(INDIA) LIMITED September 04, 2017 SMC Ranking (3/5)

About the Company Issue Highlights Incorporated in 1993, Dixon Technologies is engaged in manufacturing products in the Industry Consumer Durable consumer durables, lighting and mobile phones markets. The product portfolio of the Total Issue (Shares) - Offer for sale 3,053,675 company includes (i) Consumer electronics like LED TVs (ii) Home appliances like washing Total Issue (Shares) - Fresh Issue 339,750 machines (iii) Lighting products like LED bulb, tube lights, CFL bulbs etc. and (iv) Mobile Net Offer to the Public 3,393,425 phones. Dixon manufacture products for popular retail brands including Panasonic, Issue Size (Rs. Cr.) 597-600 Price Band (Rs.) 1760-1766 Philips, Haier, Gionee, Surya Roshni, Reliance Retail, Intex Technologies, Mitashi and Offer Date 6-Sep-16 Dish. The company is also a leading Original Design Manufacturer (ODM) in India. The Close Date 8-Sep-16 Company develops and designs products in-house at its R&D facility. The ODM business Face Value 10 contributes over 25% of its revenue. The company has six manufacturing facilities located Lot Size 8 Per Equity Share in the states of Uttar Pradesh and Uttarakhand.

Issue Composition In shares

Total Issue for Sale 3,393,425 QIB 1,696,713 NIB 509,014 Retail 1,187,699

Shareholding Pattern (%) Competitive Strengths Particulars Pre-issue Post -issue Promoters & promoters group 46.20% 39.21% Leading market position in key verticals: The Company believes that its experience in QIB 28.53% 25.51% manufacturing, successful backward integration and design capabilities, strong NIB 4.35% 4.49% relationships with its global suppliers and anchor customers have helped the company to Retail 20.92% 30.78% Total 100.00% 100.00% achieve leading position in its key verticals. It believes that its leading position has helped *calculated on the upper price band the company in buying critical components at competitive prices, achieves operational efficiencies, helps it in continuing to expand its customer base and further strengthens its Objects of the Issue relationship with anchor customers. It further enhances its ability to diversify into related products and enter new geographies. The Proceeds from the Offer for Sale  The proceeds from the Offer for Sale shall be received by the Strong relationships with a diverse top-tier customer base: The Company has Selling Shareholders and Company shall not receive any established and will continue to focus on strengthening its long-standing relationships with proceeds from the Offer for Sale. well-known customers across product verticals. The company believes that its customers Objects of the Fresh Issue  Company proposes to utilise the Net Proceeds towards are long term reputed players in the industry. Its relationships with them have enabled the funding the following objects: company to continuously develop, diversify and improve its product portfolio, plan its  Repayment/pre-payment, in full or in part, of certain production in anticipation of demand from retail customers and ensure continuous focus on borrowings availed by the Company; quality. Such long term business relationships stem from its commitment to quality  Setting up a unit for manufacturing of LED TVs at the Tirupati Facility; products and timely delivery of customers’ orders under tight delivery schedules and short  Enhancement of its backward integration capabilities in the production lead time. Its major customers include lighting products vertical at its Dehradun I Facility;  Global brands: Panasonic India Private Limited, Philips Lighting India Limited, Haier  Upgradation of the information technology infrastructure of the Appliance (I) Pvt. Ltd., Gionee Company; and  General corporate purposes. National brands: Intex Technologies (I) Ltd., Surya Roshni Limited  Domestic retail private labels: Reliance Retail Limited, Vijay Sales  Book Running Lead Manager IDFC Bank Limited Regional brands in Tier I and Tier II cities: Mitashi Edutainment Pvt. Ltd., Abaj IIFL Holdings Limited Electronics Pvt. Ltd. Motilal Oswal Investment advisors limited End to end solutions provider with dedicated research and development Yes Securities (india) Limited capabilities: The Company believes that its dedication to design, manufacturing and its Name of the registrar Karvy Computer share pvt. Ltd service infrastructure ensure customer satisfaction, foster customer loyalty and generate repeat business. Its capabilities which enable the company to provide end-to-end solutions

1 are (i)Research and development (ii) Global sourcing(iii) Backward integration (iv) Reverse Logistics. As at July 31, 2017, its R&D team consisted of 22 employees including electrical engineers. Its R&D centre located at Noida has access to latest equipment such as photometric system for light source and colour analysers. The company has received awards, such as the ‘Development Excellence Award (semi-automatic washing machine)’ from Panasonic India Private Limited in 2016.

Flexible and cost-effective manufacturing capabilities: The Company has a proven track record of serving product requirements of its customers and it continues to pursue greater efficiencies of cost, time, quality and scale in its manufacturing processes. The company maintains the flexibility of its manufacturing facilities by measures such as multiple-function training and standardization of equipment. Due to its cost-effective solutions, the company is able to offer prices which are competitive to similar products imported from China in some of its product verticals. Most of its manufacturing facilities are ISO 9001: 2008 and ISO 14001: 2004 certified in accordance with international quality standards.

Strong Financial Performance and stable cash flows: The Company has a track record of sustained growth in revenue and profitability. Over the last five fiscals ended March 31, 2017, the company has achieved a CAGR of 33.78% in revenue from operations (net) and 44.36% in EBITDA. Further, as on March 31, 2017, its long-term borrowings to equity ratio was 0.07. During the Fiscals 2017, 2016, 2015, 2014 and 2013, it has reported RoCE of 36.53%, 27.92%, 15.97%, 14.73% and 9.92%, respectively.

Strategies

Continue to focus on ODM model: While OEM sales continue to be a major source of its revenue, the company plans to gradually expand its share of the ODM model of manufacturing. As an ODM, it controls the entire manufacturing cycle of a product from the initial stage of designing and are responsible for all the aspects of manufacturing, including planning and sourcing of raw materials and components. Its strategy to move towards the ODM model is to service all major customer requirements across the industry and product verticals. This also helps the company in improving its overall profitability as the company is able to control all aspects of the manufacturing cycle

Continue to strengthen its existing product portfolio and diversify into products with attractive growth and profitability prospects: The company plans to continue to increase offerings in its current product verticals as well as diversify into new verticals by tapping into segments which in the view of its management has attractive growth prospects and higher return ratios where it has distinctive competence and compelling value propositions. The company expects to gain additional opportunities in the home appliances and lighting product segments. The company in the past exported CFL bulbs and LED bulbs to Thailand, Egypt, France, UK, Poland, Tanzania and Kenya and continue to export CFL and LED bulbs. The company plans to continue to enter into joint ventures to initiate diversification into new product segments.

Development of its service offerings: With a focus on increasing its expertise as an end-to-end solutions provider, the company plans to further expand its reverse logistics portfolio with support of its R&D team. As an extension of its value added services in the reverse logistics vertical, it has also recently started spare parts management for a mobile phone brand. The company believes that the reverse logistics vertical provides high return on capital employed and has a high potential for growth. Currently, the company focuses only on B2B reverse logistics and do not have consumer facing service centres which are in line with its strategy of building relationships with brand owners and OEMs.

Expand existing relationships with customers into other product verticals: The Company plans to continue to focus on customers with whom it has long-standing relationships in order to develop and supply more sophisticated, higher margin products. Its experienced R&D team enables the company to bring innovations to its existing customers that translate into new opportunities. It believes that its R&D team has the ability to add new features to existing products and develop new product lines and customized software.

2 Expansion of industrial footprint into new geographies: The Company seeks to expand its geographical footprint by enhancing current manufacturing capacities and setting up of new manufacturing facilities, especially in South India. The company is in the process of setting up a new manufacturing facility in Tirupati, Andhra Pradesh. The company also seeks to further enhance its manufacturing capacity across its product verticals as well as set up infrastructure for manufacturing of CCTVs and DVRs, through its joint venture, ADTPL, at the Tirupati Facility. It believes that this would further help the company in strengthening its relationships with its existing customers and gaining new customers.

Risk

Highly dependent on certain key customers: The Company depends on certain customers who have contributed to a substantial portion of its total revenues. Reliance on a limited number of customers for the business of the company may generally involve several risks.

Depend on certain suppliers for its raw materials: The Company depends on certain suppliers for its raw materials and other components required for its manufacturing process, which could result in delays and adversely affect its output.

Significant portion of its sales come from its consumer electronics vertical: A significant portion of its revenue is attributed to sales of the consumer electronics vertical which accounted for 34.38%, 55.43% and 64.56% of revenue from operations (net) for the Fiscals 2017, 2016 and 2015, respectively.

Highly competitive industry: The Company as well as its customers operate in a highly competitive industry. Failure to compete effectively may have an adverse impact on its business, financial condition, results of operations and prospects.

Peer comparison

No listed peers mentioned in RHP.

Valuation

Considering the P/E valuation on the upper end of the price band of Rs. 1766, the stock is priced at pre issue P/E of 38.51x on its FY17 EPS of Rs. 45.86. Post issue, the stock is priced at a P/E of 39.70 x on its EPS of Rs. 44.48. Looking at the P/B ratio at Rs. 1766 the stock is priced at P/B ratio of 9.81x on the pre issue book value of Rs.180 and on the post issue book value of Rs. 227.58 the P/B comes out to 7.76x.

On the lower end of the price band of Rs.1760 the stock is priced at pre issue P/E of 38.38x on its FY17 EPS of Rs. 45.86.Post issue, the stock is priced at a P/E of 39.57x on its EPS of Rs. 44.48. Looking at the P/B ratio at Rs. 1760, the stock is priced at P/B ratio of 9.78x on the pre issue book value of Rs. 180 and on the post issue book value of Rs. 227.58 , the P/B comes out to 7.73x.

Industry outlook

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 the high disposable incomes have aided in the strong growth in the CEA market in India. Rapidly shrinking replacement cycle for consumer durables is observed as sustaining demand in urban India. The existing low penetration rates and the increasing usage of consumer durables have catapulted rural India to the high demand (30% annual growth) generating segment. The CEA market has been witnessing robust growth trends in the past 5 years. Moving forward, the market is expected to foresee double digit growth reinforced by the surging rural consumption, reducing replacement cycles, increasing penetration of lifestyle appliances, and availability of multiple brands at various price points. The CE market revenues is 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

3 11.6% over the same period, resulting in a CAGR of 16.5% for the overall CEA market. In comparison to global growth averages, this is almost double that of other economies.

Outlook:

The company is 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. The Company has shown strong financial performance over the past five years. Its debt- equity ratio is much lower. With the increasing demand for electronic appliances due to changing modern lifestyle and high consumer spending, it is expected that company would see good growth in long run. As the issue looks expensive, a long term investor may opt the issue.

Annexure

Consolidated Financials

Profit & Loss Rs. in Cr.

Particulars Period ended 31-Mar-17 Period ended 31-Mar-16 Total Operating Income 2,456.76 1,389.42 Total expenditure 2,366.02 1330.73 Operating Profit 90.74 58.69 OPM% 3.69 4.22 Other Income 1.50 1.76 PBDIT 92.24 60.44 Depreciation 10.64 8.44 PBIT 81.60 52.01 Interest 12.765 13.11 PBT 68.84 38.90 Tax 18.463 8.03 Exception Item 0 11.70 PAT 50.38 42.57

Balance sheet is on next page

4 Balance Sheet Rs. in Cr. Particulars As on 31-Mar-17 As on 31-Mar-16

Non-current assets

Goodwill & others 0.13 11.24

Fixed assets 0.00 0.00

Non-current investments 0.00 0.10

tangible asset 137.01 112.35

capital Work-in-progress 1.96 0.01

Long-term loans and advances 22.33 19.97

other non current assets 0.03 0.00

Trade Receivables 0.88 2.27

Total Non- Current Assets 162.34 145.94

Current assets

Current Investment 0.00 0.00

Inventories 282.20 136.28

Trade Receivables 279.33 87.61

Cash and Bank balances 15.33 7.46

Short-term loans and advances 58.60 39.35

Other current assets 1.23 0.58

Total current assets 636.69 271.29

Total Assets 799.03 417.23

Non-current liabilities

Long-term borrowings 9.81 52.14

Deferred tax liabilities (net) 9.77 7.16

Other long-term liabilities 0.00 0.00

Long-term provisions 4.39 2.41

Total non-current liabilities 23.97 61.71

Current liabilities

Short-term borrowings 33.06 24.91

Other current liabilities 21.66 12.47

Short-term provisions 17.54 9.77

Trade payables 505.07 185.55

Total current liabilities 577.33 232.70

Total 601.30 294.41

NET Worth 197.73 122.82

Net worth represented by:

Share capital 10.99 3.10

Reserves and surplus 186.75 117.73

Stock Option outstanding 0.00 1.98

Net Worth 197.73 122.82

5 RANKING METHODOLOGY

WEAK

NEUTRAL

FAIR

GOOD

EXCELLENT

E-mail: [email protected]

Corporate Office: Mumbai Office: Kolkata Office: 11/6B, Shanti Chamber, Lotus Corporate Park , A Wing 401 / 402 , 18, Rabindra Sarani, Pusa Road, - 110005 4th Floor ,Graham Firth Steel Compound, Poddar Court,Gate No.- 4, 5th Floor, Kolkata-700001 Tel: +91-11-30111000 Off Western Express Highway, Jay Coach Signal, Tel: 91-33-39847000, Fax: 91-33-39847004 www.smcindiaonline.com Goreagon (East) Mumbai - 400063 Tel: 91-22-67341600, Fax: 91-22-28805606

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