Dixon Technologies and the EMS sector may well be for India what the Infosys and the IT pack were back in nineties. It’s the same ability to spot a global advantage, to meet exacting global standards in their output, the same pace of ferocious aggressive growth as also the over 100 P/E that markets have always accorded when they spot a winner.
The GST cuts are an additional unexpected sweet spot for the company. "Television is an important business for us; 10% cut on TVs above the size of 32 inches is a very significant reduction. So we are extremely positive. We're waiting for Navratri to start.. Second half is definitely going to be much better,” says MD & CEO Atul Lall, adding that besides the direct impact on the categories that they are in, it also frees up money for the consumer to buy other categories. “It's a multiplier effect,” he said.
Dixon's profits have grown from Rs 13 crore in FY15 to nearly Rs 1,300 crore in FY25; Its EPS has grown from Rs 7.65 to Rs 200 over the same period. The company reported a mind boggling 49% ROCE in the just ended Apr-June quarter
And as we met the MD & CEO Atul Lall for our series 'Latha & The Leaders', our prime question was is this sustainable? "We are confident we will maintain our ROCE at 35-40%” Lall assured. This Q1 the company’s revenue grew by 95%; in Q4 FY25 revenue grew by and even more ferocious 120%.
One big advantage for Dixon is that is participating in five PLI (or production-linked incentive) schemes of the govt, which entitles it to subsidies when it crosses agreed milestones. The first of the 5-year PLIs ends in march 26. Will Dixon be able to report aggressive profit growth after PLIs end. Lall was in no doubt.
“We are very confident growth will continue after PLI because of the size of our order book we have,” he said adding that “For mobiles, where the PLI sunsets in March 26, our order book is almost 60-65% of the addressable market.”
Dixon’s revenues in 3 years will be 2.5x its revenues today
Indeed despite the over 100% growth in revenues every year for the past 3 years, Lall assured that Dixon’s revenues in 3 years will be 2.5x its revenues today! That implies a revenue of over one trillion rupees, three years from now.
So what did Dixon get right. After all in the nineties, after the first flush of liberalization, many consumer durable and TV makers were reeling under the onslaught of foreign competitors like LG, Samsung and Sony. Dixon, which was then making Weston TV was staring at a more severe crisis because it was serving the USSR market via the rupee trade. But by 1990, that market vanished and Weston Faced a crisis, explained Lall. But out of the crisis came an opportunity. The EU imposed a 23% anti-dumping duty on Korea in addition to existing tariffs of 14%. Faced with a 37% tariff to enter EU, Korean durables maker LG approached Weston to become an outsourcing partner, making TV sets for LG.
That was the beginning of the EMS sector in India. Orders increased incrementally. But in 2018, when the second tranche of Trump tariffs became a threat, Dixon was ready to accept outsourcing orders from not just LG, but also Samsung, Vivo, Motorola, Nokia and many more.
The production numbers and growth plans that Lall rattled out are mind boggling. Sample this:
-In FY25 their mobile output grew to 28 million from 5 million in FY24
-In FY26, Dixon is targeting 42 million mobile phones; FY27 they will target 65 million.
-One large driver of non-mobile growth is going to be telecom devices, in which Dixon has a joint venture with Airtel, to manufacture routers.
-They also do fixed wireless devices, hybrid set top boxes.
-Then they are big in appliances: recently set up a 1.2 mln unit refrigerator plant; expanded it 1.7 million units.
-Another round of expansion in refrigerators is taking place to 3 million, which is going to be 30% of the Indian requirement.
-Washing machines, they are expanding from 3 to 3.6 million. It's almost 35% of the Indian requirement.
-In lighting, they have got into a JV with Signify, which owns Philips. A Rs 1,000 crore business now will be almost 3,000 crores in 2 years.
For all these expansions, the company is only deploying internal retained profits. It has zero debt and the only capital it raised was Rs 60 crore via a public offering in 2017. Now doesn’t this sound something like the tech companies did in the nineties! If it is, then it may well be a story of decades of growth!
Watch the full interview here.
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