Dixon Technologies scouts for buys to get in global top 10 EMS league

Dixon Technologies is scouting for acquisitions of design companies as well as buyouts of component makers. This will help it go for backward integration and achieve its target of being among the top 10 players in the $70-billion electronic manufacturing services (EMS) market globally in the next three years.

Currently, it is ranked in the top 20 with the likes of Hon Hai (Foxconn), Pegatron, Wistron, Jabil and Flex in the top pecking order. Dixon is already eligible for three productivity-linked incentives (PLIs) that include mobile devices, IT hardware and telecom products. It has also applied for PLI in developing LED lighting components and expects India to soon become the global hub for this product with exports of over $6-7 billion annually.

Dixon Chairman and Managing director Sunil Vachani said, “Our focus will be on design-led manufacturing, where increasingly, we will also design our products. Secondly, we will also increase value addition and create a component eco system. So, we will be looking at acquisition of design companies in our product areas whether it is software or hardware. We don’t want to reinvent ourselves. And secondly, we will acquire companies in areas, which help us in backward integration, in the space of mobile devices and laptops, among others.”

This year, the company is expecting to hit revenues of Rs 12,000 crore and next year the target is Rs 20,000 crore. “Our estimate is that to hit the top 10 global ESM player slots, we should touch Rs 35,000 crore-Rs 40,000 crore, which is our aim in the next three years,” said Vachani.

Vachani said the PLI scheme, which would also bring in the components’ infrastructure into the country, will help in a major way to reduce imports and increase local value addition. For instance, he pointed out that in LED lighting, the current value addition is 35 per cent. It will go up to 60-65 per cent within two years as the entire PLI incentive is focused on manufacturing components within the country.

Also, with many assembly, testing, marking and packing (ATMP) and integrated circuit (IC) packaging units being set up under the scheme, value addition will go up further to 85 per cent. Currently, 95 per cent of the local requirement of LED is “Made in India”.

In LED TVs currently, value addition is only 10 per cent and this will reach 30-35 per cent in a few years. In mobile phones, with display fab plants being set up as well as printed circuit board (PCB) units, the value addition will be up to 35-40 per cent (even China has similar value addition).

Of course, Dixon is now building scale, too, both for the product as well as for components. It is setting up a new second mobile device plant with a capacity to produce 35 million phones with backward integration, the largest from any Indian player. Through the two plants, it expects to hit Rs 10,000 crore revenues in two to three years under the PLI scheme and has already started exports to the US.

In non PLI, Dixon is building a refrigerator plant of 6 million units per annum plant. This will be doubled in a few years. And, it is already the largest manufacturer of LED TVs, with a capacity to produce 7 million sets per annum where the focus now will be on backward integration.

With a total investment of around Rs 700-800 crore planned, Dixon expects to leverage internal accruals and its comfortable debt-to-equity ratio to raise more funds. It has also cleared an enabling provision to raise equity. Vachani said all these options are open to the company. Business Standard