Thursday, 30 March 2023

A Brief Outline of Dixon Technologies (India) Ltd - vrk100 - 30Mar2023

A Brief Outline of Dixon Technologies (India) Ltd

 


 

 

(This is just for information purpose only; this should not be construed as investment advice though the author is a CFA Charterholder. Readers should consult their own investment advisor before making any investment decisions.)

 

 

A Brief Sketch of Dixon Technologies (India) Limited: 

 
stock was listed in Sep2017 in Indian stock exchanges

its issue price was Rs 1,766 (the stock's face value was changed from Rs 10 to Rs 2 per share in Mar2021)
 
the stock provided phenomenal returns from its listing till the end of 2021

the company belongs to Electronic Manufacturing Services (EMS) sector
 
other comparables in the EMS sector include Amber Enterprises India
 
new entrants to EMS sector include Kaynes Technology India, Syrma SGS Technology Ltd and DCX Systems Ltd
 
Dixon Technologies is one of the largest beneficiaries of Indian government's PLI (production-linked incentive) scheme

the company manufactures consumer electronics, mobile phones and lighting products as an OEM (original equipment manufacturer)

the company's other products include home appliances

its customers include, Motorala, Bosch India, Lloyd, Croma, TCL, Nokia, Bharti Airtel and Sharp

the company had done wonders in scaling up its sales in the last seven years

return on capital employed (ROCE) numbers in Screener.in seem to be incorrect (as per company's annual report, return on equity ROE and ROCE ratios are lower for 2020-21 & 2021-22)

sales growth is much higher than fixed assets growth (because of outsourcing of manufacturing?)

Oct-Dec2022 quarter results were weak for Dixon Technologies; stock promptly got sold off

latest available promoter holding is 34 percent (so-so) -- diluted from 38 percent in 2019

foreign portfolio investors (FPIs) and domestic institutional investors (DIIs) hold 36 percent in the stock's equity, which is decent

because of low profitability and high capital expenditure, company does not give much dividends

EMS sector in India has great potential provided India attracts companies, like, Foxconn and others to shift manufacturing from China and Vietnam to India

the company's debt-equity ratio is 0.37, which is manageable for a high-growth firm
 
the stock's valuation ratios are: price-earnings ratio at 70; price-book at 15 and price-sales at 1.40 (you could compare them with other comparable firms mentioned above)

as on 29Mar2023, the stock's market price is Rs 2,830 per share, with a market cap of Rs 16,850 crore

as at close of 29Mar2023, the stock indices levels are as follows: Sensex at 57,960; BSE 200 at 7,279; Nifty 50 at 17,081; India VIX at 13.63; USD-INR at 82.20 and India 10-year G-Sec yield at 7.30 percent
 

 
Finally
 
Reasons for scepticism on the potential of the stock:

hard to make long-term money in companies betting on government's doles / incentives

(investors made huge money in the stock in the past cycle is a different issue)

low promoter holding

the optimism on the stock and in the EMS sector are already reflected in the price in my opinion

valuations are rich, because of scarcity premium and investor over-enthusiasm

even if you're attracted to the stock by the potential in the EMS sector, you may buy smaller quantities and test the waters in your experimental portfolio

low gross profit margins (GPM), operating profits (OPM) & net profits (NPM), especially in the last two years
 
long-term sustainability of a firm is questionable when profitability ratios are low

as value investing guru Benjamin Graham quipped: "Obvious potential may not lead to obvious profits."
 
if the company scales up its original design manufacturing (ODM) capability for multi-national corporations, then the stock may get re-rated higher

 

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Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

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He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100

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