Dixon Technologies -The Brand Behind Brands
Introduction to Dixon Technology
Established on January 15, 1993, as ‘Weston Utilities Limited’ at Alwar, Rajasthan. The name of the company changed on July 12, 1993, to ‘Dixon Utilities and Exports Limited’ and fresh CoI (Certificate of Incorporation) was issued.
Currently, it has 11 State of the art manufacturing facilities located in Uttar Pradesh, Uttarakhand and Andhra Pradesh, 3 R&D centers in India and China, 1000+ employees across all operations, 29,844 million revenue from operations as of 2019 Financial year.
It works in Research and development, Sourcing, Innovative product Designing, Manufacturing & Assembling, Quality testing in different product categories.
Dixon Technology has been leading in electronic manufacturing services (EMS) space in India. It is an Original Equipment Manufacturer (OEM) as well as an Original Design Manufacturer (ODM). The Backward Integration of key segments and cost-effective pricing strategy on the back of global sourcing is one its Unique Selling Propositions.
Genesis and Journey
Mr. Sunil Vachani started Dixon with just 2.5 million Rupees in 1993. It crossed the 10 Billion mark in 2013 and now it stands with 74.85 Billion market capitalization. In 1994 it started manufacturing Colored TV. In 2008 CFL products & Reverse logistics were introduced. In 2010 Washing machine, metal sheet, and molding segments commenced. In 2016 manufacturing of Mobile happened with the joint venture of PEPL, In 2017 entered into CCTVs and DVRs in a joint venture agreement with Aditya Infotech Limited and got listed in BSE & NSE in the year 2017.
Vision Mission & Goal of the Organization
Vision- To be the most preferred & trusted manufacturing & solution partner to brands operating across verticals
Mission- Mission statement includes the following:
Respect for the Individual
Creating value for all Stakeholders
Values- Dixon strictly adheres to the following values, which are
Quality, Customer’s trust
Trust (nurturing relationships)
Passion (to innovate and excel)
Business Areas and Management
The company operates in consumer electronics, home appliances, lighting solution mobile phones, security surveillance system reverse logistics. Leading the company the Board of directors comprise of
Mr. Sunil Vachani (Executive chairman)
Mr. Atul B Lall (Managing Director)
Mr. Manoj Maheshwari (Non-Executive and Independent Director)
Ms. Poornima Shenoy
Dr. Manuji Zarabi
Mr. Keng Tsung Kuo
SWOT from Investors Perspective
It is always different when we see things from others' shoes. We need to do a SWOT analysis and need to understand the organization, market, market behavior, investment pattern, company performance, sector behavior, company potential amid pandemic and so many. Why will we choose to invest in a company who is at 400th position in market capital, whether it will give us desired earnings, will it move up to mid-cap or large-cap group; to understand these we need a SWOT analysis on its stock market behaviors.
High Trailing twelve months Earning per share growth (413.9% returns for Nifty 500 over 5.4 years) (Price/earnings ratio is called earning per share and TTM shows past 12 consecutive months financial figure)
Overbought by Money flow index (477.2% Returns for over 4.5 Years) (MFI shows the volume analysis and identifies overbought or oversold signals in an asset. Above 80 considered overbought)
Company with low debt
Annual profit is improving the last 2 years and Book Value per share improving the last 2 years
Near 52 weeks high
Short term, medium term, Long term moving averages (Current price is better than 10Day,20Day, 30Day, 50Day, 100Day, 150Day, 200Day SMA) (SMA is Simple moving average calculates an average of a selected range of prices by the number of periods in that range)
MFs increased their shareholding last quarter (MFs- Mutual Funds) DSP Small cap Fund
Insufficient use of shareholders fund- ROE Declining (-10.7% returns for Nifty 500 over 1.9 years) (RoE stands for Return on Equity)
Declining Revenue for the past two quarters (Trend and data are mentioned in QoQ data)
Promoter are decreasing their shareholding
Low Piotroski Score: Companies with weak financials (Piotroski Score- It is 0-9 rating scale determines the financial position of a company and Dixon has a Piotroski Score of 3)
Declining cash flows: companies not able to generate net cash
Broker price (RECO) got Upgraded recently (RECO- Recommendation price at which a stock need to bought or sold)
Brokers upgraded recommendation as to its behaving bullish since last 200 days (8.4% returns for Nifty 500 over 0.3 years)
Companies with 10% increase in share price over three months, with rising net profit growth
High momentum scores (Technical score over 50) (319.5% returns for Nifty 500 over 5.1years)
RSI Indicating price strength (RSI- Relative Strength Index shows the current and past strength and weakness of the stock market)
Stocks with expensive evaluation (177.2% returns for Nifty 500 over 4.5 Years)
Stocks with high PE (PE> 40) (Profit per earning is the ratio between Stock’s current price and current earnings per share for last 12monts)
Insider sold stocks
BCG Matrix Evaluation
Dixon falls into the star categories looking at the market growth and market share. Honeywell, Mirc Electronics, and Videocon India have given the fair competition in the EMS category.
Honeywell and Dixon are the only star player in the category. But Honeywell has created a Brand loyalty as it has products which customers and consumers see on the package and listen about it. The brand association is higher than Dixon’s.
Dixon is no doubt in the star category but it can have more market share as compared to Honeywell but it has no credibility from a consumer perspective as it remains in the back end. It has no face when it comes to consumer loyalty. The brand association will increase for sure. But Dixon needs to rethink and reposition itself if it wants to grow more.
QoQ Data and trendline
The following table and trendline will reflect the revenue patterns and how the market is following the brand.
Revenue has dropped for the last two quarters. Amid pandemic, the demand for electronics and all other products may slow down. But post-pandemic it has very little competition except for a few players.
YoY Data and trendline
Following table and trendline will reflect the revenue patterns as per the Financial year and how the market is following the brand.
Revenue has fallen for the last two financial years. One layman may think business is shrinking or this company is in a decline stage. But that’s not the case. The category had a declining demand for the past two years. But the post-pandemic situation will bring demand in all of its product categories.
Durability Valuation and Momentum
High Durability- Good and consistent Financial player meant for long term investment (55/100)
High Valuation- Stock is competitively priced at current P/E (10.7/100)
High Momentum- Bullish in the Market (69.9/100)
Good- Bad-Good in DVM shows - A stock where it looks like the real opportunity is past. The company is strong, but valuation is expensive and momentum is driving prices up.
Average price per earnings- 43.6 Median Price per earnings- 43.0
The current price per earnings- 62.1
Currently, it is nearing the its 52 weeks peak. The Company faces less competition, has high market share and great potential.
Dixon has positioned itself well in the market and has the capability to expand into other verticals. The factors which are need to be addressed for the growth of the company are namely
Lack of components manufacturing in India which has increased the import costs as well the delay in delivery of finished products.
Need for endearing manpower equipped with varied skillsets which can be leveraged for high end manufacturing.
Adherence and thorough implementation of governmental policies is vital in the growth of electronics manufacturing. Various policy provisions such as flexible labour and subsidized land and power tariffs will boost the manufacturing sector.
The company has has adhered to its B2B business model which has allowed it to have long lasting relationship with its clients. Also, the company is migrating towards developing their own solutions and hence not confining themselves to an EMS company which is leading it towards a promising future.
Author: Pradipta Balliarsingh
Disclaimer: Note that this post should not be construed as investment advice from Galactic Advisors.