Thread by @alphaspotcap

Dixon Technology (India) Ltd Analysis!

A Detailed thread 🧵 👇🏻
#investing #stocktobuy

(1/20)

About:

Incorporated in 1993 by Mr. Sunil Vachani, DTIL is a diversified EMS company with operations in the electronic products
vertical such as consumer electronics, lighting, home appliance, closed-circuit television cameras (CCTVs), and mobile phones.

(2/20)

• DTIL has manufacturing facilities in Noida, Dehradun & Tirupati.

Dixon has received
approvals under the PLI scheme for five segments -
• Mobile phones
• Lightning
• Telecom & networking products
• Inverter controller boards for air conditioners
• IT hardware.

(3/20)

GOI Push for Indian EMS Industry:

For the Electronics industry, the government clearly aims to
position India as a global hub for ESDM by encouraging & driving
capabilities in the country for developing core components, &
enabling the industry to compete
globally.

(4/20)

Incentives:

• PLI for IT hardware, Large
scale electronics manufacturing, White Goods, Telecom &
Networking Products.

• Phased Manufacturing Program to promote domestic
manufacturing of Mobile Phones and various subassemblies involved in manufacturing of Mobile Phones

(5/20)

These schemes will boost investment in the entire value chain of the Indian electronics inds include designing & ensure local availability of components ICs, Chipsets, SoCs, Systems or IP Core & enable Indian Electronics industry to be more self-reliant & export oriented.

(6/20)

Business Segments:

• Consumer Electronics:

48% revenue share, Growth 34% YOY

The major customers in this segment are:

Xiaomi, Samsung, Hisense, VU, Nokia, Panasonic, TCL, Lloyd,
Flipkart, Philips, Toshiba

(7/20)

• Lightning Products:

12% revenue share, Growth 16% YOY

The major customers in this segment are:

Signify, Panasonic,
Wipro, Bajaj, Syska, Orient, Polycab, Luminous, Crompton
etc.

(8/20)

• Home Appliances:

7% Revenue share, 36% YOY growth.

The major customers in this segment are Samsung, Godrej,
Voltas- Beko, Panasonic, Lloyd, Flipkart, Haier, Reliance etc.

• Mobile Phones:

29% Revenue share, 274% growth YoY

Major clients: Samsung, Nokia, Motorola

(9/20)

New opportunities which the company is perusing:

• Refrigerators

• Laptops & Tablets/ IT Hardware Products

• Telecom & Networking Products

• Inverter controller boards for Air conditioners

• Wearables & Hearables :

(10/20)

Key Business Risks:

• Globalisation Risk: Cheap Imports from China

• Industry Risk: If the whole Industry reach at a
stagnant or declining position

• Client Concentration Risk

• Regulatory Risk

• Technology Risk

(11/20)

Strengths:

• Established track record and market position in EMS business –

DTIL has more than 2 decades of experience in the EMS
business. It has an established track record as well as leadership position in the key segments in which it operates.

(12/20)

• Diversified revenue streams across product segments with reputed clientele –

The company’s revenues are diversified across
consumer electronics (CE; mainly LED television), lighting, home appliances (mainly washing machines), mobiles and security
devices.

(13/20)

• DTIL’s financial profile remains healthy with robust
improvement in FY22, despite a challenging environment, supported by increased volumes in the CE and mobile vertical.

It has recorded YoY revenue growth of 66% in FY22 (5 Year CAGR 34%), & ~53% in Q1 FY2023.

(14/20)

• HIGH TOL|TNW (3.6x) indicates high WC requirements

However, a part of DTIL’s creditors remain covered by BGs extended by the clients, which reduces the credit risk.

Hence, its ability to raise additional long-term funds remain crucial to keep the TOL/TNW manageable.

(15/20)

Liquidity:

DTIL is likely to generate healthy cash flow from operations, supported by back-to-back arrangement with most of its suppliers for the OEM business.

Its liquidity is supported by cash balance and liquid investments of ₹276.46 crore as on June 30, 2022

(16/20)

The company proposes to undertake substantial capex in the range of ₹200-300 crore p.a., over the next two years, where the funding mix would comprise approx 60% external debt and the balance through internal accruals.

This is expected to increase
repayment obligation.

(17/20)

Key financial indicators FY22 vs 21:

• Operating Income: ₹10,697cr vs ₹6,448cr

• PAT: ₹190cr vs ₹160cr

• OPM : 3.6% vs 4.5%

• TOL/TNW : 3.6x vs 3x

• Interest Coverage: 7.8 vs 8.9

• 3 Year Sales growth CAGR: 53%

• 3 Year Profit growth CAGR: 44%

(18/20)

Shareholding Pattern:

• Promoters: 34.30%

• FIIs: 15.08%

• DIIs: 8.07%

• LIC: 5.68%

• Kamla Vachani: 7.44%

• Public : 19.79%

• Others: 9.65%

(19/20)

Conclusion:

DTIL has a leveraged capital structure and dependence on large few clients, although client concentration is on a downward trend. But it has a strong revenue growth expectations given the macro economic environment and DTIL’ USPs.

(20/20)

What are your thoughts about Dixon Tech’s future prospects?

@caniravkaria @stockifi_Invest @VRtrendfollower @kuttrapali26 @MadhusudanKela