Jaynish Shah 17 July, 2020

Dixon Technologies (India)

Sector: Consumer Durables
CMP: Rs. 6,450 | Target Price: Rs. 5,850 |
Key Highlights & Investment
Recommendation : Reduce Rationale
• Dixon Technologies reported 4Q’20 revenues at Rs.857
Particulars Amount
crores, flat YoY, with a loss of Revenue / EBITDA of 165/10
Market Cap (Rs. in Crs) 7,462.97 crores due to lockdown. It reported yearly sales at Rs.4400
52 Week High / Low 6,674/ 1,830.9 crores, up 47% YoY aided primarily by strong growth in
Outstanding Shares (in Crs) 1.17 Consumer Electronics (up 76% YoY), Mobile Phones (up
51% YoY) and Security Systems (up 93% YoY)
Face Value Rs. 10
• EBITDA margins for the fourth quarter have improved
Dividend Yield 0.09% from 4.62% to 6.5% primarily because of the operating
Price Chart : Relative to Sensex leverage kicking in various verticals, improved sales mix,
new and expanded mobile business, value engineering of
Sensex Dixon products, cost efficiencies and slightly benign commodity
prices. EBITDA margins for the year improved from 4.75%
to 5.2%, up by 475 basis points
• PAT for the year grew from 63 crores to 120 crores, up by
90% primarily aided by lower tax rates (down from 32.4%
to 23.1%). PAT margins for the year grew from 2.1% for
2019 to 2.7% for 2020, up by 62 basis points
• Dixon has generated free cash flow of 91 crores with net
cash level of 13.5 crores, and negative 4 days operating
cycle of working capital
• Key business focus area going forward are to achieve
scale for benefits of operating leverage to kick in,
Year End: March FY'19 FY'20 FY'21E FY'22E migration of more business to ODM, backward integration
Sales 2,984.5 4,400.1 4,984.8 6,857.0 and acquisition of new customers
Growth (%) 5.0% 47.4% 13.3% 37.6% • Business outlook continues to look steady and strong due
EBITDA 141.8 228.3 275.2 400.9 to (a) strong performance by anchor brands like Samsung,
Growth (%) 21.3% 61.0% 20.6% 45.6% Xiaomi, Phillips (b) new customer acquisition (Nokia,
PAT 63.4 120.5 167.2 254.5 Toshiba, Hisense for LED TV; Samsung, LG, and Foxconn’s
EPS 55.9 104.1 144.5 220.0 in house brand InFocus for smart phones) (c) production
Growth (%) 4.0% 86.2% 38.8% 52.2% of fully automatic washing machine for a global MNC
RoE (%) 16.8% 22.3% 23.6% 26.4% • Security systems sales in the near term looks bleak as it
EV/EBITDA (x) 52.01 32.31 26.79 18.39 comes with discretionary spend category. However,
EV/Sales (x) 2.47 1.68 1.48 1.08 company have signed MoU with Mobilio for production
PE Ratio (x) 115.29 61.93 44.63 29.32
of RT-PCR testing kit which can be used to test 27
infectious disease including Covid-19. Commercial
Recommendation Rationale production is expected to begin in August at Tirupati
factory where DVR production is low with incurring
Buy >15%
significant capex
Hold -5% to 15% • Dixon is also applying for Production Link Incentive (PLI)
Reduce -15% to -5% scheme announced by Government of India (financial
incentive of 41,000 crores) aimed at local production of
Sell <-15% mobile phones.
Shareholding Pattern (%) • Dixon’s robust business model, new business
Promoters 36.2% opportunities for production of medical device, PLI
FII 10.8% scheme, and strong cash flow supports our estimate of
MF 22.2% 34% CAGR for revenues from FY’21 to FY’25. We have
Public 30.1%
estimated intrinsic value at Rs.5,850 which implies a
downside of 10% due to recent steep run of price
Other 0.8%
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Dixon Technologies (India) Ltd.
Jaynish Shah 17 July, 2020

Segment Highlights
Consumer Electronics
• Revenues from Consumer Electronics increased from 1194 crores in FY’19 to 2095 crores in FY’20
primarily led by it’s anchor customer Xiaomi. Operating Profit increased by 102% for the years while
operating margins improved from 2.1% to 2.4%
• It has reduced the Capital Employed by 53% to 63 crores while increasing RoCE to 46% from 37%.
• It has also signed new customers like Toshiba, Nokia and Hisense for production of LED TV’s. Commercial
production was expected to start from July. The order book from the acquisition of new customers is likely
to add 60,000 to 70,000 units per month
• Led by its current order book from Samsung and Xiaomi and new customer orders it is planning to
increase its production capacity from current 3.6MM units pa to 4.4MM units pa by August
• They reported 2.1MM unit sales in FY’20 implying 15% market share
• They are also planning to increase it’s annual PCB capacity from current 1MM to 1.9MM units
• Demand for TV’s remained strong for May, June and July

Lighting Products

• Revenues from Lighting Products increased from 919 crores in FY’19 to 1134 crores in FY’20. Operating
Profit increased by 48% for the year while operating margins improved from 7.2% to 8.6% due to higher
ODM sales which increased from 71% to 87%
• Operating profit margins are expected to be in the range of 8% to 8.5% for FY’21
• Lighting products are labor intensive which implies that they will face higher cost due to revised safety
and social distancing norms. Also, the company is facing labor shortage due to lockdown imposed
• Out of the total 20MM monthly capacity for bulbs (~30% of Indian requirement), and past production run
rate of 15MM per month, company is expected to produce about 15MM for the entire first quarter
• They are increasing their current capacity for battens and downlighters from 250K to 1.5MM per month
for battens and from 100K to 600K per month for downlighters
• Dixon is also implementing automation for the lighting products which will take about 8 – 9 months and
result in margin improvement thereafter

Mobile Phones
• Revenues from Mobile Phones increased from 355 crores in FY’19 to 537 crores in FY’20. Operating Profit
increased by 157% for the year while operating margins improved from 2.1% to 3.6% due to is due to
Samsung feature phones where Dixon works on job work basis and hence material costs does not get
included in sales, only job work’s value addition gets included in sales
• Operating profit margins are expected to be in the range of 2.5% to 2.7% for FY’21
• They achieved sales of 2MM unit per month for Samsung feature phones
• Dixon added new customers in smart phone segment like Samsung, LG and Foxconn’s in house brand
InFocus while they already had customers like Gionee, Panasonic and Karbonn. With the new customers
being added, the company is looking at selling additional 0.4MM units per month
• They are using a factory with low production capacity utilization for producing set top box for Reliance
(Den and Hathway) and have an order book of 0.5MM units expected to be completed by October. They
have also included a new customer in the form of DishTV for set top box
• Dixon is very optimistic about the PLI scheme which provides incentives for incremental sales over 500
crores compared to the base year and incurring capex of 200 crores over 4 years. Foreign companies can
participate in this scheme for producing mobile phones that costs upwards of Rs.15,000 (~$200). Since
75% of the Indian markets comes below the threshold, domestic manufacturers are likely to gain benefit
from it. Company is expecting the benefits to flow in from Q2 of FY’20

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Dixon Technologies (India) Ltd.
Jaynish Shah 17 July, 2020

Segment Highlights contd…

Home Appliances
• Revenues from Home Appliances increased from 374 crores in FY’19 to 396 crores in FY’20. Operating
Profit increased by 25% for the years while operating margins improved from 9.9% to 11.6%
• Volume sales for Washing Machines was ~850K for FY’20
• Home Appliance segment has seen subdued demand due to the lockdown imposed in the first quarter. It
only sold 66K units in the first quarter when their usual capacity is 70K units per month
• It’s annual capacity for the production of semi automatic washing machines (6 -10 kgs segment with over
140 varieties) is 1.2MM units. They are setting up additional capacity of 600K units annually for fully
automatic wash machines ( 6 – 9 kg segments with over 30 varieties). Production is expected to begin
from Q3. They have already signed an agreement with major MNC
• They have also acquired new customers in the form of Voltas and Reliance (Reliance acquired private
labels like Kelvinator and BPL)
• The margin guidance for this segment is in the range of 10% - 11%
Security Systems
• Revenues for security systems was 216 crores in FY’20, up from 112 crores in FY’19. Operating profit
margins increased from 1.1% in FY’19 to 3.3% in FY’20
• The company expects this segment to be under pressure due to it’s discretionary nature
• The company is expected to utilize the low capacity utilization of DVR plant for production of RT-PCR
testing kit already approved by ICMR which can be used for testing of 27 infectious disease including
Covid-19
• No significant Capex is required for the production of this medical kits

Other Points
• Lockdown had impacted last 10 days of business for the month of March leading to loss of sales of 165
crores and lower EBITDA of Rs. 10 crores. The company have identified cost reduction measures which will
save expense in the range of 8 – 10 crores in the lockdown months
• Revenues for Q1’21 are significantly impacted. The company is expected to just break even or may take a
marginal loss at EBITDA levels for Q1
• Company faced forex loss of 4.5 – 5 crores in the fourth quarter due to unfavorable movement of
currency. They usually hedge about 50% of their forex exposure
• Dixon resumed operations in all its 9 factories between May 4 and May 18 with limited capacity
utilization. It is slowly ramping up its production capacity across all the factories. Plants at Tirupati, Noida
& Dehradun are completely operational. Their have been some labor shortage facilities
• Company has capex guidance of around 120 crores for FY’21. It has allocated ~50 crores for upgradation
of facility at Tirupati to produce fully automatic washing machine. It has earmarked 50 crores for mobile
phone segment towards the PLI scheme
Risk Factors
• Significant prolongment of lockdown will impact consumer sentiment which in turn reduce their spend on
electronics and spend only during times of utmost necessity
• Dixon’s application has to be accepted in the PLI scheme for them to receive incentives as only 5
applicants are to be selected from the pool
• Cannibalization of sales in the home appliance can happen if the price change is not significantly different
• Security systems can remain under pressure for a long period of time because of it’s discretional nature
• Dixon’s margin may suffer if it is not able to change the revenue mix in favor of ODM as it intends to do
• Cheaper availability of other Covid-19 testing kits can lead to lower sales of RT-PCR whose primary usage
would be to test corona virus

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Dixon Technologies (India) Ltd.
 Jaynish Shah 17 July, 2020

Financial story in charts…

REVENUES FY'20 REVENUES FY'19
Consumer
Consumer
Electronics
Electronics 5%0% 4%1% Lighting
Lighting 12%
12% Solution
Solution
Home
Home
40% Appliances
Appliances 9% 12%
48% Mobile
Mobile
Phones
Phones
Security
Security
Systems
Systems 26% Reverse
Reverse 31%
Logistics
Logistics

63 7%
4% 4% 5% 4% 5% 4% 5%
56
53 52

39 38
33
26

Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20

Operating Profit Operating Profit margin

ODM Revenue Share as % of Total Revenues

120%
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
100% 94%
89% 89%
81% 83% 84%
80%
65%

60%
47% 44%
40% 37% 39% 39%
36% 34% 36% 36% 33%
40% 29% 29% 29%
20% 23%
17%
20% 10% 9% 10% 11%
5% 6% 5% 8%
3% 4% 3% 2%
0%
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20

Consumer Electronics Lighting Solution Home Appliances Consolidated

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Dixon Technologies (India) Ltd.
 Jaynish Shah 17 July, 2020

Financial Summary
Consolidated P&L Statement (Rs in Crores)
Year End - March FY'19 FY'20 FY'21E FY'22E FY'23E FY'24E FY'25E
Net Sales Turnover 2,984.45 4,400.12 4,984.77 6,857.00 9,204.27 12,170.00 15,944.29
Cost of Goods Sold 2,609.27 3,860.20 4,336.75 5,965.59 8,007.71 10,587.90 13,871.54
Gross Profit 375.18 539.92 648.02 891.41 1,196.55 1,582.10 2,072.76
Employee Expenses 83.87 117.97 149.54 205.71 276.13 365.10 478.33
Other Operating Expenses 155.16 198.89 229.24 342.85 460.21 608.50 797.21
Total Expenses 239.03 316.86 378.78 548.56 736.34 973.60 1,275.54
Core Operating Profit 136.15 223.06 269.24 342.85 460.21 608.50 797.21
Other Income 5.63 5.19 6.00 58.01 38.02 41.22 36.99
EBITDA 141.78 228.25 275.24 400.86 498.23 649.72 834.21
Depreciation & Amortisation 21.65 36.53 41.83 51.06 62.76 79.20 100.83
EBIT 120.13 191.72 227.41 291.79 397.46 529.30 696.39
Interest 26.32 34.96 10.44 10.44 10.44 10.44 10.44
EBT 93.81 156.76 216.97 281.35 387.02 518.86 685.95
Exceptional Items - - - - - - -
Pre-Tax Profit 93.81 156.76 222.97 339.36 425.04 560.09 722.95
Taxes 30.45 36.26 55.74 84.84 106.26 140.02 180.74
Profit and Loss for the Year 63.36 120.50 167.23 254.52 318.78 420.06 542.21
Non-Controlling Interest - - - - - - -
Share of Associate - - - - - - -
Net Income for the year 63.36 120.50 167.23 254.52 318.78 420.06 542.21
Shares in Issue (Lakhs) 113.3 115.7 115.7 115.7 115.7 115.7 115.7
EPS (Rs) 55.95 104.15 144.54 219.98 275.52 363.06 468.63

Key Ratios
Year End - March FY'19 FY'20 FY'21E FY'22E FY'23E FY'24E FY'25E
Operating Ratios
Gross Profit Margins 12.6% 12.3% 13.0% 13.0% 13.0% 13.0% 13.0%
EBITDA Margins 4.75% 5.19% 5.5% 5.8% 5.4% 5.3% 5.2%
PAT Margins 2.1% 2.7% 3.4% 3.7% 3.5% 3.5% 3.4%
Working Capital Ratios
Inventory Days 51 43 45 45 45 45 45
Acconts receivable days 59 49 50 50 50 50 50
Acconts payable days 100 87 94 92 92 92 93
Leverage Ratios
Debt/Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Coverage Ratio 5 5 22 28 38 51 67
Current Ratio 1 1 1 1 1 1 1
Quick Ratio 1 1 1 1 1 1 1
Return Ratios
RoE 16.8% 22.3% 23.6% 26.4% 24.9% 24.7% 24.2%
RoCE 31.3% 34.7% 31.6% 30.0% 30.7% 30.9% 30.9%
Valuation Ratios
EPS 55.9 104.1 144.5 220.0 275.5 363.1 468.6
P/E Ratio 41 22 16 11 8 6 5
P/B Ratio 7 5 4 3 2 2 1
EV/EBITDA 54 33 27 22 16 12 9
EV/Sales 2 2 1 1 1 1 0

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Dixon Technologies (India) Ltd.
 Jaynish Shah 17 July, 2020

Financial Summary
Consolidated Balance Sheet (Rs in Crores)
Liabilities FY'19 FY'20 FY'21E FY'22E FY'23E FY'24E FY'25E
Share Capital 11.33 11.57 11.57 11.57 11.57 11.57 11.57
Reserves & Surplus 366.90 529.76 696.99 951.51 1,270.29 1,690.35 2,232.56
Net Worth 378.23 541.33 708.56 963.08 1,281.86 1,701.92 2,244.13
Non-Controlling Interest - - - - - - -
Long Term Borrowings 6.14 11.02 11.02 11.02 11.02 11.02 11.02
Long Term Provisions 4.63 6.50 8.22 11.31 15.19 20.08 26.31
Other Non-Current Liabilities 0.52 89.36 89.36 89.36 89.36 89.36 89.36
Non Current Trade Payables 157.89 - - - - - -
Deferred Tax Liabilities (Net) 15.99 15.02 15.02 15.02 15.02 15.02 15.02
Total Non-Current Liabilities 185.17 121.90 123.62 126.71 130.59 135.48 141.71
Short Term Borrowings 129.94 71.80 71.80 71.80 71.80 71.80 71.80
Trade Payables 739.68 939.06 1,128.74 1,552.69 2,084.20 2,755.76 3,610.40
Short Term Provisions 9.30 5.56 6.03 8.29 11.13 14.71 19.28
Other Current Liabilities 50.13 17.57 17.57 17.57 17.57 17.57 17.57
Total Current Liabilities 929.05 1,033.99 1,224.14 1,650.35 2,184.70 2,859.84 3,719.05
Total Liabilities 1,492.45 1,697.22 2,056.32 2,740.14 3,597.14 4,697.24 6,104.89
Assets
Property, Plant & Equipment (Gross) 281.95 483.81 603.81 723.81 907.90 1,151.30 1,470.18
Less: Acc. Depreciation 45.73 82.26 124.09 175.15 237.91 317.11 417.94
Property, Plant & Equipment (Net) 236.22 401.55 479.72 548.66 669.98 834.18 1,052.24
Capital Work in Progress 18.77 9.55 9.55 9.55 9.55 9.55 9.55
Intangible Assets 4.72 4.37 4.37 4.37 4.37 4.37 4.37
Goodwill - 8.17 8.17 8.17 8.17 8.17 8.17
Non-Current Trade Receivable 148.23 - - - - - -
Deferred Tax Asset (Net) 1.60 0.25 0.25 0.25 0.25 0.25 0.25
Other Non-Current Assets 13.53 27.15 27.15 27.15 27.15 27.15 27.15
Total Non-Current Assets 423.07 451.04 529.21 598.15 719.47 883.67 1,101.73
Inventories 408.36 497.83 534.67 735.48 987.25 1,305.36 1,710.19
Trade Receivables 516.74 515.12 682.85 939.32 1,260.86 1,667.12 2,184.15
Cash and Bank 36.72 100.16 176.53 334.13 496.49 708.02 975.74
Investment 7.61 - - - - - -
Other Current Assets 99.95 133.07 133.07 133.07 133.07 133.07 133.07
Total Current Assets 1,069.38 1,246.18 1,527.11 2,142.00 2,877.67 3,813.57 5,003.15
Total Assets 1,492.45 1,697.22 2,056.32 2,740.14 3,597.14 4,697.24 6,104.89

Consolidated Cash Flow Statement (Rs in Crores)

Year End - March FY'19 FY'20 FY'21E FY'22E FY'23E FY'24E FY'25E
Profit After Tax 63.36 120.50 167.23 254.52 318.78 420.06 542.21
Add: Depreciation & Amortisation 21.65 36.53 41.83 51.06 62.76 79.20 100.83
Add: Finance Charges 26.32 34.96 10.44 10.44 10.44 10.44 10.44
Add: Tax Charges 30.45 36.26 55.74 84.84 106.26 140.02 180.74
Operating Profit before Working Capital Changes 141.78 228.25 275.24 400.86 498.23 649.72 834.21
(Inc)/Dec in Working Capital (127.50) 42.33 (14.41) (31.08) (38.96) (49.23) (62.65)
Less: Direct Taxes paid (Net of refunds) (18.27) (42.94) (55.74) (84.84) (106.26) (140.02) (180.74)
Others 157.53 93.86 1.72 3.09 3.87 4.89 6.23
Net Cash Flow from Operating Activity 11.76 93.25 206.81 288.03 356.88 465.36 597.05
(Inc)/Dec in Fixed Assets (78.96) (108.10) (120.00) (120.00) (184.09) (243.40) (318.89)
Others 6.01 8.78 - - - - -
Net Cash Used in Investing Activity (72.95) (99.32) (120.00) (120.00) (184.09) (243.40) (318.89)
Issue of Shares - 45.69 - - - - -
Change in Borrowings 96.40 (57.00) - - - - -
Less:Finance Charges paid (26.32) (34.96) (10.44) (10.44) (10.44) (10.44) (10.44)
Others (1.48) (11.10) - - - - -
Net Cash Used in Financing Activity 68.60 (57.37) (10.44) (10.44) (10.44) (10.44) (10.44)
Net Inc/Dec In Cash and Cash Equivalent 7.41 (63.44) 76.37 157.60 162.36 211.53 267.73
Cash and Cash Equivalent - Beginning of the Year 44.13 36.72 100.16 176.53 334.13 496.49 708.02
Cash and Cash Equivalent - End of the Year 36.72 100.16 176.53 334.13 496.49 708.02 975.74

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Dixon Technologies (India) Ltd.