Dixon Technologies IPO Review

Dixon Technologies IPODixon Technologies (India) Limited (DTIL) is coming out with an IPO which comprises a fresh issue of shares worth Rs 60 crore and an offer for sale of 3.75 million shares by promoters and Motilal Oswal Private Equity (MOPE) Investment Advisors Pvt. Ltd. As per Frost & Sullivan Report, Dixon Technologies (India) Ltd (“DTIL”) is the largest home grown design-focused and solutions company engaged in manufacturing products in the consumer durable, lighting and mobile phones markets in India. Dixon Technologies IPO may be the first from an established Electronics Manufacturing Services (EMS) firm in the country.

Dixon Technologies IPO Details

Issue Opens  Wednesday, September 6, 2017
Issue Closes  Friday, September 8, 2017
Price Band Rs.1,760 – 1,766
Bid Lot 8 Equity Shares and multiple thereof
Issue Size Fresh Issue of Equity shares aggregating upto Rs.60 Crores
Offer for sale of 3,053,675 Equity Shares.
Issue Size ( Rs.) Rs. 599.28 Cr (at upper Band)
Issue Structure :
QIB 50% of the Net Offer -~1,696,713 Shares – Rs.299.64 Cr.
NIB 15% of the Net Offer -509,014 Shares- Rs.89.89 Cr
Retail 35% of the Net Offer-1,187,699 Shares-Rs. 209.75Cr
Lead Managers : IDFC Bank, IIFL Holdings, Motilal Oswal, Yes Securities
Registrar: Karvy Investor Services

About Dixon Technologies

Dixon Technologies (India) Limited is an Electronics Manufacturing Services (EMS) company which procures and manufactures components/parts. Dixon Technologies has a diversified product portfolio which includes following business verticals:

  • Lighting: LED bulbs and tube lights, down lighters and CFL bulbs
  • Consumer electronics: LED TVs etc.
  • Home appliances: Washing Machines etc.
  • Reverse logistics
  • Mobile phones.

Dixon Technologies Revenue Breakup
Besides the above Revenue breakup product wise, Dixon Technologies (India) Limited (DTIL)Revenues can be classified under two streams i.e those from ODM (Original Design Manufacturer) and that generated from OEM (Original Equipment manufacturer).

  1. Dixon Technologies revenues from ODM contributed to 21.88%, 26.88% and 14.72% of its revenue from operations in the Fiscals 2017, 2016 and 2015 respectively. The revenues generated from ODM attributable to lighting products vertical was 10.17%, consumer electronics was 4.05%, and home appliances was 7.65%, of its revenue from operations  in Fiscal 2017.
  2. Dixon Technologies revenue from OEM contributed to 78.12%, , 73.12% and 85.28% of its revenue from operations  in the Fiscals 2017, 2016 and 2015 respectively and for the Fiscal 2017, the revenues generated from OEM by the lighting, consumer electronics, home appliances, reverse logistics and mobile phones verticals contributed to 12.25%, 30.32%, nil, 2.55% and 33.00%, of its revenue from operations (net)

Dixon Technologies key customers include Panasonic India Private Ltd., Philips Lighting India Ltd., Haier Appliance (I) Pvt. Ltd., Gionee, Surya Roshni Ltd., Reliance Retail Limited, Intex Technologies (I) Ltd., Mitashi Edutainment Pvt. Ltd., Dish Infra Services Private Ltd.

( Rs.  In Crores)
2017 2016 2015 2014 2013
Revenue  2,456.70 1,389.40 1,201.30 1,093.70 766.90
Revenue Growth (%) 76.82% 15.66% 9.84% 42.61%  
EBIDTA  92.2 60.4 33.9 29.3 21.2
EBIDTA  Margin(%) 3.75% 4.35% 2.82% 2.68% 2.76%
Profit Before Tax 68.8 50.6 17.2 18.2 5
Net Profit  50.3 42.5 11.8 13.5 4.9
Net Profit  Margin 2.05% 3.06% 0.98% 1.23% 0.64%
Face Value 10        
Share Capital 10.9 3.1 3.1 3.1 3.1
Reserves 186.7 117.7 79.8 68.5 56.5
Net worth 197.6 120.8 82.9 71.6 59.6
RoNW (%) 25.46% 4250.00% 1180.00% 1350.00% 490.00%
NAV  179.9 395.7 273.3 237.1 198.2
EPS (Rs.)  48.80 45.30 12.60 14.40 5.30
IPO Price 1776
PE ratio 36.39
P/BV ratio 9.87
Post Issue Equity 11.24
Earning – Diluted equity 44.76
PE ratio (Post Issue) 39.68
CAGR Sales 3 yrs 30.96%
CAGR NP  3 Yrs 55.03%
CAGR Sales 4 Yrs 33.78%
CAGR NP 4  Yrs 79.00%
Market Cap  1995.84
Market Cap/Sales  0.81
Objectives of Dixon Technologies IPO

Besides Offer for Sale, the fresh Issue of Rs. 60 crore is aimed at
 Repayment/pre-payment, of certain borrowings (Rs. 22.0 crore);
 Setting up a manufacturing unit of LED TVs at Tirupati Facility (Rs. 7.6 crore);
 Enhancement of backward integration capabilities in the lighting products at Dehradun (Rs. 8.9 crore);
 Upgradation of the information technology infrastructure (Rs. 5.3 crore);
 General corporate purpose

Dixon Technologies  IPO: Rationale For Investment
  • Indian Consumer Electronics and Appliances (CEA) market has been witnessing sustained double digit growth rate in the past few years
  • Rapidly shrinking replacement cycle for consumer durables in urban India and low existing low penetration rates in rural India are leading to a high demand (30% annual
    growth) in consumer electronics and appliances segment.
  • Dixon Technologies is not merely an manufacture who caters to OEMs but it also an ODM(Original Design Manufacturer) for many products and this activity contributes about 20% to its Revenues.
  • Share of ODM(Original Design Manufacturer) has shown improvement in last financial year and management aims to increase tis share due to better margins.
  • Dixon Technologies provides a fully integrated end-to-end product and solution suite to original equipment manufacturers (OEMs) ranging from global sourcing, manufacturing, quality testing and packaging to logistics.
  • Though Dixon Technologies is highly dependent on OEMs for sale of its product and is prone to associated risks, in recent past, disruption caused by Toshiba corporation was contained by Dixon without significant impact.
  • It has been paying dividends regularly from the past five years.
  • The demand for electronic appliances is growing day-by-day due to changing modern lifestyle and high consumer spending, which would be beneficial for the company. Thus one can expect the company to grow and continue with good  financial performance.
Dixon Technologies IPO: Concerns
  • Dixon Technologies is highly dependent  on certain customers who have contributed to a substantial portion of its total revenues. Its top five customers accounted for 82.93%, 79.43%, 73.28%, 76.95% and 79.67% of its revenue from operations (net) for the years ending March 31, 2017, 2016, 2015, 2014 and 2013, respectively; across each of its five business verticals namely lighting, consumer electronics, home appliances, reverse logistics and mobile phones.
  • Dixon Technologies primarily sells its products to OEMS who sell these products under their brand name. The markets in which these customers compete are characterized by consumers and their rapidly changing preferences, advancement in technology and other related factors including lower manufacturing costs and therefore as a result the Company may be affected by any disruptions in the industry.
  • Dixon Technologies does not obtain firm and long-term volume purchase commitments from its customers and thus off take is not assured.
  • A high proportion of raw materials required are imported. This figure has been on the increase and stands above 80% for the year ended 2017
  • Dixon Technologies gets certain tax exemptions related to tax holiday under section 80IC of the Income Tax Act, 1961. These benefits available will expire in Fiscal 2020.
Dixon Technologies IPO: Assessment
  • Electronics manufacturing services (EMS) sector is expected to grow at a faster rate in the country consequent to Government thrust on indiginization and uptick in consumer demand for such products
  • Being a large EMS(Electronics manufacturing services ) player Dixon Technologies is exposed to risks of high obsolescence in this sector, forex and inventory price risks on imports of components
  • Motilal Oswal promoted MOPE, through India Business Excellence Fund and India Business Excellence Fund-I, will sell 2.64 million shares, according to the draft documents. This is equivalent to a 24.05% stake; the PE firm owned 30.06% stake in the company. Thus the fund is exitingits major position
  • While MOPE is reducing its stake considerable,GMO Emerging Domestic Opportunities  Equity Fund & Steadview Capital Mauritius Limited which hold 3.09% & 1.75% (Pre IPO) are retaining their entire stakes.
  • Over the last five years, DTIL has delivered CAGR of 33.8% in sales and 44.4% in EBITDA. In the recent past its top and
    bottom line has marked good growth which is due to launch of products like mobile, CCTV and LED lightings.
  • Dixon Technologies (DTIPL) while maintaining healthy scale of operations has shown improving operating profitability, and modest working capital intensity which has resulted in low dependence on external borrowings and comfortable credit metrics. It is creditable that while the company has been able to grow at a fast rate, its debt equity remains quite comfortable at 0.07.
  • Dixon being in EMS space & undertaking significant contract manufacturing enjoys  operating margin of about 4 %  which is low but  looks OK for this type of business. Dixon’s return on capital employed(ROCE) has been improving over the years and   stood at 36.5 per cent for the year ended 2017.
  • On the upper price band of Rs 1,766 on Pre issue equity, the EPS works out to be Rs. 48.8 & the P/E works out at 37x. On the post Issue Equity these figures stands  Rs 42.64 and 41.41x respectively. This seems to be on higher side abut conclusion cannot be drawn as  Dixon has no listed peers in the industry, 
  • While consumer electronics & appliances space faces high risks of technology disruptions and requires continuous process alterations and improvements, Dixon Technologies (India) Limited (DTIPL) could remain competitive with its lean cost, structure, long track record, emphasis on R&D which gives it the ability to adapt with the rapidly evolving technology changes.
  • While Dixon Technologies (India) Limited has put up a creditable performance in a rapidly evolving and competitive field, the issue appears to be fully priced. While there are no peers who match the profile of the company, considering its performance and more so of last two years coupled with expected growth in the segments in which company operates,  Iam at this stage inclined to subscribe to the IPO.
  • Investors also need to bear in mind that any meltdown of market or softness at the time of listing or soon thereafter, can have a significant impact on listing price of  new issues esp. those which are almost fully priced and whose performance on the courses is yet not established.
  • 05/09/17: With Global events casting a big shadow on markets, markets could remain highly volatile and this IPO which is fully priced carries significant amount of risk too & thus could be suitable only for investors willing to take risk & looking beyond listing gains,
  • 07/09/17 There has been good QIB response to Dixon Technologies IPO on Day 2 . Even as September month has many events that can cause considerable volatility, I have applied for the IPO today. 
  • Please do visit this page a day or two before the IPO closing as more facts emerge about the company and managements perception about future plans emerge, which can bring further clarity on this issue.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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