IPO Analysis - Dixon Technologies

IPO Rating – 54 (Investment Recommended)*

About the Issue
Dixon Technologies is coming up with an IPO with an offer comprising fresh issue of shares and offer for sale (OFS) to raise around Rs 600 crores. It will raise fresh equity capital worth Rs 60 crores and its offer for sale consists of 60,23,236 equity shares of face value of Rs 10 per share. The issue will remain open from September 6, 2017 till September 8, 2017. The minimum lot size is of eight shares with a price band of Rs 1,760-1,766 per share. The company will get listed on both, the BSE and NSE.
 
Purpose of the IPO
The proceeds from the OFS (net of offer-related expenses of the selling shareholders) shall be received by the selling shareholders and the company shall not receive any proceeds from the OFS.
 
The net proceeds from the fresh issue will be utilized for:
•        Repayment/pre-payment, in full or in part, of certain borrowings availed by the company.
•        Setting up a unit for manufacturing of LED TVs at the Tirupati facility.
•        Enhancement of backward integration capabilities in the lighting products vertical at the Dehradun            facility.
•        Up-gradation of the information technology infrastructure of the company.
•        General corporate purposes.
 
Company Background
Dixon Technologies is one of the largest home-grown design-focused and solutions company engaged in manufacturing products in the consumer durables, lighting and mobile phones markets in India. Its diversified product portfolio includes (a) consumer electronics like LED TVs, (b) home appliances like washing machines, (c) lighting products like LED bulbs and tubelights, downlighters and CFL bulbs and (d) mobile phones. It provides solutions in reverse logistics i.e. repair and refurbishment services of set-top boxes, mobile phones and LED TV panels.
 
The company has a strong customer base that includes companies like Panasonic India Private Limited, Philips Lighting India Limited, Haier Appliance (I) Private Ltd., Gionee, Surya Roshni Limited, Reliance Retail Limited, Intex Technologies (I) Ltd., Mitashi Edutainment Private Ltd., and Dish Infra Services Private Limited.
 
The company 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. It is also an original design manufacturer (ODM) of lighting products, LED TVs and semi-automatic washing machines in India. As an ODM, it develops and designs products at its R&D centre.
 
It has six state-of-the-art manufacturing facilities that are located in the states of Uttar Pradesh and Uttarakhand, meeting the quality requirements of its customers, including global brands. Out of these six manufacturing facilities, three are located in Noida in the state of Uttar Pradesh for the manufacturing of CFL as well as LED lamps and drivers and mobile phones, while the other three are located at Dehradun in the state of Uttarakhand to manufacture CFL as well as LED lamps and drivers, electronic ballasts, LED TVs, and washing machines. The backward integration process like plastic moulding, sheet metal, wound components and LED panel assembly are carried out at the manufacturing facilities in Dehradun, which is in the process of setting up a new manufacturing facility at Tirupati, Andhra Pradesh.
 
Industry Outlook
The Indian consumer electronics and appliances (CEA) market has been witnessing sustained double-digit growth rate in the past few years. Increasing product awareness, affordable pricing, innovative products and high disposable incomes have aided strong growth in the CEA market in India. The rapid proliferation of e-commerce/m-commerce and e-tail has contributed to a higher penetration of the CEA market in urban and semi-urban centres.
 
The CE market revenues are expected to grow at a cumulative average growth rate (CAGR) of 17.2% from FY16 to FY21 while the appliances segment is expected to grow at a CAGR of 11.6% over the same period, resulting in a CAGR of 16.5% for the overall CEA market. The consumer appliances (CA) product range includes ACs, refrigerators, microwave ovens, water purifiers, air coolers, mixer grinders, blenders, OTGs, electric kettles and rice cookers, induction cook-tops, food processors, juicers/extractors, electric shavers, etc. The consumer electronics (CE) products include mobiles, AV players, camcorders and digital cameras, FPD TVs, STBs and WMs.
 
The EMS market in India has benefitted from the increased focus on manufacturing and overall increased use of electronics in all spheres of life as well as rising labour cost in other parts of the globe and the practice of bigger OEMs to outsource manufacturing instead of building their own infrastructure. The EMS market in India enjoys unique benefits of an explosive domestic demand and the migration of manufacturing from other manufacturing havens driven by multiplicity of factors. These reasons have resulted in the Indian EMS market growing at a higher rate than the average global market and are expected to intensify in the next decade.
 
Financial Performance



The company’s net revenue, profit after tax and EBITDA, on a consolidated basis, grew at a CAGR of 33.78%, 78.34% and 44.36%, respectively, from FY13-17. As of FY17, the company’s debt-equity ratio was 0.07.
 
Our View
The company has shown strong financial performance over the past five years. Its debt-equity ratio is much lower. On the upper price band of Rs 1,766 with FY17’s EPS of Rs 42.64, its P/E works out at 41.41x. But as it has no listed peers in the industry, we cannot determine if it is over or under priced. 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. We expect the company to grow and continue to show a robust financial performance. It has been paying dividends regularly from the past five years. We expect investors to benefit from this investment in the long run. Therefore, we recommend readers to SUBSCRIBE for this IPO.

*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment