Dixon technologies

Betting on a healthy orderbook – Dixon Tech

Update on the Indian Equity Market:

On Monday, NIFTY ended flat at 17,054 (-0.01%) as it closed near the opening level of 17,056. Among the sectoral indices, IT (+0.8%), CONSUMER DURABLES (+0.2%), and FINANCIAL SERVICES (+0.1%) ended higher, whereas MEDIA (-2.2%), PSU BANK (-2.0%) and REALTY (-1.7%) led the losers. Among the stocks, KOTAKBANK (+2.4%), HCLTECH (+2.2%), and HDFCLIFE (+1.7%) led the gainers while BPCL (-2.6%), SUNPHARMA (-2.3%), and ADANIPORTS (-2.1%) led the losers.

Excerpts of an interview with Mr. Atul Lall, MD of Dixon Tech India (DIXON) with CNBC TV18 on 26th November 2021:

  • DIXON is a beneficiary of PLI scheme for IT hardware and it has tied up with Acer, a Taiwanese IT hardware firm for manufacturing laptops. The company has already started manufacturing laptops in its in-house facility for Acer.
  • From the laptop segment, the company expects to achieve a minimum targeted revenue of Rs 500 mn in the 1st year of manufacturing. From 2nd year onward, the company expects to achieve a PLI scheme upward revenue ceiling of Rs 6bn, Rs 16bn, and Rs 24bn respectively.
  • DIXON’s laptop segment being a prescriptive business (DIXON work based on Acer’s laptop designs), the operating margins will be in around of 4%.
  • The company’s capex for FY22 is expected to be Rs 4,500 mn, out of which the capex for laptop segment will be Rs 200 mn. In FY23, the capex is expected to increase to Rs 2500 mn.
  • Speaking of its segments, the company has a healthy order book for mobiles. It is also planning to enter in a JV with Bharti Airtel to provide telecom related products, IoT (Internet of Things) devices. The company is also launching LED monitors in the 4QFY22. The company’s revenue target for FY23E is around Rs 170 – Rs 175 bn.
  • Company’s ODM (old design machines) business is facing commodity price increase pressure and there’s a lag in passing on the price increase to its customers. The company is seeing some softening in prices. It expects margin pressures to remain in the short term, but later it will be able to pass it on to the customers.
  • 90% of the company’s own design revenues come from the lighting segment. Due to its large scale in this segment, the company is able to benefit from operating leverage. The margin pressure easing is happening in the segment.

 

Asset Multiplier Comments

  • The laptop segment revenue estimates seem to increase exponentially. As it’s a prescriptive business, with low operating margins, it may take several quarters for the company to meaningfully benefit for the segment.
  • The markets for laptops, mobiles, and IoT devices are quite competitive. Therefore, we may have to see how company’s plans for its new segments pan out.
  • As the world is concerned with fear of Omicron Covid-19 variant spread, it may lead to stricter sanitation rules within the country, and may also result in lockdowns if the conditions worsen. This may affect the manufacturing and planned executions of new product launches of DIXON.

Consensus Estimate: (Source: market screener website)

  • The closing price of DIXON was ₹ 5,005/- as on 29-Nov-2021. It traded at 114x/65x/47x the consensus earnings estimate of ₹ 45/78/108 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 4986/- implies a PE multiple of 46x on FY24E EPS of ₹ 108/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Maintaining FY22 guidance of topline of over Rs 100 bn – Dixon Technologies

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,844 (+2.3%). Top gainers in NIFTY50 were UPL (+7.6%), JSW Steel (+4.9%), and Shree Cement (+4.9%). The top losers were Hindalco (-0.3%), Axis Bank (-0.2%), and M&M (-0.1%). The top sectoral gainers were IT (+2.9%), METAL (+2.8%), and PHARMA (+2.7%), and the only sectoral loser was REALTY (-0.03%).
Excerpts of an interview with Mr. Atul Lall, MD, Dixon Technologies (DIXON) with CNBC -TV18 dated 26th March 2021

  • He estimates FY21 revenue to be around Rs 62-63 bn, which is a decent growth over last year’s revenue of almost Rs 44 bn. They will also have growth in profitability. 
  • This is despite Q1 being a complete washout because of the pandemic. In FY22, they are targeting very aggressive growth. 
  • He had previously mentioned a revenue estimate of Rs 100 bn plus in FY22 and a significant increase in the bottom line as well. They still stand by the same; possibility they will do even better.
  • He expects the EBITDA margins to remain in the range of 4.4-4.5 percent going ahead on the back of the product mix. He is also expecting a 25-30 percent CAGR run-rate in topline post FY22.
  • He expects Capex to be ~2,500-2,600 mn in FY22 and he expects FY22 to be a solid growth year for the company.
  • He said that commodity price rise is impacting the consumer durable companies.
  • They have two kinds of revenue streams. One is an OEM revenue stream wherein they work on a prescriptive basis. All price increases on the commodity side, they have been able to pass on to their principle because that is the way the contracts are drafted.
  • He also said that for FY21, Dixon Technologies has met the eligibility criteria on investment and revenue threshold for handset manufacturing PLI. However, they have not yet heard from the government.

Asset Multiplier comments:

  • The COVID-19 pandemic has left a lasting impact across all walks of life, and the electronics industry is no exception as it has also suffered a decline in growth. This is a temporary phase – especially for consumer electronics and appliances – as some of these devices have grown to be an integral part of our lives.
  • The electronics industry is basically divided into two categories—industrial electronics and consumer electronics. The latter has witnessed more growth than the former due to its popularity among consumers and because of more foreign direct investment in it. 
  • The industrial electronics segment in India is still facing challenges because of various taxation policies and the lack of an ecosystem for manufacturing components.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of DIXON was ₹ 3,635/- as of 30-March-2021.  It traded at 122x/ 67x/ 49x the consensus earnings estimate of ₹ 29.7/ 54.5/ 74.4 for FY21E/22E/23E respectively.
  • The consensus price target is 3,288/- which trades at 44x the earnings estimate for FY23E of 74.4/-

 Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

 

Looking to enter the refrigerator segment: Dixon Technologies

Update on the Indian Equity market:
Markets started the four-day week on a positive note, led by global peers on the back of positive vaccine news from Moderna. Nifty closed the day 94 points higher at a new record high of 12,933. Within the index, the gainers were led by TATAMOTORS (6.2%), TATASTEEL (5.9%) and HDFCLIFE (5.7%) whereas BPCL (-4.2%), HEROMOTO (-2.6%) and NTPC (-2.5%) were the laggards. Among the sectoral indices, METAL (2.4%), PSU BANK (2.2%), and BANK (2.1%) led the index higher while MEDIA (-1.3%), PHARMA (-0.7%), and IT (-0.3%) were the laggards.
Excerpts of an interview with Mr. Atul Lall, Managing Director, Dixon Technologies Ltd (Dixon) published on CNBC-TV18 dated 13th November 2020:
The government on Wednesday levied a 5% duty on the import of TV parts like chips, printed circuit board assemblies, and glass boards. Reacting to the development, Mr. Lall said that the industry has been requesting the government to correct the disparity for a very long time.
After the recent decision by the government, the duty on both pure and open cell is at 5%. The localization on LED and LCD TV parts too is positive for coming quarters.
He said that the government has stated that LED will be covered under the production-linked incentive (PLI) scheme. The final details about it are still to be announced. If this development takes place then it gives an additional impetus for exports of LED lighting products to the company.
The company has expanded the capacity of LED TVs from 3.6mn to 4.4mn in phase-I. The company further plans to expand the capacity to 5.5mn sets (>30% of India’s requirement). The expansion will be completed by March 2021.
The company entered into digital setup boxes in a big way. In the next phase, the company is looking to enter the refrigerator segment organically or inorganically.
The company achieved the highest monthly production of 3.6 lakh units and the order book for 4Q looks healthy as well.
Consensus Estimate: (Source: market screener website)
The closing price of Dixon was ₹ 10,302/- as of 17-Nov-2020. It traded at 81x/ 47x/ 33x the consensus EPS estimate of ₹ 127/ 219/ 316 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 9,940/- implies a P/E multiple of 31x on FY23E EPS of ₹ 316.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”