Dixon’s cautionary tale: The faster they grow, the harder they fall

Electronics manufacturer Dixon Technologies Ltd was among the earliest to answer the government’s call to manufacturers to ‘make in India’. It was the first to tap subsidies under the PLI for smartphone manufacturing when the scheme was launched in 2020-21.

Dixon Technologies has made the most of the capital expenditure subsidies, by establishing manufacturing units in 21 cities and partnered with major global smartphone brands, which have reflected in its robust financials. 

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Dixon was not built in a day 

When Dixon Technologies was incepted in 1994 it used to manufacture colour television sets for various brands. It started manufacturing LCD TVs in 2007, lighting products the next year, and LED TVs and washing machines in 2010. The inflection-point in its journey came in 2016, when it ventured into manufacturing mobile phones.

Thanks to its government-subsidised capital expansion starting in FY21, Dixon set up more than 20 manufacturing facilities covering about 5 million sq.ft. in multiple cities, including Noida, Dehradun, Ludhiana, and Tirupati. It also quickly became a trusted manufacturing partner for major global smartphone brands. Its revenue accelerated from a 27% compound annual growth rate till FY21 to a 45% CAGR after FY21.

Dixon’s revenue from smartphone manufacturing revenue grew from less than ₹2,000 crore in FY23 to almost ₹10,000 crore in FY24 and to about ₹24,000 crore in the first nine months of FY25. Smartphone manufacturing now accounts for almost 90% of the company’s revenue and more than 80% of its operating profit. 

Dixon’s eyewatering growth 

Dixon’s revenue and profit more than doubled last year thanks to the contribution of its smartphone manufacturing unit, which has almost tripled during the period. The company’s December quarter revenue surged 117% year-on-year to ₹10,461 crore. Its bottom line grew faster at 124% year-on-year to ₹217 crore. But on both counts, Dixon fell short of analysts’ high expectations. 

This growth has come on the back of Dixon’s efficient utilization of resources. The company has maintained its asset turnover ratio at best-in-industry levels, and a cash-conversion cycle of -3 days, ensuring adequate liquidity to fuel growth. Moreover, Dixon has accelerated growth while keeping debt at reasonable levels—the company’s gross leverage stands at only 0.15x, and its interest costs account for merely 0.4% of its operating revenue. 

Consequently, Dixon has maintained robust and improving returns on capital. Return on capital employed improved by 4.6% points to 42.6%, and return on equity (excluding exceptional items) improved by 8.1% points to 33.3% in the December quarter. 

A SWOT analysis

Dixon’s key strength lies in its established partnerships with leading global smartphone brands including Motorola, Xiaomi, and Oppo, and in its proven manufacturing track record. Dixon has been adding to its list of coveted partnerships—including the mass manufacturing of Google Pixel smartphones in collaboration with Compal, as well as a joint venture with Vivo India for manufacturing electronics, including smartphones. 

Dixon has also partnered with Collecor Gadgets for expanding its footprint in the refrigerator-manufacturing segment, and with HKC for display manufacturing. 

Thanks to partnerships with top brands in Android phones, Dixon sees its order book expanding to 60 million shortly. That’s almost 70% of the entire outsourcing opportunity in India. 

On the flip side though, almost 90% of Dixon’s revenue come from a single business segment (mobile phones manufacturing). This puts the business at risk of headwinds before the mobile phone industry.

Also, while original design manufacturing contributes almost 100% of the Dixon’s revenues in home appliances and lighting products, and more than half of the revenues in the consumer electronics and appliances segment, these segments have a limited contribution (11%) to the overall business.

But Dixon could benefit from the government’s PLI schemes shifting focus towards component manufacturing. As per Dixon’s latest management commentary, component manufacturing is expected to contribute about a third of the company’s revenue in 2-3 years.

This move is expected to bring segment-level diversification for Dixon while also being margin accretive—component manufacturing yields better margins and is expected to add about 1-1.2% points to the business’ margins in a couple of years.

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Dixon is also looking at expanding its IT hardware business via its new unit in Chennai and in partnership with global brands such as HP and Asus. This will add to Dixon’s laptop manufacturing capacity in Noida, which caters to Lenovo and Acer.

Also, the capacity expansion in Dixon’s subsidiary ‘IsmartU’ is expected to help scale up its manufacturing for premium smartphone brands like ‘Nothing’ and support export volumes.

It is important to note, however, that Dixon is dependent to some extent on government incentives to expand its capex-intensive components-manufacturing business. For instance, Dixon’s project for manufacturing display-fabs at a capital expenditure of ₹25,000 crore is on hold awaiting the rollout of capex-subsidy guidelines under the India Semiconductor Mission 2.0.

Also, with the PLI scheme for mobile phone manufacturing to end in FY26, other players such as BYD plan to enter the India market. Partner brands would also likely be looking to diversify across vendors.

Tripling investor wealth

Since at least the beginning of 2024, the Dixon Technologies stock has been on a clear uptrend, forming higher highs and higher lows, and almost tripling investor wealth during the year. Around the middle of 2024, thanks to expensive valuations, previous highs started getting tested as supports. But these supports were respected and the stock reached its lifetime high of around ₹19,000 per share in December.

But in the midst of market uncertainty, Dixon's stock too has started correcting. The correction was exacerbated after its December-quarter earnings were released last week. The stock corrected by almost 14% in a single day after Dixon's third-quarter earnings disappointed slightly. But that’s the price to pay when one holds stocks that are priced to perfection–even small disappointments lead to large corrections. 

 

For more such analyses, read Profit Pulse

 

Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa 

Views are personal and do not represent the stand of this publication.