Dixon Technologies: Dixon CFO talks diversification, EMS market share and rationale for iSmartU acquisition

Dixon’s immediate goal is to get into more mobile sector components, such as displays, precision components and mechanical components. The company is also looking at something in the industrial and automotive sector, mainly related to PCBA, which may be for Electric vehiclesindustrial and automotive.

I have noticed that you always go for smaller acquisitions. What is the trigger for acquiring iSmartU? Where does this piece fit into your overall strategy and what can it do for you in terms of incremental business?
Saurabh Gupta: iSmartU is a manufacturing manufacturing entity smartphones and feature phones for brands like Itel, Tecno and Infinix, which is part of the group called Transsion Group. It is one of the largest groups in the world based in China and they have a huge market share Globally and in India. In India, they have a very large market share in the feature phone category and they also have a 12-14% market share in smartphones and they continue to do very well. Our objective here was to add another player and strengthen the relationship over time. Since we have a large capability outside of this acquisition in smartphones, we also wanted to go deeper into manufacturing for these brands.

How much incremental business do you see being generated from this part over the next financial year?
Saurabh Gupta: Last year, iSmartU generated revenues of almost Rs 8,000 crore. They had a market share of 10-12% in smartphones and almost 30-35% in feature phones in India. This acquisition was completed last week, on August 13. We will only have a seven-month return for this year. But hopefully, on an annual basis, this business can generate Rs 7,000 crore to Rs 8,000 crore of revenue for the next financial year. This year, it will be proportional for seven to eight months.

Why did you buy a majority stake in the company? Why didn’t you buy 100%?
Saurabh Gupta: The reason is that they have a very strong team and they also want to be part of the company and we also want the iSmartU team, which has done a phenomenal job in India, to continue to run the operations. We both bring our experience and they will continue to run the operation. So they wanted to retain a significant minority and that was the reason why we did not do a 100% acquisition.The stake is valued at Rs 238 crore, which means the company is valued at around Rs 450-460 crore.
Saurabh Gupta: No, that is not correct. That was a figure like the net worth at the end of December which of course would have changed because it is a profit-making company. So, the figures would have changed on August 13 in the balance sheet. Then there will be some more incentives which will be based on delivery of PAT over the next three to four years. So, overall, the transaction value for the next three to four years can be almost Rs 540-550 crore.

ET nowIn terms of diversification, where is the company headed next? In terms of product profile, you are planning to enter the EV segment as well, at least that is what broker reports seem to suggest. Do you have any timeline or any investment plans in place? Any other emerging sectors you are considering?
Saurabh Gupta: Our immediate focus is to get into more components in the mobile sector. So we are looking at getting into the display sector and precision mechanical components. In the mobile sector, we already have a large share, the idea is to go deeper into the manufacturing level. Secondly, coming back to what you said about EVs, yes, we are looking at something related to industrial and automotive sector, especially related to PCBA, which can be for EVs, industrial and automotive and that is the reason we are setting up a campus in South India because that is where the automotive hub is. Yes, those are the two focus areas apart from telecom which also looks very promising.

It has a strong order book from two of the largest telecom companies in India and the same is true for other verticals where we have an expansion plan and a backward integration plan. But mobile devices, IT hardware and also telecom will be the drivers of growth.

A new incentive scheme for medical device manufacturing is expected to be launched and as a company, a small portion of its revenue comes from this segment in diagnostic testing machines. Will we see it delve further into these types of high margin niche products?
Saurabh Gupta: Not for now, but if the opportunity presents itself, it is a high margin product category and we want to go into low volume, high margin categories. The medical category fits into it, but we have not done any work on that. So, if we have a choice, if it fits into our core category of electronics in general and if any brand owner has any option, we will look at it. But there is nothing, there is no work being done on that particular aspect at the moment.

The Wall Street believes that in the next 15 to 18 months, overall growth EMS Market In India, the value could be close to Rs 4.5 trillion and Dixon could have more than 10% market share in that market. Is this an accurate estimate?
Saurabh Gupta: We believe so too. India’s share in the global e-commerce space is a mere 2.5-3% and analysts or reports project it to rise to high single digits by 2030 and has the potential to touch nearly 20 per cent by 2040. Dixon is the leading EMS player in India where we have been looking to capture a larger share of wallets and are continuously looking to get new customers and now opportunities are coming in exports as well. So, we will be able to capture a huge opportunity from that total available pie.