local dominance, global ambition
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Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited
KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 4,612 12 month price target (INR) 5,700 Market cap (INR bn/USD bn) 270/3.6 Free float/Foreign ownership (%) 60.9/4.0
INVESTMENT METRICS
Local dominance, global ambition
Dixon is India’s largest listed electronics/durables manufacturer with a scalable business model delivering healthy returns underpinned by low cost-capital intensity and prudently diverse revenue streams.
Our key arguments: i) Dixon is an amplified play on India’s EMS growth given potential for higher concentration in sourcing as supply chains
localise. ii) Penetration in global supply chain would extend its earnings super-cycle with robust returns/cash flow. All in all, we are initiating with ‘BUY’ modelling in a 77/60% EPS CAGR (2/4Y), implying a modest double-digit revenue market share backed by solid competitive edge vis-a-vis peers. Slowdown in domestic market and limited global ramp-up pose key risks to our hypothesis.
FINANCIALS (INR mn)
Year to March FY21A FY22E FY23E FY24E
Revenue 64,482 1,29,380 1,90,344 2,62,514
EBITDA 2,866 5,312 8,202 11,811
Adjusted profit 1,598 3,145 5,002 7,404
Diluted EPS (INR) 26.9 52.9 84.1 124.5
EPS growth (%) 30.8 96.8 59.1 48.0
RoAE (%) 25.0 35.5 39.4 40.5
P/E (x) 171.6 87.2 54.8 37.0
EV/EBITDA (x) 94.7 51.0 32.8 22.5
Dividend yield (%) 0 0.1 0.1 0.3
PRICE PERFORMANCE
Best play on domestic CD growth; decade-long growth super-cycle
Dixon’s business model is highly fungible across products with low-cost-capital
intensity. This makes it the best play on expanding domestic electronic/durable
manufacturing pie as supply chain gets local. Additionally, breaking into global
supply-chain with a judicious business mix offers a longer growth super-cycle with
healthy returns. Our FY21–25E EPS CAGR of 60% reflects Dixon’s ramp-up in
domestic market share given its scale-cost edge. Our deep-dive into global EMS
majors (our case study) suggests the best phase of value creation for Dixon is yet to
come—and will possibly be far better given growth/return gap. Global markets
penetration would drive high growth over the decade with domestic leading upfront.
Domestic TAM to grow 3x to USD50bn; translation key
Dixon is the best proxy for PLI-led globally compatible capacity creation in
EMS/durables in our view. Given its highly competitive and scalable business model,
we clearly see a growing concentration of production mandates. Dixon’s
smart/judicious approach to global markets should keep growth/returns higher than
global peers. Though mature-stage returns for a global business could wane, we
argue that would be much later. Train attention on a 3x estimated jump in Dixon’s
TAM to ~USD50bn over FY21–25E; factoring in global potential makes it ~USD180bn.
Explore:
Outlook and valuation: Global-scale champion; initiate with ‘BUY’
Primarily a play on India’s expanding consumer durable/electronics manufacturing,
Dixon is yet to see a longer yet robust earnings super phase in our view. Additionally,
breaking into global supply chain could yield consistent high returns – in contrast to
peers – led by a judicious revenue mix and efficiency. That said, we admit that a
global business at a matured stage could face risks of lower valuations, if Dixon fails
to sustain its superior returns structure.
We are initiating coverage with ‘BUY/SO’ and TP of INR5,700 (40x PE on discounted
FY25E EPS, in line with CD sector) given strong earnings-return scale-up trajectory
and an expanding TAM basket with a comprehensive product basket. Key
risks/concerns: Slow and limited global mandates and ramp-up, slowdown in
domestic market and tougher competition from existing global incumbents.
5
25
45
65
85
105
Sales Growth(%)
EPS Growth(%)
RoE(%)
PE(x)
Consumer Durables DIXON IN EQUITY
38,000
42,600
47,200
51,800
56,400
61,000
1,675
2,270
2,865
3,460
4,055
4,650
Sep-20 Dec-20 Mar-21 Jun-21 Sep-21
DIXON IN EQUITY Sensex
India Equity Research Consumer Durables October 1, 2021
DIXON INITIATING COVERAGE
Amit Mahawar Angad Saluja Manoj Kumar K V +91 (22) 4040 7451 Amit.Mahawar@edelweissfin.com angad.saluja@edelweissfin.com ManojKumar.kv@edelweissfin.com
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DIXON
Edelweiss Securities Limited
2 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Executive Summary
We are initiating coverage on Dixon, the largest listed manufacturer of consumer
electronics/durables in India. With a comprehensive capacity expansion plan and a
frugal cost-capital light structure, the company is positioned as the best play on the
burgeoning consumer electronics market and an even faster growing
electronic/durables manufacturing, thanks to a shift in supply chains to India.
As an added advantage, Dixon’s gradual and judicious entry in the global supply
chain could offer material scale as well as decent returns in the long run, unlike its
global peers. This could well be a decade-long growth super-cycle in our view.
Best case for consumer electronics/domestic sourcing-led growth
Double-digit growth in consumer electronics/durables market coupled with a
significant structural shift to local supply chain offers a robust 30%-plus CAGR for
Dixon’s TAM over the next three–five years. Additionally, concentration of supply-
chain to large-efficient OEMs ensures a consistent and significant uptick in revenue
market share for the company from 4/6% in FY17/21 to ~10% by FY25E.
Entry in global supply chain: Added advantage with decent returns
With domestic market offering initial scale and capacity ramp-up, Dixon’s entry in
the global supply chain with a judicious strategy (restricted to LED lights, mobile at
this stage) offers a much larger TAM of ~USD170bn than a relatively pale USD15bn
domestic opportunity. In our view, the company could sustain a far better returns
structure than global peers with a combination of business mix, efficiency and cost
structure over the next decade.
Global peers’ value creation phase; positive read-across for Dixon
We took a closer look at global giants in the EMS space (Foxconn, Pegatron) over the
past few decades to gauge stakeholder value creation across growth-return cycles.
Bulk of the wealth creation for stakeholders happened during the early part of
growth as returns scale up.
In the later more mature phase, as growth/returns normalised, there was a gradual
valuation de-rating. Initial growth/returns phase was characterised by concentrated
volumes from select large global clients that delivered maximum value to
stakeholders, while the mature stage had a fairly diversified set of clients/segments
largely with OEM model delivering more of average growth/returns.
Read-across for Dixon: In our view, Dixon’s earnings/return scale-up phase has
already begun led by domestic sourcing concentration, and this should have a longer
run complemented by global penetration. We argue, Dixon’s best phase of wealth
creation, in line with global peers, should unfold during its sustained return scale-up
over the next three–five years. Its growth/return scale-up, in our view, will sustain a
far superior track record, thereby warranting a materially higher valuation range
than global peers.
The game is scale and RoCE; we expect a step-up
Dixon clocked a solid 35%-plus top-line CAGR (FY16–21) yielding a healthy 30% RoCE
led by both healthy margins and scale-up. The bulk of FY21–25E ramp-up in revenues
will be domestic-led; a robust 3x-plus growth in TAM will lead to a healthy 50%-plus
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 3
CAGR in top-line. Meanwhile, Dixon’s lower cost and judicious mix should keep its
RoCE profile on an uptrend—moving from 30% to 48%-plus from FY21–25E.
Outlook and valuation: Best phase; initiate with ‘BUY’
Initial sourcing will stay concentrated with larger brands outsourcing the bulk to
large OEMs, which would benefit efficient scale players such as Dixon. Additionally,
the company’s business model is unique with presence across electronics/durables
manufacturing, offering a better business mix. At a mature stage, the business could
get a lower valuation given growth/return normalisation in line with global peers,
and that would hinge on Dixon’s ability to sustain returns superior to global peers.
We also note the increasing bias towards high-quality manufacturing by investors
given consistent government support to drive local manufacturing, relatively high
value addition, etc. This trend augurs well for large-scale players such as Dixon in the
long run.
We are initiating coverage with ‘BUY/SO’ recommendation/rating and TP of
INR5,700, valuing the stock at 40x PE (FY25E discounted EPS), in line with large
brands in India given strong earnings-return scale-up trajectory and an expanding
TAM basket with a comprehensive product basket.
Edelweiss Consumer Durables model portfolio
We are introducing Dixon in our model portfolio (exhibit 35) with a 10% weight. Our
model portfolio has outperformed Nifty by 15/30% and BSE CD Index by 8/17% over
a 6/12M period.
Top picks pecking order: Voltas, Crompton, KEI, Dixon and Bajaj Electricals
Key risks
Dixon has a major capex ramp-up plan, which requires significant production
mandate from local/global markets and efficient execution. Delay in approval cycle
and execution challenges w.r.t. production ramp-up pose key risks to our hypothesis.
Competition, particularly from incumbents, could risk expected global penetration.
DIXON
Edelweiss Securities Limited
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Target addressable market across players and offerings
Source: Edelweiss Research
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 5
The Story in Charts
We expect Dixon’s TAM to expand exponentially…
…complemented by competitive business model…
…and domestic supply chain build-up…
…with reduced dependence on imports…
…translating to supernormal growth…
…warranting a premium valuation
Source: Company, Edelweiss Research
Foxconn
Pegatron
Quanta Computer
Flextronics International
Compal Electronics
Jabil
Wistron
Dixon
1.0
2.2
3.4
4.6
5.8
7.0
0 10 20 30 40EB
ITD
A %
ROCE %
0
1,200
2,400
3,600
4,800
6,000
FY16 FY17 FY18 FY19 FY20 FY21
Do
mes
tic
Pro
d. I
NR
bn
Consumer electronics Industrial electronicsComputer hardware Mobile phonesStrategic electronics Electronic components
80.0
82.0
84.0
86.0
88.0
90.0
0
1,000
2,000
3,000
4,000
5,000
FY15 FY16 FY17 FY18 FY19 FY20
%
INR
mn
Imports Exports Imports as a % of total
Dixon
Amber
Havells
Crompton
Whirlpool
HUL
Dabur
Nestle
FoxconnMidea Haier
Gree0.0
15.0
30.0
45.0
60.0
75.0
0.0 20.0 40.0 60.0 80.0
1 y
ear
forw
ard
PE
Earnings growth % (FY20-23E)
0.0
2.0
4.0
6.0
8.0
10.0
0
800
1,600
2,400
3,200
4,000
FY17 FY21 FY25
Rev
enu
e sh
are
%
INR
bn
Mobile TV LightingWM Security system RefrigeratorLaptop & Tablets Telecom Products Market share
1,124
3,572
595
0.0
6.0
12.0
18.0
24.0
30.0
0
80
160
240
320
400
FY1
7
FY1
8
FY1
9
FY2
0
FY2
1
FY2
2E
FY2
3E
FY2
4E
FY2
5E
INR
bn
Revenue FA Turnover
DIXON
Edelweiss Securities Limited
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Financial Statements
Income Statement (INR mn) Year to March FY21A FY22E FY23E FY24E
Total operating income 64,482 1,29,380 1,90,344 2,62,514
Gross profit 6,785 13,326 19,605 27,301
Employee costs 1,371 1,545 1,886 2,365
Other expenses 2,548 6,469 9,517 13,126
EBITDA 2,866 5,312 8,202 11,811
Depreciation 437 798 1,123 1,513
Less: Interest expense 274 353 453 486
Add: Other income 16 43 61 86
Profit before tax 2,170 4,204 6,688 9,898
Prov for tax 572 1,060 1,685 2,494
Less: Other adj 0 0 0 0
Reported profit 1,598 3,145 5,002 7,404
Less: Excp.item (net) 0 0 0 0
Adjusted profit 1,598 3,145 5,002 7,404
Diluted shares o/s 59 59 59 59
Adjusted diluted EPS 26.9 52.9 84.1 124.5
DPS (INR) 1.0 2.7 4.3 12.7
Tax rate (%) 26.4 25.2 25.2 25.2
Important Ratios (%) Year to March FY21A FY22E FY23E FY24E
COGS (% of rev) 89.5 89.7 89.7 89.6
Employee cost (%of rev) 2.1 1.2 1.0 0.9
Other exp (% of rev) 4.0 5.0 5.0 5.0
EBITDA margin (%) 4.4 4.1 4.3 4.5
Net profit margin (%) 2.5 2.4 2.6 2.8
Revenue growth (% YoY) 46.5 100.6 47.1 37.9
EBITDA growth (% YoY) 28.5 85.4 54.4 44.0
Adj. profit growth (%) 32.6 96.8 59.1 48.0
Assumptions (%) Year to March FY21A FY22E FY23E FY24E
GDP (YoY %) (8.0) 9.0 7.0 NA
Repo rate (%) 4.0 4.0 4.3 NA
USD/INR (average) 74.2 73.0 72.0 NA
CE rev grwth (%) 83.4 74.0 43.4 30.6
Mobile rev grwth (%) 56.4 235.9 67.3 56.9
Lighting rev grwth (%) (3.2) 72.3 23.5 26.4
HA rev grwth (%) 8.8 102.0 37.6 22.2
Depreciation (% of FA) 6.9 10.0 10.0 10.0
Tax rate (%) 26.4 25.2 25.2 25.2
Valuation Metrics Year to March FY21A FY22E FY23E FY24E
Diluted P/E (x) 171.6 87.2 54.8 37.0
Price/BV (x) 37.2 26.6 18.2 12.7
EV/EBITDA (x) 94.7 51.0 32.8 22.5
Dividend yield (%) 0 0.1 0.1 0.3
Source: Company and Edelweiss estimates
Balance Sheet (INR mn) Year to March FY21A FY22E FY23E FY24E
Share capital 117 117 117 117
Reserves 7,256 10,212 14,915 21,431
Shareholders funds 7,373 10,329 15,032 21,548
Minority interest 0 0 0 0
Borrowings 1,513 2,013 2,513 2,883
Trade payables 17,097 26,390 38,825 53,487
Other liabs & prov 1,081 1,216 1,371 1,549
Total liabilities 28,457 41,480 59,426 81,320
Net block 4,099 6,011 8,139 10,527
Intangible assets 82 82 82 82
Capital WIP 2,046 2,046 2,046 2,046
Total fixed assets 6,226 8,138 10,267 12,655
Non current inv 1,272 1,272 1,272 1,272
Cash/cash equivalent 689 1,585 3,837 7,330
Sundry debtors 10,891 15,951 23,467 32,365
Loans & advances 145 153 160 168
Other assets 9,234 14,381 20,422 27,529
Total assets 28,457 41,480 59,426 81,320
Free Cash Flow (INR mn) Year to March FY21A FY22E FY23E FY24E
Reported profit 1,598 3,145 5,002 7,404
Add: Depreciation 437 798 1,123 1,513
Interest (net of tax) 202 264 339 363
Others 756 1,106 1,738 2,531
Less: Changes in WC (743) (648) (822) (1,005)
Operating cash flow 1,701 3,605 5,695 8,311
Less: Capex (1,682) (2,710) (3,252) (3,901)
Free cash flow 19 895 2,444 4,410
Key Ratios Year to March FY21A FY22E FY23E FY24E
RoE (%) 25.0 35.5 39.4 40.5
RoCE (%) 32.3 42.9 47.8 49.5
Inventory days 39 31 33 34
Receivable days 45 38 38 39
Payable days 84 68 70 72
Working cap (% sales) 3.5 2.4 2.1 2.0
Gross debt/equity (x) 0.2 0.2 0.2 0.1
Net debt/equity (x) 0.1 0 (0.1) (0.2)
Interest coverage (x) 8.9 12.8 15.6 21.2
Valuation Drivers Year to March FY21A FY22E FY23E FY24E
EPS growth (%) 30.8 96.8 59.1 48.0
RoE (%) 25.0 35.5 39.4 40.5
EBITDA growth (%) 28.5 85.4 54.4 44.0
Payout ratio (%) 3.7 5.0 5.0 10.0
Edelweiss Securities Limited
DIXON
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Investment Rationale
Competitive and scalable business model; multiple growth vectors
Dixon’s business model is highly scalable yet profitable, thanks to its frugal cost
structure, capital-light intensity and, above all, high manufacturing fungibility.
Domestic electronic/consumer durables manufacturing is slated to grow 2x-plus
versus the sector over coming 3–5 years, offering a huge 3x jump in TAM for
Dixon over FY21–25E as brands localise supply-chains. And breaking into global
supply-chain could enormously expand global TAM for Dixon in our view.
Best play on domestic market growth; high returns-scale feasible
Dixon was able to capture the consumer electronics outsourcing potential much
ahead of peers, which gives it a solid early-mover advantage. Flexibility across
OEM/ODM, high-fungibility and frugal cost structure offer long-term returns-
accretive scale. Dixon’s unique and sustainable competitive edge reflects well in its
industry leading growth, superior cash-returns structure. This makes it the best play
on consumer durable/electronics manufacturing growth, which makes the bulk of
FY21-25E growth and drives the initial scale/critical mass needed to penetrate global
supply-chain.
Consumer electronics and mobile phones to drive revenue growth
Source: Company, Edelweiss Research
0
80
160
240
320
400
FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
INR
bn
Consumer electronics Home appliances Mobile & EMSLighting Security systems Reverse logisticsNetwork products
Highly fungible manufacturing, frugal
cost structure and asset-light model lend
sustainable competitive edge to Dixon
DIXON
Edelweiss Securities Limited
8 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Dixon fares better than global peers on margins
Source: Company, Bloomberg, Edelweiss Research
Cost effective production – Dixon’s key differentiator
Source: Company, Bloomberg, Edelweiss Research (Note: 3Y Average taken)
Foxconn
Pegatron
Quanta Computer
Flextronics International
Compal Electronics
Jabil
Wistron
Dixon
1.0
2.2
3.4
4.6
5.8
7.0
0 5 10 15 20 25 30 35
EBIT
DA
%
ROCE %
0.0
25.0
50.0
75.0
100.0
125.0
Dixon Foxconn Pegatron Quantacomputer
Compal Wistron
%
COGS Gross profitR&D Sales/Marketing/AdvertisementGeneral & Admin EBITDA
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 9
Entry in global supply chain; execution key to expanding TAM
Dixon, leveraging its key strengths, was able to ramp up its revenue market share
from 4% to 6% over FY17–21 with TAM coverage jumping from USD9bn to USD15bn,
largely domestic. The company is particularly targeting segments such as LED lights
and mobile phones, wherein it has made globally comparable capacity/inroads with
global players.
If it executes on these two segments well, Dixon’s addressable target market/EBIT
pool could jump 5–10x over FY21-25E. Domestic opportunity for Dixon is pegged at
~USD50bn by FY25E if one goes by growth across segments, global potential could
be USD170bn in LED lights/mobile phones alone (three global players only).
The Indian EMS industry is pegged at USD6bn, according to the company, implying
a ~15% market share, which has improved from ~9% in FY17. Our estimate of Dixon’s
revenue share, based on its realisation and value addition, shows gains in market
share from existing ~6% to ~10% by FY25.
While the industry has been growing handsomely…
Source: Crisil, Meity, Industry estimates, Edelweiss Research
…we expect Dixon’s TAM to expand exponentially
Source: Crisil, Meity, Industry estimates, Edelweiss Research
0
1,000
2,000
3,000
4,000
5,000
FY17 FY21 FY25E
INR
bn
Mobile TV Refrigerator Laptop & Tablets
Lighting Security systems WM Telecom products
5,126
1,428
2,775
Domestic TAM for Dixon is slated to grow
3x to ~USD50bn (FY21–25E), while
targeted global penetration pegs TAM at
~USD170bn (only considering LED lights
and mobile as categories)
0.0
2.0
4.0
6.0
8.0
10.0
0
800
1,600
2,400
3,200
4,000
FY17 FY21 FY25
Rev
enu
e sh
are
%
INR
bn
Mobile TV LightingWM Security system RefrigeratorLaptop & Tablets Telecom Products Revenue share
595
3,572
1,124
DIXON
Edelweiss Securities Limited
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Dixon caters to three of top five in TV brands…
Source: Industry estimates, Edelweiss Research
…top two out of five in washing machines…
Source: Industry estimates, Edelweiss Research
…one out of five in mobile phones…
Source: Industry estimates, Edelweiss Research
…and four out of five in lighting in India
Source: Industry estimates, Edelweiss Research
Samsung, 29%
LG, 26%
Sony, 18%
Xiaomi, 14%
Panasonic, 7%
LG, 30%
Samsung, 20%
Godrej, 8%
Whirlpool, 14%
IFB, 11%
Xiaomi, 27%
Samsung, 21%
Oppo, 11%
Realme, 6%Apple, 3%
Philips, 17%
Havells, 6%
Bajaj Electricals, 5%
Crompton, 5%
Surya Roshni, 5%
Edelweiss Securities Limited
DIXON
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Decoding global EMS giants: Read-across for Dixon
The global EMS industry is dominated by large Taiwanese players, which cater to
large global brands. Foxconn and Pegatron are two such players with a lion’s share
(more than 50%) of the EMS industry.
Foxconn, the largest EMS player globally…
Source: Bloomberg, Edelweiss Research
…with a dominant market share of 40.9%
Source: Bloomberg, Edelweiss Research
Foxconn
With revenue of USD182bn in 2020, which has compounded at ~7% over the past
ten years, Foxconn has emerged as the largest player in the EMS industry. Long-term
contracts with marquee clients have been key to its success, even though top
customer revenue contribution remains elevated at ~52% (10-year average), which
seems to be the case across large EMS players.
The main segments that Foxconn operates in and derives 100% of revenue from are
the 3Cs:-Consumer electronics (smartphones, TVs, game consoles), Cloud network
products (servers, routers, edge computing, data centres, satellite communication,
other related products) and Computing (desktops, notebooks, tablets, office
machines, printers).
Foxconn: A financial snapshot (USD mn)
Particulars 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue 1,17,478 1,32,070 1,33,128 1,38,996 1,41,187 1,35,274 1,54,732 1,75,699 1,72,944 1,81,983
Top client % 48.7 57.2 50.6 54.8 53.7 54.2 51.1 49.4 50.2 54.0
COGS 1,08,414 1,23,607 1,24,549 1,29,365 1,31,088 1,25,294 1,44,771 1,64,679 1,62,720 1,71,694
Gross profit 9,064 8,463 8,579 9,631 10,099 9,980 9,961 11,020 10,224 10,288
Gross profit % 7.7 6.4 6.4 6.9 7.2 7.4 6.4 6.3 5.9 5.7
R&D 1,390 1,544 1,569 1,612 1,653 1,587 2,689 2,802 2,963 3,196
Sales/Marketing/Advertisement 2,475 867 872 863 819 699 970 1,085 975 925
General & Admin 2,380 2,403 2,456 2,433 2,452 2,265 2,602 2,614 2,567 2,403
EBITDA 4,570 5,944 6,162 7,041 7,419 7,393 5,706 6,508 5,888 5,976
EBITDA % (RHS) 3.9 4.5 4.6 5.1 5.3 5.5 3.7 3.7 3.4 3.3
ROE % 15.4 15.5 15.1 15.4 15.2 14.3 12.8 11.2 9.4 8.0
ROCE % 9.4 9.2 9.2 10.5 11.9 11.8 9.7 8.7 8.8 6.7
Source: Bloomberg, Edelweiss Research
0
100
200
300
400
500
2015 2016 2017 2018 2019 2020
USD
bn
Foxconn (HonHai Precision) PegatronQuanta Computer Flextronics InternationalCompal Electronics JabilWistron
Foxconn (HonHai
Precision), 40.9
Pegatron, 10.7
Quanta Computer,
8.3
Compal Electronics,
8.0
Jabil, 6.1
Wistron, 6.4
Others, 19.6
DIXON
Edelweiss Securities Limited
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Share of top client remains high for Foxconn
Source: Company, Edelweiss Research
FY00–07, the growth phase for Foxconn
Source: Company, Bloomberg, Edelweiss Research
Major client addition history for Foxconn over its listed history
Source: Company, Bloomberg, Edelweiss Research
Pegatron
Founded in 2008, Pegatron Corporation is also a Taiwanese electronics
manufacturing company. It mainly develops computing, communications and
consumer electronics for branded vendors. It also develops, designs and
manufactures computer peripherals and components.
Revenue stood at USD47.5bn in 2020, which has compounded at ~10% over the past
ten years. Pegatron is thus the second-largest player by revenue after Foxconn. Top
client revenue contribution remains high at 10-year average of ~54% and has picked
up in the past four years (~62% average).
Key segments that Pegatron operates in are Consumer products & other products
(tablets, game consoles, wearable device, smart home devices and automotive
electronics), Computing products (notebook PCs, desktop PCs and motherboards),
and Communication products (smart phones, routers, set top boxes and cable
modems).
3.0
3.6
4.2
4.8
5.4
6.0
47.0
49.5
52.0
54.5
57.0
59.5
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
%%
Top client % EBITDA % (RHS)
0
30
60
90
120
150
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
Dec
-14
Dec
-15
Dec
-16
Dec
-17
Dec
-18
Dec
-19
Dec
-20
TWD
Price
Apple
Dell
HP
Lenovo IBM
Microsoft
Sony
Vizio
Cisco
19.5
15.1
-8.2
49.3
14.7
5.6
22.1
10.7 8.5
-10.0
5.0
20.0
35.0
50.0
65.0
2000-2007 2009-2017 2017-2020
%
Share price return (CAGR) Revenue (CAGR) Avg. ROCE
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 13
Pegatron: A financial snapshot (USD mn)
Particulars 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue 20,413 29,800 31,991 33,642 38,232 35,930 39,246 44,474 44,226 47,528
Top client % 45.3 35.5 41.2 48.8 60.1 59.7 61.4 63.0 60.6 61.0
COGS 19,495 28,547 30,458 31,681 35,861 33,973 37,712 43,121 42,766 45,843
Gross profit 919 1,252 1,533 1,961 2,371 1,957 1,534 1,353 1,460 1,685
Gross profit % 4.5 4.2 4.8 5.8 6.2 5.4 3.9 3.0 3.3 3.5
R&D 337 408 402 407 462 437 439 491 478 567
Sales/Marketing/Advertisement 316 146 220 282 304 185 162 166 164 169
General & Admin 234 286 386 339 355 330 309 300 271 302
EBITDA 403 854 992 1,389 1,681 1,407 1,062 943 1,150 1,269
EBITDA % (RHS) 2.0 2.9 3.1 4.1 4.4 3.9 2.7 2.1 2.6 2.7
ROE 0.1 6.8 9.4 12.2 16.8 13.0 10.0 7.5 12.6 12.6
ROCE 2.4 6.4 7.9 9.2 12.3 9.7 7.3 4.8 6.9 7.4
Source: Bloomberg, Edelweiss Research
Margins back to decadal lows
Source: Bloomberg, Edelweiss Research
Communication products contribute significantly
Source: Bloomberg, Edelweiss Research
High growth phase for Pegatron leading to better ROCEs
Source: Company, Bloomberg, Edelweiss Research
1.5
2.2
2.9
3.6
4.3
5.0
30.0
37.0
44.0
51.0
58.0
65.0
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
%%
Top client % EBITDA % (RHS)
Computing, 13 Consumer
electronics, 13
Communication, 61
Others, 13
9.5
-3.4
11.5
3.4
7.9 6.4
-5.0
-1.0
3.0
7.0
11.0
15.0
2011-2017 2018-2020
Share price return (CAGR) Revenue (CAGR) Avg. ROCE
DIXON
Edelweiss Securities Limited
14 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Rising ODM mandate for smartphones by key OEMs globally
OEM Outhouse design 2019 Outhouse design 2020E
Samsung 9% 22%
Huawei 17% 18%
Xiaomi 77% 74%
Oppo 44% 51%
Lenovo 84% 89%
LG 49% 56%
Nokia 54% 88%
Source: Omdia, Edelweiss Research
Key observations
The sharp dip in EBITDA margins at the two companies is attributable to the
erosion in gross margins 2017 onwards and also the uptick in R&D spends for
Foxconn, adding further pressure on margin.
R&D spends remain a key focus area in order to increase product offerings as
well as to steer the shift from OEM to ODM business model.
Higher dependence on revenue from top customer seems to be the industry
phenomenon, adding to concentration risk.
For Foxconn and Pegatron, best m-cap creation happened during
returns/growth scale up, client concentration notwithstanding.
Global EMS players — A brief overview
Company Revenue
(USD Bn)
Revenue (10Y
CAGR)
PAT (10Y
CAGR) RoCE %
Top client
concentration %
(5Y Avg.)
Key segments
Foxconn (HonHai
Precision) 182 6.7 2.0 6.7 51.8 Smartphones, TVs, Desktops, Notebooks, Tablets, etc.
Pegatron 48 10.9 12.7 7.4 61.1 Smartphones, Desktops, Notebooks, Tablets, Smart home
devices, etc.
Quanta Computer 37 0.4 4.1 7.5 56.8 Notebooks, Cloud computing, Mobile communications
products
Compal
Electronics 36 2.4 -8.5 5.2 40.7
Notebooks, Smartphones, Tablets, Smart wearable devices,
etc.
Jabil 27 7.4 5.7 2.0 23.6 Acoustics, Additive manufacturing, Adhesives,
Environmental technologies, Fluidics, etc.
Wistron 29 3.9 -2.5 7.8 22.4 Notebooks, Smartphones, Display products, VoIP phones,
etc.
Source: Company, Bloomberg, Edelweiss Research
Best phase of stakeholder value creation
for global majors such as Foxconn and
Pegatron was during returns/growth
scale-up
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 15
Valuation
Decade-long phase of growth/returns super-cycle
Execution track record and robust business model is well complemented with
an expanding domestic market that will drive a super-growth and returns cycle
for Dixon.
Bulk of the super-normal growth in 3–5 years is domestic-led, while entry into
global supply chain will provide a sustained long-term phase of high
growth/returns trajectory, warranting premium valuation over the next decade.
Dixon’s business model has many sustainable competitive edges—first-mover
advantage, scalable revenue streams, low cost-capital intensity, among others--
leading to high returns structure/FCF generation. Past five years’ revenue/EBITDA
CAGR of 36%/38% reflects significant outperformance to consumer durables
industry, reflecting a strong market share ramp-up as brands seek to shift supply
chain to India.
Going ahead, industry-leading growth for Dixon looks like a done deal as favourable
policy initiatives (PLI, rising duty structure for imports, etc expand its overall TAM
and EBITDA pool. And this is complemented by the company’s aggressive and timely
capacity creation.
What could surprise Street going ahead?
Dixon has made deep inroads in its strategy of penetrating global supply chain,
especially in LED lights and mobile phones, with a global scale LED set-up (fifth
largest globally). And is set for a solid ramp-up in mobile phones, supplying
domestically to Samsung and Motorola/Nokia as their global supply chain partner.
In our view, these two segments offer a larger global market to Dixon and pose an
upside risk to consensus over the next three–five years.
Valuation and TP
We expect Dixon to compound its top line/PAT by a robust 51%/60% over FY21–25
versus its TAM CAGR of 34% as it ramps up market share, ably complemented by
rising manufacturing footprint and aggressive expansion. While domestic revenue
ramp-up is more or less predictable, we believe exports could see material step-up,
posing upside risk to growth/returns.
With high earnings growth trajectory, scale-up in returns/FCF, Dixon could generate
stakeholders return materially higher than what was seen in its global peer set,
which had also traded at peak valuation during their growth/returns phase (click to
read our global case study on Foxconn/Pegatron).
We are initiating coverage on Dixon with ‘BUY/SO’ and target price of INR5,700
(24% upside potential), assigning a premium 40x PE on discounted FY25E earnings,
recognising the earnings/returns super-cycle over FY21–25 and significant addition
to its TAM (domestic stands at USD50bn by FY25E. Meanwhile, global opportunity
is >3x domestic TAM and that too only considering LED lights and mobile.
A 10x potential expansion in global TAM
over five years coupled with highly
scalable business model with best-in-
class returns/cash flows makes a strong
case for valuations to be in line with
premium brands’
DIXON
Edelweiss Securities Limited
16 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Dixon’s one-year forward P/E
Source: Bloomberg, Edelweiss Research
Our DCF based alternative valuation accounts for ~85% of our PE-based target price
Particulars FY21 FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E Terminal
EBIT 2,429 4,514 7,079 10,297 14,575 19,029 24,171 30,316 37,737 46,818
Less Tax -572 -1,060 -1,685 -2,494 -3,558 -4,687 -5,987 -7,542 -9,423 -11,727
Add Depreciation 437 798 1,123 1,513 1,981 2,543 3,217 4,092 5,231 6,710
Cash flow 2,294 4,253 6,517 9,316 12,998 16,885 21,401 26,866 33,544 41,800
Change in WC -743 -648 -822 -1,005 -1,047 -1,331 -1,554 -1,884 -2,306 -2,855
Capex -1,682 -2,710 -3,252 -3,901 -4,681 -5,616 -6,739 -8,757 -11,381 -14,791
Free cash Flow (131) 895 2,444 4,410 7,270 9,938 13,108 16,225 19,857 24,154 26,611
Discounting factor 0.9 0.8 0.7 0.7 0.6 0.5 0.5 0.4 0.4
Discounted free cash flow - - 2,203 3,584 5,326 6,562 7,803 8,707 9,606 10,533 11,604
Free cash Flow 54,323 19%
Terminal Value 2,35,298 81%
Value of the firm 2,89,621
As at March 2021
Less: Debt 1,513
Add: Cash 689
Value of Equity 2,88,796
No of shares 59.5
Value per share 4,856
Source: Edelweiss Research
DCF key assumptions
Key assumption
Beta 0.94
Terminal growth rate (%) 6.0%
Equity/Total capital (%) 83.0%
Risk-free rate (%) 6.0%
Equity risk premium (%) 6.0%
WACC (%) 11.0%
Source: Edelweiss Research
10
32
54
76
98
120
Oct
-17
Dec
-17
Feb
-18
Ap
r-1
8
Jun
-18
Au
g-1
8
Oct
-18
Dec
-18
Feb
-19
Ap
r-1
9
Jun
-19
Au
g-1
9
Oct
-19
Dec
-19
Feb
-20
Ap
r-2
0
Jun
-20
Au
g-2
0
Oct
-20
Dec
-20
Feb
-21
Ap
r-2
1
Jun
-21
Au
g-2
1
(X)
1 year forward PE Average +1 SD -1 SD
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 17
Global valuation comparison snapshot FY20-23E CAGR (%) P/E (X) P/B (X) EV/EBITDA (X) ROE (%) ROCE (%)
Company Mcap (USD mn) Revenue PAT FY22E FY23E FY22E FY23E FY22E FY23E FY22E FY23E FY22E FY23E
Dixon 3,582 62.9 60.7 84 53 25.0 17.2 48.5 31.2 35.5 39.4 41.1 45.8
India EMS/ODM
Amber 1,432 12.9 21.6 49 35 5.5 4.8 25.3 19.6 12.0 14.6 14.8 17.3
Consumer Durables
Havells 12,016 13.2 24.8 58 48 11.9 10.5 39.1 32.9 21.5 23.1 25.2 27.1
Crompton 4,076 11.0 13.1 47 40 13.0 11.3 35.0 30.4 29.8 30.2 35.6 35.9
Whirlpool 3,871 10.9 11.1 53 41 8.2 7.0 33.4 26.1 16.7 18.5 19.2 22.0
Average 11.7 16.3 53 43 11.0 9.6 35.8 29.8 22.7 23.9 26.7 28.3
Consumer Staples
HUL 87,509 13.5 17.2 70 61 13.6 13.3 49.4 43.6 19.5 22.1 26.6 29.8
Dabur 15,627 12.2 15.1 54 46 12.6 11.1 46.0 39.1 24.6 25.5 30.1 31.7
Marico 9,760 11.8 14.8 48 41 17.5 15.4 31.9 27.9 39.6 39.6 47.2 48.1
Nestle 25,970 10.4 13.3 69 61 60.4 45.1 47.1 41.2 103.1 85.1 141.7 117.0
ITC 39,802 6.4 3.9 16 14 4.0 3.8 11.5 10.2 25.7 27.2 34.3 36.3
Britannia 13,205 9.7 13.1 56 48 21.3 16.8 41.3 35.3 43.0 39.2 41.8 42.8
Average 10.7 12.9 52 45 21.6 17.6 37.9 32.9 42.6 39.8 53.6 51.0
Global EMS/ODM
Foxconn 53,798 3.8 18.7 11 10 1.1 1.0 5.1 4.3 10.0 10.4 - -
Pegatron 6,478 -2.8 -0.0 9 10 1.1 1.0 6.6 5.6 11.7 10.1 - -
Wistron 2,893 0.4 4.0 9 9 1.0 0.9 5.3 4.1 11.7 11.9 - -
Jabil 9,072 4.4 37.0 11 10 4.2 3.6 5.0 4.5 41.7 37.2 - -
Quanta computer 10,904 1.8 4.3 10 11 2.0 1.9 6.1 5.8 19.9 18.5 - -
Flextronics International 9,296 2.6 8.9 13 11 2.8 2.5 6.4 6.7 23.1 24.6 - -
Compal Electronics 3,866 2.1 3.5 9 11 1.0 0.9 7.8 6.2 10.3 9.1 - -
Average 1.8 10.9 10 10 1.9 1.7 6.0 5.3 18.3 17.4 - -
Global Consumer Durables
Midea 74,280 7.3 10.2 17 15 3.6 3.1 14.2 11.8 21.7 21.8 - -
Haier 34,117 6.9 29.1 18 15 3.0 2.7 10.1 8.1 17.1 18.0 - -
Gree 35,691 10.0 9.2 9 8 1.9 1.7 3.8 3.0 19.6 20.5 - -
Average 8.1 16.2 15 13 2.8 2.5 9.4 7.6 19.4 20.1 - -
Source: Bloomberg, Edelweiss Research
DIXON
Edelweiss Securities Limited
18 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Premium valuations to sustain given high earnings growth
Source: Bloomberg, Edelweiss Research
Dixon: Outlier on revenue growth as well as return on equity
Source: Bloomberg, Edelweiss Research
Edel Consumer Durables model portfolio
Edel model portfolio outperformance vs Nifty and BSE CD index Outperformance vs
Nifty BSE CD Index Edel portfolio Nifty BSE CD Index
1M 3.2 9.1 10.7 7.5 1.7
3M 3.2 9.1 10.7 7.5 1.7
6M 18.5 26.0 33.8 15.3 7.8
12M 56.6 70.3 87.0 30.4 16.7
Source: Bloomberg, Edelweiss Research
Dixon
Amber
Havells
Crompton
Whirlpool
HUL
Dabur
Nestle
FoxconnMidea Haier
Gree
0.0
15.0
30.0
45.0
60.0
75.0
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.01
yea
r fo
rwar
d P
E
Earnings growth % (FY20-23E)
Dixon
Amber
Havells
Crompton
Whirlpool
HUL
Dabur
FoxconnPegatron
Midea
Haier
Gree
5.0
12.0
19.0
26.0
33.0
40.0
-5.0 5.0 15.0 25.0 35.0 45.0 55.0 65.0 75.0
RO
E %
Revenue growth % (FY20-23E)
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 19
We introduce Dixon in our model portfolio with a 10% weight
Company Old weight New weight Change
Havells 10 10
Voltas 25 20
Polycab 10 10
Bajaj Electricals 20 15
Crompton 15 15
KEI Industries 20 20
Dixon NA 10
Total 100 100
Source: Edelweiss Research
Edel Consumer Durables Valuation snapshot
Source: Company, Edelweiss Research
FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
Top Picks
Voltas Buy 1,218 1,250 76.6 75.6 92.0 105.2 9.0 8.5 9.3 9.6 17.2 15.9 22.3 26.3 70.9 76.7 54.7 46.3 13.5 11.3 14.1 15.1
Crompton Buy 479 550 45.1 47.5 54.6 61.7 13.2 14.8 14.8 15.1 7.9 9.6 9.8 11.4 60.7 49.6 48.9 42.0 38.6 35.7 29.8 30.2
Baja j Electrica ls Buy 1,306 1,275 49.8 45.7 56.3 64.0 4.2 6.6 7.7 8.1 0.0 15.1 24.9 31.4 NA 86.4 52.5 41.6 0.0 11.5 16.4 17.9
KEI Buy 927 900 48.8 41.8 52.3 64.3 10.2 11.0 11.1 11.6 28.5 30.5 39.7 52.8 32.5 30.4 23.3 17.6 22.3 16.6 18.3 20.3
Dixon Buy 4,612 5,700 44.0 64.5 129.4 190.3 5.1 4.4 4.1 4.3 20.5 26.9 52.9 84.1 224.5 171.6 87.2 54.8 26.2 25.0 35.5 39.4
Others
Polycab Buy 2,389 2,800 88.3 89.3 112.4 136.6 12.9 13.1 13.3 13.5 51.0 59.2 68.2 84.7 46.9 40.4 35.0 28.2 22.7 20.3 19.5 20.1
Havel ls Hold 1,373 1,100 94.3 104.3 117.4 136.7 10.9 15.0 14.7 14.9 11.7 16.6 18.8 22.8 117.2 82.7 72.9 60.3 17.3 22.0 21.5 23.1
Whirlpool Reduce 2,285 1,943 59.9 59.0 69.3 81.8 11.2 8.8 10.5 11.3 37.5 26.3 40.0 51.4 60.9 87.0 57.2 44.4 20.3 12.4 16.7 18.5
Symphony Reduce 1,071 690 11.0 9.0 11.5 13.2 19.2 15.5 15.7 16.3 26.0 15.3 19.8 23.9 41.2 69.8 54.0 44.9 28.4 16.3 17.1 18.2
Amber Hold 3,264 2,832 39.6 30.3 46.6 57.1 7.8 7.3 9.1 9.2 50.4 23.3 67.1 87.5 64.8 140.0 48.6 37.3 15.0 5.7 13.2 15.0
P/E (x) RoE (x)Company Reco
CMP
(INR)
TP
(INR)
EPS (INR)Revenue (INR bn) EBITDA margins (%)
DIXON
Edelweiss Securities Limited
20 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Financial Outlook
Dixon’s 3x-plus growth vis-à-vis consumer durables sector is premised on a
consistent ramp-up in its revenue market share and concentrated sourcing by
larger brands for efficiency and scale reasons.
Production ramp-up in existing/new capacities should see a consistent rise in
RoCEs for Dixon, which is the most important matrix for investors in our view.
Capacity creation, rising mandates to drive solid growth
We expect Dixon to sustain 3x-plus growth track record versus industry over FY21–
25, which is a realistic assumption with further upside potential from exports. In
contrast to past four–five years, Dixon has committed to significant capacity creation
with FY22E capex of INR2bn (we see further upside), on the back of PLI initiatives
with significant skin in the game by global/local brands.
Our assumption of 51% revenue CAGR (FY21–25E) factors in INR32bn (cumulative)
of exports till FY25E (at ~5% of revenues), which could see material upside, in case
Dixon is able to translate higher mandates in LED lights and mobile phones.
Strong top-line growth with high FA turnover ratio
Source: Company, Edelweiss Research
The game is scale and RoCE; we expect material step-up
Dixon reported an EBITDA margin of 4.4% in FY21 amid a challenging environment.
As the company’s margin closely tracks the ODM share in overall revenue (see
exhibit below), we believe EBITDA margin scale-up will remain range-bound given
higher trend of OEM business by brands and as Dixon attracts value segments with
significant scale.
What is critical for Dixon is the scale it attains across segments from local/global
markets and the returns (RoCE) it is able to generate efficiently. For us, these are by
far the most critical parameters to judge Dixon in the medium to long run. Even a
fraction of share from the global supply chain for Dixon could swing the returns
structure materially; hence global mandates offer potential upside to the modelled
returns trajectory.
Given its recent 2x industry growth,
Dixon is slated to post 3x-plus growth
versus sector in top line over FY21–25E.
Significant TAM addition complemented
with competitive-capacity creation and
mandates would act as key growth
drivers.
Significant scale-up in revenues and
profitability to drive RoCEs meaningfully
for Dixon
0.0
6.0
12.0
18.0
24.0
30.0
0
80
160
240
320
400
FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
INR
bn
Revenue FA Turnover
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 21
EBITDA margins to stay range-bound…
Source: Company, Edelweiss Research
…with PAT margins also following the trend
Source: Company, Edelweiss Research
As the company ramps up in existing segments as well as goes past the teething
phase of new segments, we believe return ratios will rise as it gains scale, churning
out higher revenues from capital base leading to higher fixed asset turnover ratio as
well. We understand B2B ramp-up has its own set of challenges (global approvals,
phased ramp-up, quality parameters, etc). Hence clarity on timelines/milestones will
remain key to stock performance.
EBITDA % closely tracks ODM % in revenue
Source: Company, Edelweiss Research
Returns ratios to ramp up significantly
Source: Company, Edelweiss Research
DuPont analysis FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
NP margin (%) 1.9 2.1 2.1 2.7 2.5 2.4 2.6 2.8 3.1
Total assets turnover (x) 11.4 9.4 5.6 6.2 7.2 10.6 11.4 11.4 10.9
Leverage multiplier (x) 1.4 1.2 1.5 1.6 1.4 1.4 1.3 1.3 1.2
RoE (%) 30.3 23.8 18.3 26.2 25.0 35.5 39.4 40.5 40.8
Source: Company, Edelweiss Research
3.5
3.9
4.3
4.7
5.1
5.5
0
4
8
12
16
20
FY1
7
FY1
8
FY1
9
FY2
0
FY2
1
FY2
2E
FY2
3E
FY2
4E
FY2
5E
%
INR
bn
EBITDA EBITDA % (RHS)
1.5
1.9
2.3
2.7
3.1
3.5
0
3
5
8
10
13
FY1
7
FY1
8
FY1
9
FY2
0
FY2
1
FY2
2E
FY2
3E
FY2
4E
FY2
5E
%
INR
bn
PAT PAT % (RHS)
3.5
3.9
4.3
4.7
5.1
5.5
20.0
24.0
28.0
32.0
36.0
40.0
FY16 FY17 FY18 FY19 FY20 FY21
%%
ODM as a % of revenue EBITDA % (RHS)
15.0
23.0
31.0
39.0
47.0
55.0
FY1
7
FY1
8
FY1
9
FY2
0
FY2
1
FY2
2E
FY2
3E
FY2
4E
FY2
5E
%
ROACE ROAE
DIXON
Edelweiss Securities Limited
22 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
EVA generated by Dixon
Particulars (INR mn) FY20 FY21 FY22E FY23E FY24E FY25E
EBITDA 2,231 2,866 5,312 8,202 11,811 16,557
Interest 350 274 353 453 486 552
Tax rate 23.1 26.4 25.2 25.2 25.2 25.2
Interest benefit 81 72 89 114 122 139
Tax 516 756 1,339 2,067 2,976 4,172
NOPAT 1,796 2,183 4,062 6,249 8,957 12,523
Shareholders’ equity 5,413 7,373 10,329 15,032 21,548 30,210
Total debt 828 1,513 2,013 2,513 2,883 3,253
Capital Invested 6,242 8,886 12,342 17,545 24,431 33,463
WACC 11.3 11.2 11.2 11.3 11.3 11.4
EVA 1,091 1,188 2,679 4,273 6,189 8,714
Source: Company, Edelweiss Research
Cash conversion cycle across Indian EMS/ODM and Consumer Durables brands Year Dixon Amber PG Electroplast Havells Crompton Whirlpool Polycab
Inventory days FY20 43 67 55 119 49 104 112
FY21 39 100 59 127 55 121 108
Debtor days FY20 49 76 53 13 41 16 63
FY21 45 116 64 14 36 20 65
Creditor days FY20 79 128 72 93 77 134 82
FY21 84 200 86 85 100 151 75
Cash cycle FY20 12 15 37 38 13 -13 93
FY21 1 16 37 56 -8 -10 98
Source: Company, Edelweiss Research
Proposed capacity expansion across segments
Segment Current
capacity
Planned
increase Comment
TV 4.4mn p.a. 5.5mn p.a. Currently capacity ~30% of the Indian TV market with the
proposed capacity expected to increase that to ~35%.
WM 1.2mn p.a. 2.1mn p.a.
Semi-automatic WM capacity to increase from 1.2mn to
1.5mn p.a. and another 0.6mn to be added for top load
fully automatic WM. Currently capacity ~28% of the
Indian demand.
Mobile
Phone 45mn p.a. 57mn p.a.
Capacity expansion planned for smartphones from
existing 3mn units to 12mn units p.a.
Lighting 378mn p.a. - Current capacity of LED bulbs ~50% of the Indian
requirement, battens at ~56% and Downlighters at ~50%.
Source: Company, Edelweiss Research
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 23
Key assumptions for Dixon
Particulars (INR mn) FY19 FY20 FY21 FY22E FY23E FY24E FY25E
LED TV
- Volumes (in mn) 1.1 2.1 2.8 4.6 6.0 6.8 7.1
- Realization 9,869 9,314 13,358 14,426 15,869 18,249 21,899
LED TV revenue 11,152 19,652 37,268 65,639 94,420 1,23,182 1,55,133
AC PCB
- Volumes (in mn) 0.9 1.3 1.1 1.1 1.2 1.6 2.3
- Realization 873 980 1,058 1,132 1,211 1,296 1,386
AC PCB revenue 785 1,300 1,158 1,239 1,459 2,029 3,257
Consumer electronics revenue 11,937 20,952 38,426 66,879 95,879 1,25,211 1,58,390
- Volumes (in mn) 0.8 0.8 0.9 1.7 2.2 2.4 2.6
- Realization 4,992 4,954 4,844 5,183 5,546 6,101 6,833
Home appliances revenue 3,744 3,963 4,312 8,708 11,980 14,642 17,424
- Volumes (in mn) 3.3 11.0 25.0 39.0 45.5 53.7 61.5
- Realization (blended) 1,077 489 268 659 970 1,316 1,559
Mobile phone revenue 3,549 5,369 6,707 25,693 44,140 70,650 95,869
- Volumes (in mn) - - 2.2 3.2 3.7 4.0 4.5
- Realization - - 722 758 789 812 837
Set-top box revenue - - 1,562 2,389 2,919 3,250 3,766
- Volumes (in units) - - 535 500 500 500 500
- Realization - - 2,40,000 2,44,800 2,49,696 2,54,690 2,59,784
Medical equipment revenue - - 128 122 125 127 130
Mobile & EMS revenue 3,549 5,369 8,398 28,204 47,183 74,028 99,764
- Volumes (in mn) 164 209 212 332 365 405 432
- Realization (blended) 56 55 52 57 64 73 84
Lighting revenue 9,194 11,397 11,037 19,019 23,480 29,668 36,109
- Volumes (in mn) 2 5 4 5 6 8 9
- Realization 501 480 527 553 581 622 684
Security systems revenue 1,120 2,164 2,176 2,822 3,661 4,787 5,813
Reverse logistics 302 156 133 147 161 177 195
Others (network products) - - - 3,600 8,000 14,000 20,000
Total 29,845 44,001 64,482 1,29,380 1,90,344 2,62,514 3,37,696
Gross profit 3,752 5,399 6,785 13,326 19,605 27,301 35,458
Gross profit % 12.6 12.3 10.5 10.3 10.3 10.4 10.5
EBITDA 1,349 2,231 2,866 5,312 8,202 11,811 16,557
EBITDA % 4.5 5.1 4.4 4.1 4.3 4.5 4.9
PAT 634 1,205 1,598 3,145 5,002 7,404 10,562
PAT % 2.1 2.7 2.5 2.4 2.6 2.8 3.1
ROACE % 22.0 26.9 29.9 41.1 45.8 47.5 48.9
ROAE % 18.3 26.2 25.0 35.5 39.4 40.5 40.8
Source: Company, Edelweiss Research
DIXON
Edelweiss Securities Limited
24 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Key Risks
Outsourcing trend reversal
Past few years have seen a rising trend in outsourcing and a shift in supply chain
towards India, among others (China + one strategy), leading to creation of a robust
supply chain. Capital allocation decision by brands – local and global – remains the
key factor affecting growth for OEM/ODM players such as Dixon and Amber. Any
significant reversal in this outsourcing will reduce overall TAM and hence
manufacturers’ growth potential.
Production mandates and global competition
As the domestic market attains globally-competitive scale, one of the prime
challenges to success of the PLI scheme targeted at creating global champions is
competition from China and other Asian exporting economies. Existing deliberations
by Dixon/Amber etc in components, LED lights, mobile phones, etc are indicative of
global ambitions of select domestic players. However, execution over the next
three–five years remains key to establishing global competitiveness.
Domestic growth slowdown
Domestic consumer durables demand is a growth engine for listed OEM/ODM
players given insignificant exports mix at this stage. Any material slowdown in
domestic market growth across key categories – LED TV, LED Lights, mobile phones
– remains a key risk to our FY22–25 projections.
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 25
Company Description
Dixon, founded in 1993, is a leading player in the Indian electronics manufacturing
services industry. It started out as a manufacturer of colour televisions in 1994, but
has ventured in to multiple segments over the years, including consumer durables,
home appliances, lighting, mobile phones and security devices. It also provides
refurbishment services for a wide range of products such as set-top boxes, mobile
phones and LED TV panels.
The company caters to global as well as domestic brands as an original equipment
manufacturer (OEM) and an original design manufacturer (ODM). Backward
integration and cost-effective manufacturing are the key differentiating factors from
its competitors. It have 16 integrated manufacturing plants with presence in north
as well as south India (Noida, Dehradun and Tirupati).
Manufacturing footprint across India
Source: Company, Edelweiss Research
Dixon’s holding structure
Source: Company, Edelweiss Research
Dixon Technolgoies
India
Dixon Global Pvt. Ltd.
(100%)
Padget Electronics Pvt.
Ltd.
(100%)
AIL Dixon Technologies
Pvt. Ltd.
(50% JV)
Dixon Electro Appliances Pvt.
Ltd.
(100%)
Dixon Electro Manufacturing
Pvt. Ltd.
(100%)
Dixon Technologies Solutions Pvt.
Ltd.
(100%)
Dixon Devices Pvt. Ltd.
(100%)
DIXON
Edelweiss Securities Limited
26 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Key segments
Increasing product offerings at core of Dixon’s strategy
Source: Company, Edelweiss Research
Consumer electronics
The company undertakes manufacturing of LED TVs with capacity at 4.4mn units p.a.
According to the company, this is ~30% of the Indian market’s requirement. Dixon
has emerged as an end-to-end solutions provider with fully backward integrated
manufacturing and a diverse product portfolio for Indian as well as foreign brands.
This segment contributed ~60% to FY21 revenue with 2.7% operating margin, RoCE
of 210% and ODM share of 5%. USP includes auto insertion, SMT, LCM module
assembly and backward integration into LED panel assembly.
Key products – 19-65 inches ATV, 2K, 4K UHD, Smart, Semi-smart, Android certified,
Linux-based TV with AIOT platform and voice control features.
Dixon’s marquee clients in consumer electronics
Source: Company, Edelweiss Research
Revenue and operating margin profile
Source: Company, Edelweiss Research
1994: Color TVs
2007: LCD TVs
2008: CFL Lighting & Reverse Logistics
2010: LED TV & WMs
2016:Mobile phones
2017: CCTV & DVR
2021:Medical Electronics, Set top box & Wearables
Future: IT hardware, Ref, Telecom products
8 11 12
21
38
1.5
1.9
2.2
2.6
2.9
3.3
0
8
16
24
32
40
FY17 FY18 FY19 FY20 FY21
%
INR
bn
Consumer electronics revenue Operating margin (RHS)
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 27
Lighting products
Dixon is among the top 10 global players in the lighting products segment backed by
its strong R&D, enabling it to develop low-cost innovative products. Backward
integration within the segment includes sheet metal, plastic moulding and wound
components. This segment contributed ~17% to FY21 revenue with 8.8% operating
margin, RoCE of 29% and ODM share of 90%. Current capacity is 300mn LED bulbs
p.a., 5mn battens per month and 1.5mn downlighters per month.
Key Products – LED lights, Ballast, Tube lights, Battens, Downlighters and LED drivers
Marquee clients in lighting
Source: Company, Edelweiss Research
Revenue and operating margin profile
Source: Company, Edelweiss Research
2.0
3.5
5.0
6.5
8.0
9.5
0
3
5
8
10
13
FY17 FY18 FY19 FY20 FY21
%
INR
bn
Lighting revenue Operating margin (RHS)
DIXON
Edelweiss Securities Limited
28 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Mobile phones
Dixon has state-of-the art infrastructure with SMT and other testing equipment
coupled with strong manufacturing and quality team. Recently, it got approval under
government’s PLI scheme for manufacturing of mobile phones and has signed
Motorola and Nokia under the same. Currently, it has in house manufacturing
capability for key components including PCBA and further intends to manufacture
other components/accessories such as battery, chargers, plastic parts, etc.
Dixon is the first Indian mobile manufacturing company with capability to
manufacture 5G phones, and is in talks with global players for the same. This
segment contributed ~13% to FY21 revenue with an operating margin of 4.7% and
RoCE of 21%.
Key products: Feature phones, smartphones and PCBA for mobile phones.
Marquee clients in mobile phones
Source: Company, Edelweiss Research
Revenue and operating margin profile
Source: Company, Edelweiss Research
8.1
6.7
3.5
5.4
8.4
0.0
0.8
1.6
2.4
3.2
4.0
0.0
2.0
4.0
6.0
8.0
10.0
FY17 FY18 FY19 FY20 FY21
%
INR
bn
Mobile phones revenue Operating margin (RHS)
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 29
Home appliances
In this segment, Dixon manufactures washing machines. It has a 1.2mn p.a. capacity
for semi-automatic washing machines, which is ~28% of the Indian market’s
requirement, as per the company. Backward integration within the segment
includes plastic moulding and other bought-out components such as motors, clutch
assembly and PCBA.
It has initiated the process of creating capacity to manufacture top-loading fully
automatic washing machines, and is expected to begin commercial production in the
current financial year with Bosch as an anchor customer. This segment contributed
~7% to FY21 revenue with an operating margin of 9.2%, RoCE of 21% and ODM share
of 100%.
Key products: Semiautomatic: 140 models ranging from 6–12kg. Fully automatic: 40
models ranging from 6–10kg.
Marquee clients in home appliances
Source: Company, Edelweiss Research
Revenue and operating margin profile
Source: Company, Edelweiss Research
8.0
10.0
12.0
14.0
16.0
18.0
0
1
2
3
4
5
FY17 FY18 FY19 FY20 FY21
%
INR
bn
Home appliance revenue Operating margin (RHS)
DIXON
Edelweiss Securities Limited
30 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Security Systems
Dixon entered this segment in 2017 through a JV with Aditya Infotech, which holds
the trademark for CP Plus and Dahua brands, and has ~30% market share in India,
as per Dixon. The current capacity is 8.4mn units p.a. in CCTVs and 1.8mn p.a. in
DVRs. This segment contributed ~3% to FY21 revenue with an operating margin of
2.8% and RoCE of 26%.
Revenue and operating margin profile
Source: Company, Edelweiss Research
Other electronic manufacturing services: Set top box, medical
equipment, wearables
This segment includes manufacturing of set top boxes and medical equipment,
which Dixon entered into recently. In the wake of the pandemic, the company
entered manufacturing of Quattro Real Time Quantitative micro PCR Analyser
machines, which recently received ICMR approval to conduct covid tests. It has inked
an MoU with Molbio for manufacturing the same.
In the wearable electronics segment, Dixon collaborated with an international brand
to carry out a pilot order of 10,000 units.
Marquee clients catered to in STB business
Source: Company, Edelweiss Research
0.0
0.8
1.6
2.4
3.2
4.0
0.0
0.5
1.0
1.5
2.0
2.5
FY19 FY20 FY21
%
INR
bn
Security systems revenue Operating margin (RHS)
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 31
Reverse logistics
Through this vertical, Dixon offers repair/refurbishment services of LED TV, mobiles,
set top box, modems and computer peripherals. It is one of the few companies to
have a panel repairing facility and is the leading player to offer LED TV
refurbishment. In FY21, revenue from the segment was INR130mn with an operating
margin of 7.5%.
Marquee clients in reverse logistics
Source: Company, Edelweiss Research
Revenue and operating margin profile
Source: Company, Edelweiss Research
-13.0
-6.1
0.8
7.7
14.6
21.5
0
180
360
540
720
900
FY17 FY18 FY19 FY20 FY21
%
INR
mn
Reverse Logistics revenue
Operating margin (RHS)
DIXON
Edelweiss Securities Limited
32 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Management Overview
Mr. Sunil Vachani, Executive Chairman
Mr. Vachani is the promoter of the company. As Executive Chairman, he looks after
growth and business development. He has over 28 years of experience in the EMS
industry and holds a degree of Associate of Applied Arts in business administration
from the American College in London. He is also an executive member of CEAMA.
Mr. Atul B Lall, Managing Director and Vice Chairman
Mr. Lall has been associated with Dixon since inception looking after overall business
operations. He has over 25 years of experience in the EMS industry and holds a
master’s degree in Management Studies from Birla Institute of Technology and
Science.
Mr. Saurabh Gupta, Chief Financial Officer
Mr. Gupta has been with Dixon since August 2017, before which he was associated
with PVR as vice president. He has also worked with other reputed organizations
such as Gumberg India, Unitech and McKinsey and has over 15 years of experience
in finance and strategy. He is a Bachelor of Commerce from the University of Delhi
and an associate of the Institute of Chartered Accountants of India. He did Executive
MBA from MDI, Gurgaon.
Mr. Abhijit Kotnis, President and COO – Consumer Electronics & Reverse Logistics
Mr. Kotnis looks after the LED TV division as well as new projects. He has over 28
years of experience in various fields such as manufacturing, technology, business
development and sourcing. He has an MBA in Marketing & Operations and B.E. in
Electronics & Telecommunications from Marathawada University, Aurangabad and
has completed his Post-Graduate Programme in Management (MEP) from IIM,
Ahmedabad. Prior to joining Dixon, he was associated with Videocon Group for close
to three decades in various roles.
Mr. Vineet Kumar Mishra, President and COO – Lighting
Mr. Mishra heads the lighting division and has been with the company since 2004.
He has a Diploma in Electronics from the Board of Technical Education, Uttar
Pradesh. He has worked with Samsung India Electronics Limited, Hotline Witties
Electronics Limited and Onida Savak Limited, and has more than 20 years of
experience in electronics engineering.
Mr. Rajeev Lonial, President and COO – Washing Machine
Mr. Lonial is responsible for the home appliances vertical and has been with the
company since 2010. He has a Post-Graduate Diploma in Plastic Processing
Technology from the Central Institute of Plastic Engineering & Tools. He has worked
with Dipty Lal Judge Mal Private Limited, Noble Moulds Private Limited, Evershine
Moulding Private Limited, Ever Shine Plastic Industries, Essen Fabrication &
Engineering Co. Private Limited and Shree Krishna Keshav Lab Limited, and has
experience of more than 30 years in the field of plastics moulding.
Mr. Pankaj Sharma, President and COO – Mobile & Security devices
Mr. Sharma oversees operations of the mobile as well as security devices vertical.
He is a Bachelor of Arts from the University of Delhi, and has worked with Bigesto
Foods Private Limited, Satkar Exports, Bestavision Electronics Limited, Samsung Co.
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 33
Limited, Jain Tube Company Limited and Shirllon Co. Limited. Mr. Sharma has a total
experience of close to 30 years in factory operations, manufacturing, supply chain,
global sourcing, and business development.
Dixon’s Board of Directors
Name Designation Date of first appointment
on the board
Mr. Sunil Vachani Executive Chairman 15th January, 1993
Mr. Atul B Lall Vice Chairman & MD 30th June, 2000
Mr. Manoj Maheshwari Non executive & Independent director 3rd May, 2017
Ms. Poornima Shenoy Non executive & Independent director 23rd February, 2017
Dr. Manuji Zarabi Non executive & Independent director 23rd February, 2017
Mr. Keng Tsung Kuo Non executive & Independent director 12th April, 2019
Dr. Rakesh Mohan Non executive & Independent director 2nd February, 2021
Source: Company, Edelweiss Research
DIXON
Edelweiss Securities Limited
34 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Industry Outlook
Domestic supply chain capabilities: Making deeper inroads
The bulk of consumer electronics in India are imported, particularly LED TVs, mobile
phones, laptops and room AC components. China accounted for a lion’s share of
global consumer electronics market with >50% share of total USD422bn market for
consumer electronics (ex-mobile phones).
In the past few years, domestic market has seen grown rapidly in creation of local
supply chain, especially for room ACs and mobile phones—well complemented by a
significant policy push, be it PLI or hike in duty structures promoting local sourcing
for brands. The industry is expected to move from USD48bn (FY21) to USD70bn
(FY25) across consumer appliances/electronics (computers, mobile, laptops, large
home appliances, etc.). Rising import substitution and export potential peg the TAM
for Dixon far higher at ~USD50bn by FY25 (34% FY21–25E CAGR).
India’s electronics production on the rise…
Source: Meity, Edelweiss Research
…which has led to a 17% CAGR (5Y) growth in exports
Source: Meity, Edelweiss Research
0
18
36
54
72
90
FY16 FY17 FY18 FY19 FY20 FY21
USD
bn
Consumer electronics Industrial electronics Computer hardware
Mobile phones Strategic electronics Electronic components
LED products
80.0
82.0
84.0
86.0
88.0
90.0
0
1,080
2,160
3,240
4,320
5,400
FY15 FY16 FY17 FY18 FY19 FY20
INR
mn
Imports Exports Imports as a % of total
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 35
Telecom instruments and electronic components among highest imported items from Electronics goods basket…
Source: CMIE, Edelweiss Research
…while also dominating exports
Source: CMIE, Edelweiss Research
Import mix (FY21)
Source: CMIE, Edelweiss Research
Export mix (FY21)
Source: CMIE, Edelweiss Research
-5.0
0.0
5.0
10.0
15.0
20.0
0
1,000
2,000
3,000
4,000
5,000
FY17 FY18 FY19 FY20 FY21
%
INR
bn
Computer hardware & peripherals Consumer electronics Electronics components
Electronic instruments Telecom instruments Office equipments
Medical and scientific equipments YoY % RHS)
-12.0
0.0
12.0
24.0
36.0
48.0
0
200
400
600
800
1,000
FY17 FY18 FY19 FY20 FY21
%
INR
bn
Computer hardware & peripherals Consumer electronics Electronics components
Electronic instruments Telecom instruments Office equipments
Medical & scientific equipments YoY % (RHS)
Computer hardware & peripherals,
19%
Consumer electronics,
8%
Electronics component
s, 27%
Electronic instruments
, 13%
Telecom instruments
, 26%
Office equipments
, 0%
Medical & scientific equipments, 7%
Computer hardware & peripherals, 3%
Consumer electronics,
6%
Electronics components, 20%
Electronic instruments
, 23%
Telecom instruments
, 36%
Office equipments
, 1%
Medical & scientific equipments, 11%
DIXON
Edelweiss Securities Limited
36 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Indian TV market estimated at INR282bn expanding at 7% CAGR
Source: CRISIL, Edelweiss Research
WMs market at INR94bn, expanding at ~8% CAGR
Source: CRISIL, Edelweiss Research
Lighting market to benefit from rise in share of organised players
Source: Industry estimates, Edelweiss Research
11.0
12.2
13.4
14.6
15.8
17.0
50
100
150
200
250
300
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Mn
un
its
INR
Bn
TV India market size Volume (RHS)
1.0
1.7
2.4
3.1
3.8
4.5
0
20
40
60
80
100
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Mn
un
its
INR
Bn
Semi-automatic WM market size Automatic WM market size
Semi-automatic WM volume (RHS) Automatic WM volume (RHS)
60.0
63.5
67.0
70.5
74.0
77.5
100
140
180
220
260
300
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
%
INR
Bn
India lighting market size Share of organised
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 37
Exponential growth in mobile phones manufactured in India
Source: Meity, Edelweiss Research
Asia Pacific led by China is the world factory in consumer durables
Strong policy initiatives and favourable manufacturing landscape helped China scale
up CD manufacturing over the past two decades, reflecting in a strong 15–20% CAGR
in its CD industry, of which 55–60% is exported. Players such as Midea, Gree and
Haier represented China’s dominance in the global supply chain with 50%+ collective
share.
Meanwhile there has been an increasing intensity of the shift in global supply chain
in recent years away from China, triggered by covid-led disruption. This led to a
favourable shift in market dynamics for the next set of emerging players, including
Malaysia, Thailand, Indonesia and India.
China dominates global electronics manufacturing industry
Source: Statista, Edelweiss Research (Note: data for 2016)
Haier — A financial snapshot (USD mn)
Particulars 2015 2016 2017 2018 2019 2020
Revenue 14,228 17,940 24,211 27,854 29,068 30,424
EBITDA 897 1,283 1,972 2,031 2,015 2,310
EBITDA % 6.3 7.2 8.1 7.3 6.9 7.6
ROCE % 12.3 10.9 10.8 10.4 11.7 10.7
Source: Bloomberg, Edelweiss Research
0
80
160
240
320
400
0
500
1000
1500
2000
2500
FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Mn
un
its
INR
bn
Mobile phones (INR bn) Units (mn) (RHS)
China51%
US19%
Japan10%
South Korea6%
Germany4%
Great Britain3%
France2%
India2%
Brazil2%
Russia1%
DIXON
Edelweiss Securities Limited
38 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Haier – Segment mix
Source: Bloomberg, Edelweiss Research
Midea – A financial snapshot (USD mn)
Particulars 2015 2016 2017 2018 2019 2020
Revenue 22,031 24,070 35,839 39,611 40,451 41,451
EBITDA 2,517 2,803 3,855 4,313 4,799 4,624
EBITDA % 11.4 11.6 10.8 10.9 11.9 11.2
ROCE % 19.3 18.4 15.8 14.6 15.5 14.5
Source: Bloomberg, Edelweiss Research
Midea – Segment mix
Source: Bloomberg, Edelweiss Research
Gree – A financial snapshot (USD mn)
Particulars 2015 2016 2017 2018 2019 2020
Revenue 15,885 16,582 22,225 30,262 29,032 24,736
EBITDA 2,194 2,346 4,172 4,995 4,536 3,927
EBITDA % 13.8 14.1 18.8 16.5 15.6 15.9
ROCE % 20.6 22.6 27.2 24.6 18.6 14.6
Source: Bloomberg, Edelweiss Research
Overseas home appliances, 47.7
Refrigerators, 14.6
Washing Machines, 10.7
Others, 10.6
Acs, 10.4
Water heater, 4.7
Kitchen & Bath, 1.3
Heating, Ventilation & AC, 46.4
Consumer appliances, 43.6
Robot & Automation system, 8.3
Others, 1.8
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 39
Gree – Segment mix
Source: Bloomberg, Edelweiss Research
PLI for Electronics ecosystem; to drive local supply chain…
The government recently notified several segments such as room ACs, mobile
phones and LED under the PLI scheme, which has attracted a large number of
participants. While the jury is still out w.r.t. how effective the PLI scheme will be,
most players (brands, ODMs) believe it is reasonably attractive given local/global
potential over the next few years.
PLI scheme for manufacturing of mobile phones in India – A brief overview
Segment Proposed incentive rate Incremental investment over base year Incremental sales of manufactured
goods over base year
Mobile phones ( Invoice value
of INR15,000 and above)
Year 1: 6%
Year 2: 6%
Year 3: 5%
Year 4: 5%
Year 5: 4%
INR10bn over 4 years
Cumulative minimum Year 1: INR40bn
Year 1: 2.5bn Year 2: INR80bn
Year 2: 5bn Year 3: INR150bn
Year 3: 7.5bn Year 4: INR200bn
Year 4: 10bn Year 5: INR250bn
Mobile phones (Domestic
companies)
INR2bn over 4 years
Cumulative minimum Year 1: INR5bn
Year 1: 0.5bn Year 2: INR10bn
Year 2: 1bn Year 3: INR20bn
Year 3: 1.5bn Year 4: INR35bn
Year 4: 2bn Year 5: INR50bn
Specified electronic
components
INR1bn over 4 years
Cumulative minimum Year 1: INR1bn
Year 1: 0.25bn Year 2: INR2bn
Year 2: 0.5bn Year 3: INR3bn
Year 3: 0.75bn Year 4: INR4.5bn
Year 4: 1bn Year 5: INR6bn
Source: Meity,, Edelweiss Research
AC & Parts manufacturing,
70.1
Other household appliances,
22.5
Others, 4.3
Small household appliances, 2.7Intelligent
equipment, 0.5
DIXON
Edelweiss Securities Limited
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Approved list of companies for mobile phone PLI in India
Company Country Category
Samsung South Korea Mobile phones
Foxconn Honn Hai Taiwan Mobile phones
Rising Star Taiwan Mobile phones
Wistron Taiwan Mobile phones
Pegatron Taiwan Mobile phones
Lava India Mobile phones
Bhagwati (Micromax) India Mobile phones
Padget Electronics India Mobile phones
UTL Neolyncs India Mobile phones
Optiemus Electronics India Mobile phones
AT&S Austria Specified electronic components
Ascent Circuits India Specified electronic components
Visicon USA Specified electronic components
Walsin Taiwan Specified electronic components
Sahasra Electronics India Specified electronic components
Neolync Israel Specified electronic components
Source: Pib.gov.in, Edelweiss Research
PLI scheme for manufacturing of LED lights in India (INR mn) – A brief overview
Segment Year PLI Min. Cumulative Incremental
Investment
Min. Incremental
sale Min. PLI
Min. Cumulative
Incremental
Investment
Min. Incremental
sale Min. PLI
Large Investment Normal Investment
LED Lights (Core
components)
FY22 1,000 - - 200 - -
FY23 6% 1,500 6,000 - 400 1,200 -
FY24 6% 2,000 9,000 360 600 2,400 70
FY25 5% 2,500 12,000 540 800 3,600 140
FY26 5% 3,000 15,000 600 1,000 4,800 180
FY27 4% - 18,000 750 - 6,000 240
FY28 - - 720 - - 240
Total 3,000 60,000 2,970 1,000 18,000 880
Components of
LED lights
FY22 50 - - 20 - -
FY23 6% 100 300 - 40 120 -
FY24 6% 150 600 20 60 240 10
FY25 5% 200 900 40 80 360 10
FY26 5% 250 1,200 50 100 480 20
FY27 4% - 1,500 60 - 600 20
FY28 - - 60 - - 20
Total 250 4,500 220 100 1,800 90
Source: DPIIT, Edelweiss Research
Note: LED Lights: (Core Components like LED Chip Packaging, Resisters, ICs, Fuses and large scale investments in other components etc.
*Components of LED Lights: LED Chips, LED Drivers, LED Engines, Mechanicals, Packaging, Modules, Wire Wound Inductors and other components.
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PLI scheme for manufacturing of telecom and networking products in India – A brief overview
Year
Proposed Incentive
rate on incremental
sales
Cumulative Investment (other than land & building)
Min. Incremental sales of
manf. Goods net of taxes
over the base year
Max. Eligible sales of manf.
Goods net of taxes over the
base year
MSMEs - Minimum threshold of Investment INR100mn
1 7% Greater than or equal to 20% of X 3x(20% of X) 20x(20% of X)
2 7% Greater than or equal to 40% of X 3x(40% of X) 20x(40% of X)
3 6% Greater than or equal to 70% of X 3x(70% of X) 20x(70% of X)
4 5% Greater than or equal to X 3xX 20xX
5 4% 3xX 20xX
Other than MSMEs - Min. threshold of Investment INR1bn
1 6% Greater than or equal to 20% of X 3x(20% of X) 20x(20% of X)
2 6% Greater than or equal to 40% of X 3x(40% of X) 20x(40% of X)
3 5% Greater than or equal to 70% of X 3x(70% of X) 20x(70% of X)
4 5% Greater than or equal to X 3xX 20xX
5 4% 3xX 20xX
Source: DOT, Edelweiss Research
(Note: X = Committed Total Investment by the company / entity over a period of four years starting from year 2021-22 (min. INR100mn for MSMEs
and INR1bn for others)
PLI scheme for manufacturing of IT hardware in India – A brief overview
Category Proposed incentive rate Incremental Investment after
31st March 2021
Net incremental sales of manf.
Goods over base year
IT hardware companies
1) Laptops (invoice value of INR30,000 and above)
2) Tablets (invoice value of INR15,000 and above)
3) All in one PCs
4) Servers Year 1 - 4%
Year 2 - 3%
Year 3 - 2%
Year 4- 2%/1%
INR5bn over 4 years Cumulative
min.
Year 1 - INR0.5bn
Year 2 - INR1.5bn
Year 3 - INR3bn
Year 4 - INR5bn
Year 1 - INR10bn
Year2 - INR25bn
Year 3 - INR50bn
Year 4 - INR100bn
Domestic companies
1) Laptops
2) Tablets
3) All in one PCs
4) Servers
INR200mn over 4 years
Cumulative min.
Year 1 - INR40mn
Year 2 - INR80mn
Year 3 - INR140mn
Year 4 - INR200mn
Year 1 - INR0.5bn
Year2 - INR1bn
Year 3 - INR2bn
Year 4 - INR3bn
Source: Meity, Edelweiss Research
DIXON
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Application status of companies under IT hardware PLI
Company Country Segment Application status
Dell USA IT hardware Approved
ICT (Wistron) IT hardware Approved
Flextronics Singapore IT hardware Approved
Rising Stars Hi-Tech Taiwan IT hardware Approved
Lava India IT hardware
Dixon India Domestic company Approved
Infopower (JV of Sahasra & MiTAC) India Domestic company Approved
Bhagwati (Micromax) India Domestic company Approved
Syrma USA Domestic company
Orbic USA Domestic company
Neolync Israel Domestic company Approved
Optiemus India Domestic company Approved
Netweb India Domestic company Approved
VVDN India Domestic company Approved
Smile Electronics India Domestic company Approved
Panache Digilife India Domestic company Approved
HLBS India Domestic company
RDP Workstations & Coconics India Domestic company
Lava India Domestic company Approved
Source: Pib.gov.in, Edelweiss Research
Edelweiss Securities Limited
DIXON
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 43
Additional Data Management
Exec. Chairman Sunil Vachani
VC & MD Atul B. Lall
CFO Saurabh Gupta
CS, Hd. Legal & HR Ashish Kumar
Auditor M/s S.N. Dhawan & Co. LLP
Holdings – Top 10* % Holding % Holding
Nippon Life Ind 2.40 Rbc Asia Pacifi 1.00
Vanguard Group 2.05 Royal Bank Of C 1.00
Steadview Capit 2.02 Ameriprise Fina 0.76
Icici Prudentia 1.73 Blackrock Inc 0.75
Life Insurance 1.05 Sbi Funds Manag 0.73
*Latest public data
Recent Company Research Date Title Price Reco
Recent Sector Research Date Name of Co./Sector Title
07-Sep-21 Polycab India Changing perceptions; potent levers; Company Update
06-Sep-21 Consumer Durables CD loans: Structural trend unfolding; Sector Update
18-Aug-21 KEI Industries Ambitious, but relevant transformation; Company Update
Rating Interpretation
Source: Bloomberg, Edelweiss research
Daily Volume
Source: Bloomberg
Rating Distribution: Edelweiss Research Coverage
Buy Hold Reduce Total
Rating Distribution* 176 54 19 250
>50bn >10bn and <50bn <10bn Total
Market Cap (INR) 227 40 3 270
*1 stocks under review
Rating Rationale
Rating Expected absolute returns over 12 months
Buy: >15%
Hold: >15% and <-5%
Reduce: <-5%
350
1210
2070
2930
3790
4650
Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-21
(IN
R)
DIXON IN EQUITY Buy Hold Reduce0
2
4
6
8
10
Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-21
(Mn
)
DIXON
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