Dixon Technologies (India) Ltd. Q3FY21 - Results Update Sector: Consumer Electronics 04-February-2021 Brief Overview Dixon posted strong Q3FY21 results led by LED TV, Mobiles and Washing Machines. Margins down slightly by 60bps YoY at 4.6%, due to increase in RM cost; Order book CMP (INR) (As on 03-Feb-2021) 15,879 continues to Remain Strong; FY22E margins expected at ~4.6%; Expecting PLI scheme Previous Target (INR) 13,053 in LED lighting & IT Hardware soon; FTL WM production to start from early Q1FY22E. Current Target 16,119 Q3FY21 Consolidated Earnings Analysis Upside(%) ~1.5% Q3FY21 revenue jumped 120% YoY at Rs 21,828 million, mainly led by strong revenue Recommendation HOLD growth in LED TVs, Mobiles and Washing Machine segment. The consumer durables attracted strong demand due to festive season buying and improved consumer BSE Code 540699 sentiments on reduction in Covid cases. EBITDA rose 95% YoY at Rs 1,005 million. However, margins were down slightly by 60bps at 4.6% vs 5.2% YoY. Fall in the margins NSE Code DIXON was largely contributed by WM segment, which saw decline in margins at 10.2% vs Reuters Ticker DIXO.NS 13.4% YoY. The raw material cost, as % of revenue during the quarter stood higher at 90.4% vs 87.2% YoY . PBT increased 130% YoY at Rs 817 million, as depreciation (0.5% Bloomberg Ticker DIXON:IN vs 1% YoY) and Interest cost (0.4% vs 0.8% YoY) share as % of total revenue declined. Consolidated PAT was up 134% YoY at Rs 616 million. PAT margins improved to 2.8% vs StockStock ScanScan 2.6% YoY. Market cap (INR Mn) 1,85,905 Segment performance Consumer Electronics: Revenue jumped 199% YoY at Rs 13,598 million, led by both Outstanding Shares (Mn) 11.7 volume and price increase. Revenue mix increased to 62% from 46% YoY. EBITDA was Face Value (INR) 10.0 up 243% YoY at Rs 394 million. Margins were higher at 2.9% vs 2.5% YoY on operating leverage and increased share of 43+ inches LED TVs from 32 inches. Dividend Yield(%) 0.04% Lighting Products: Revenue up 26% YoY at Rs 3,486 million. EBITDA increased 39% P/E (x) (TTM) 129.9X YoY at Rs 332 million, as margins rose 90bps YoY at 9.5% on better product mix. P/B (x) (TTM) 28.0X Mobile & EMS: Revenue jumped 114% YoY at Rs 2991.7 million. EBITDA was up 328% YoY at 32.2 million, as margins doubled from 2.3% to 4.6%. Debt/Equity (x) 0.15x Home Appliances: Segment revenue stood higher 68% YoY at Rs 1152 million. Beta vs. Nifty 0.75x Q3FY21. However, EBITDA grew 28% YoY at Rs 118 million, as margins fell to 10.2% vs 52 Week High/ Low (INR) 16,786/ 2991 13.4% YoY, due to increase in raw material prices and freight cost. Margins to remain suppressed in Q4FY21 also, and expected to normalize from Q1FY22. Avg. Daily Volume (NSE)/ 1Yr 68,595 Valuation & Outlook Shareholding Pattern (%) We believe that Dixon’s strong performance to continue over FY22-FY23E on the back of robust order book, new client additions, product launches, capacity expansion in key Dec 2019 Sep 2020 Dec 2020 segments and substantial increase in mobile revenue. Promoters 37.92% 36.01% 35.06% Post Q3FY21 results, we have increased our price target at Rs 16,119, valuing the stock Institutions 31.58% 33.76% 35.54% at PE of 42x FY23E EPS of Rs 383.8. We maintain our “HOLD” rating on the stock. Non-Institution 35.50% 30.23% 29.40% Exhibit 2 - Financial Performance at a glance (Consolidated) INR Million Exhibit 1– Dixon vs. Nifty (Relative Returns) Particulars (In Rs Mn) FY19 FY20 FY21E FY22E FY23E Net Sales 29,844 44,001 65,260 1,06,285 1,43,057 350 Dixon Nifty50 Growth % 5.0% 47.4% 48.3% 62.9% 34.6% 300 EBITDA 1,349 2,231 3,096 4,850 6,727 250 EBITDA Margin (%) 4.5% 5.1% 4.7% 4.6% 4.7% 200 Net Profit 634 1,205 1,838 3,089 4,493 150 Net Profit Margin (%) 2.1% 2.7% 2.8% 2.9% 3.1% 100 50 EPS (In Rs) 55.9 104.1 157.0 263.8 383.8 0 BVPS (In Rs) 334 468 629 869 1,216 Feb-20 May-20 Aug-20 Nov-20 Jan-21 P / E (x) 283.8x 152.5x 101.2x 60.2x 41.4x P / BV (x) 47.5x 33.9x 25.2x 18.3x 13.1x Research Analyst ROE (%) 18.3% 26.2% 28.8% 35.2% 36.8% Rahul Sony ROCE (%) 27.3% 33.7% 38.0% 46.0% 48.9% Email: [email protected] Source: Company Data, SMIFS Research SMIFS Limited Page No 5F, Vaibhav, 4 Lee Road, Kolkata – 700020, India 1 Dixon Technologies (India) Ltd. Q3FY21 - Results Update Sector: Consumer Electronics Exhibit 3: Financial Performance (Consolidated) INR Million Particulars Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 YoY% QoQ% 9MFY20 9MFY21 YoY% Net Revenue 11469 14020 9938 8574 5169 16387 21828 120% 33% 35427 43385 22% Cost of goods sold 10162 12553 8666 7222 4550 14447 19740 128% 37% 31380 38737 23% % of Revenue 88.6% 89.5% 87.2% 84.2% 88.0% 88.2% 90.4% 324bps 228bps 88.6% 89.3% 71bps SG&A expenses 781 837 757 793 451 1046 1083 43% 3% 2375 2580 9% % of Revenue 6.8% 6.0% 7.6% 9.3% 8.7% 6.4% 5.0% -266bps -142bps 6.7% 5.9% -76bps EBITDA 526 631 515 559 169 894 1005 95% 12% 1672 2068 24% EBITDA margin% 4.6% 4.5% 5.2% 6.5% 3.3% 5.5% 4.6% -58bps -85bps 4.7% 4.8% 5bps Depreciation 76 82 98 109 93 109 113 14% 3% 256 314 23% Interest 99 94 81 77 57 69 77 -4% 12% 273 203 -26% EBT 351 455 336 373 20 716 815 142% 14% 1143 1551 36% Other Income 6 28 18 0 2 3 1 -92% -44% 52 6 -89% PBT 357 483 355 373 22 718 817 130% 14% 1195 1557 30% Provision for tax 121 53 92 97 6 195 201 119% 3% 266 401 51% % Tax rate 33.9% 11.0% 25.8% 26.0% 25.9% 27.1% 24.6% -124bps -249bps 22.2% 25.8% 352bps Consolidated Net Profit 236 430 263 276 16 524 616 134% 18% 929 1156 24% Net profit margin% 2.1% 3.1% 2.6% 3.2% 0.3% 3.2% 2.8% 18bps -37bps 2.6% 2.7% 4bps EPS (In Rs) 20.1 36.8 22.5 23.6 1.4 44.7 52.6 134% 18% 79.4 98.7 24% Segment Results Revenue Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 YoY% QoQ% 9MFY20 9MFY21 YoY% Consumer Electronics 5098 7382 4543 3930 3473 9569 13598 199% 42% 17022 26640 57% Lighting Solutions 3243 2839 2767 2548 777 2957 3486 26% 18% 8849 7220 -18% Home Appliances 988 1391 684 900 241 1454 1152 68% -21% 3063 2847 -7% Mobile & EMS 1437 1934 1395 603 531 1974 2992 114% 52% 4766 5499 15% Security Devices (50%) 679 435 503 546 134 397 555 10% 40% 1618 1084 -33% Reverse Logistics 24 38 46 47 14 36 45 -3% 23% 109 95 -13% 11469 14020 9938 8574 5170 16387 21828 120% 33% 35427 43385 22% Revenue Mix (%) Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 YoY% QoQ% 9MFY20 9MFY21 YoY% Consumer Electronics 44% 53% 46% 46% 67% 58% 62% - - 48% 61% - Lighting Solutions 28% 20% 28% 30% 15% 18% 16% - - 25% 17% - Home Appliances 9% 10% 7% 10% 5% 9% 5% - - 9% 7% - Mobile & EMS 13% 14% 14% 7% 10% 12% 14% - - 13% 13% - Security Devices (50%) 6% 3% 5% 6% 3% 2% 3% - - 5% 2% - Reverse Logistics 0.2% 0.3% 0.5% 0.5% 0.3% 0.2% 0.2% - - 0% 0% - EBITDA Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 YoY% QoQ% 9MFY20 9MFY21 YoY% Consumer Electronics 114 177 115 98 86 265 394 243% 49% 406 746 84% Lighting Solutions 254 230 239 254 58 277 332 39% 20% 722 666 -8% Home Appliances 107 164 92 99 4 173 118 28% -32% 363 295 -19% Mobile & EMS 32 41 32 85 20 163 138 328% -15% 106 322 205% Security Devices (50%) 20 11 22 19 0 12 20 -13% 67% 53 30 -44% Reverse Logistics -1 7 16 4 0 4 5 -71% 24% 22 9 -60% 526 631 515 559 169 894 1005 95% 12% 1672 2068 24% EBITDA margin Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 YoY% QoQ% 9MFY20 9MFY21 YoY% Consumer Electronics 2.2% 2.4% 2.5% 2.5% 2.5% 2.8% 2.9% - - 2.4% 2.8% - Lighting Solutions 7.8% 8.1% 8.6% 10.0% 7.4% 9.4% 9.5% - - 8.2% 9.2% - Home Appliances 10.8% 11.8% 13.4% 11.0% 1.7% 11.9% 10.2% - - 11.8% 10.4% - Mobile & EMS 2.2% 2.1% 2.3% 14.1% 3.8% 8.2% 4.6% - - 2.2% 5.9% - Security Devices (50%) 3.0% 2.4% 4.4% 3.5% 0.1% 2.9% 3.5% - - 3.3% 2.8% - Reverse Logistics -4.6% 18.8% 34.4% 9.2% 2.9% 10.2% 10.3% - - 20.2% 9.3% - 4.6% 4.5% 5.2% 6.5% 3.3% 5.5% 4.6% - - 4.7% 4.8% - ODM Revenue Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 YoY% QoQ% 9MFY20 9MFY21 YoY% Consumer Electronics 8.0% 4.0% 3.0% 2.0% 3.0% 3.0% 6.0% - - 6.0% 5.0% - Lighting Solutions 83.0% 84.0% 89.0% 94.0% 90.0% 90.0% 91.0% - - 85.0% 90.0% - Home Appliances 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% - - 100.0% 100.0% - Source: Company Data, SMIFS Research SMIFS Limited Page No 5F, Vaibhav, 4 Lee Road, Kolkata – 700020, India 2 Dixon Technologies (India) Ltd.