes for the division significantly. The capacity utilization for Samsung plant has been 110% since opening.
  37. The management is confident of more than doubling the sales volumes in the LED TV segment as compared last year. Going forward, the consumer electronics division will see addition of a few marquee customers in FY21 which should help the company bring this business on the growth track with the rest of the company.
  38. In mobile sales volumes, 10.6 lacs phones were sold split between feature and smartphones vs 9 lacs last year. The proportion of smartphones has gone down due to the customers Gionee and Panasonic not doing well this year.
  39. In LED bulbs, the total capacity is around 16-17 million/month. Downlighter capacity is 200k/month which is set to be expanded to 1 million/month. Baton capacity is at 1 million/month and is expected to be expanded to 1.5 million/ month by April after which it will expand again to a final capacity of 2 million/month.
  40. The baton capacity utilization is around 100% currently. The market share of LED business is around 14-15%.
  41. The company expects major growth in the near future to be coming from batons and downlighter and exports. This is because the company is looking to expand capacity in these segments to rapidly capture market share.
  42. The company is expecting sales volumes of around 2.2 million in LED TVs in FY20 and 35% growth in the next year.
  43. In the case of lights and washing machines, 40-45% of raw materials is imported from China. In TVs, 80% of raw materials is imported from China.
  44. In reverse logistics, the 2 main product lines are TV panel repair and set top boxes. The major customer in this business is Xiaomi. Because of the acquisition of Xiaomi as a customer in this business, the margin and numbers for this business has grown very fast in the year so far. As per the present order book visibility, the management expects this division to grow in the future.
  45. With the current order book size for the panel and TV repair division, the company is expecting a monthly run rate of Rs 70-80 Lac EBITDA. The total capital deployed in this business is Rs 7-8 Cr and thus this has turned into a good margin business for the company.

Analyst’s View

Dixon Technologies is one of the foremost leaders in the electronics manufacturing and outsourcing industry in India. The company has done well to scale up its different diverse divisions: lights, consumer appliances, mobiles, etc. It has also acquired many marquee customers along the way. The company has also managed to acquire global electronics conglomerates like Samsung as a customer in different business segments. The company is also looking to capitalize its expertise and market reach to expand into export markets where there is a lot of potential for growth, especially for an electronics ODM. It remains to be seen whether the way forward for the company in the export market will be as smooth as the domestic one. The company also imports a visible majority of its raw materials for its many divisions from China and the effects of the recent coronavirus scare will only be reflected if the trade shutdown persists for more than a quarter. Nonetheless, given the list of marquee customers that the company has gained and retained over the years and its outstanding cash-generating ability, Dixon Technologies is a thus a good growth-story in the outsourced manufacturing market of India.

 

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