New products, exports to drive growth for Dixon Technologies

Focus on backward integration and value addition to help on the margin front

Even as the benchmarks and broader markets have been flat over the last three months, the country’s largest electronic manufacturing services player, Dixon Technologies has been on an uptrend gaining 21 per cent during this period. 

In addition to presence in high growth segments, expansion into new categories, tapping export markets and production linked incentive (PLI) based units are expected to aid revenue and profit growth going ahead.

While manufacture of consumer electronic products dominate its revenues, it has expanded into other areas (lighting products, home appliances, mobiles, security systems) which have helped its revenues grow by 36 per cent on an average between FY16-21. 

Among the key medium term triggers are opportunities in the export markets especially the global light emitting diode or LED bulbs market which is pegged at $8 billion to $9 billion annually. The company, which is the largest maker of light emitting diode or LED bulbs in the country, is eyeing the European and American markets. 

Anand Rathi Research’s Nirav Vasa and Surbhi Lodha believe that the outlook for this segment is bright while margins were dented by the increase in input costs and the lag in passing them on to customers. The company has also applied for PLI for the manufacture of LED components and would be investing Rs 100 crore over the next five years on this.

Its existing product line will be a key source of domestic growth which coupled with new client additions would enhance overall revenues. Tarun Bhatnagar and Someel Shah of BOBCAPS Research, say that the company operates in high-growth segments with levers in the form of low ownership (washing machines), short replacement cycles (mobiles: two years), frequent upgrades (from feature to smartphones, regular to smart TVs/larger screens) and high usage (more than one TV per household).

The company has been adding new customers such as Motorola and Nokia (mobiles), Bosch in appliances and Nokia in TVs. Further new product categories such as refrigerators and telecom equipment as well value addition (focus on design, backward integration) could help in improving revenues and margins.While brokerages expect its net profit to grow between 50-70 per cent over the next two years, valuations at 70 times factor in most of the near term positives.