Press Release

Dixon Technologies (India) Limited

April 07, 2023

Facilities/Instruments Amount (₹ crore) Rating1 Rating Action

Reaffirmed at CARE A1+

Short-term bank facilities - -
and Withdrawn
Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

CARE Ratings Limited (CARE Ratings) has withdrawn the outstanding ratings of 'A1+' [A One Plus] assigned to the facilities of
Dixon Technologies (India) Limited (DTIL) with immediate effect. The above action has been taken at the request of DTIL and
'No Objection Certificate' from the banks that have extended the facilities rated by CARE Ratings.

The reaffirmation continues to take into account DTIL’s established track record and market position in Electronic Manufacturing
Services (EMS) industry characterized by its growing scale of operations & leadership position of the company in majority of its
segments and well-diversified operations spread across different product segments/verticals. The rating further continues to
derive strength from DTIL’s association with highly reputed and diversified client base, DTIL’s healthy financial performance
despite various challenges faced by the company during the FY22 and 9mFY23, the company has demonstrated strong return on
capital employed (RoCE), healthy debt coverage indicators. CARE Ratings has taken into cognizance the healthy growth prospects
for DTIL going ahead post receipt of Production Linked Incentive (PLI) approval in various segments with majority of growth
expected from the mobile segment.

The rating, however, continues to remain constrained by DTIL’s direct dependence on customers’ business plans and performance,
though the same is mitigated to some extent through long-standing relationship with majority of the customers, moderate
customer concentration risk with relatively higher dependence on top 3-5 customers though the same has improved in last few
years and technological obsolescence risk. The ratings also factor in relatively higher TOL/TNW on consolidated basis due to
sizable utilization of non-fund-based facility for procurement of raw material, utilization of fund based working capital facilities
and relatively high creditors, though part of company’s creditors are backed by Bank Guarantees (BGs) from its clients which
mitigates the risk to an extent. Furthermore, DTIL is exposed to risks pertaining to regulatory changes (like custom duty, taxation,
etc), risk of technological obsolescence and foreign exchange exposure, given its sizeable imports which is abated to an extent
with the company’s ability to partly pass on the variation.

Analytical approach: Consolidated. The entities considered in consolidation are mentioned in Annexure-6
below.

Key strengths
Experienced promoter and management team with DTIL’s established track record and market position in EMS
business both under OEM and ODM models:
Dixon Technologies (India) Limited was established by Sunil Vachani in the year 1993 and is the leading player in electronic
services manufacturing (EMS) space in India with diversified products in various sub-segments of the electronics vertical. Dixon’s
diversified product portfolio includes (i) Consumer Electronics like LED TVs; (ii) Home Appliances like washing machines; (iii)
Lighting Products like LED bulbs and tube lights, down lighters and CFL bulbs; and (iv) Mobile phone & EMS (Medical Electronics
& Set top boxes) (v) Surveillance Security Systems, (vi) Reverse Logistics (Repairing and refurbishment services of LED TV panels
and set top boxes). DTIL has 18 manufacturing facilities and the group also operates 6 R&D facilities. The company continues to
command significant market share in all its segments with about 35% share in LED TVs and 45% in LED bulbs.

Reputed and diversified client base across all the segments of operations
DTIL caters to all the leading electronic players in its respective segments. The key clientele comprises some strong and reputed
global brands like Panasonic, Xaomi, Samsung, PHILIPS, Nokia, Motrola, etc. In security systems segment the JV partner AIL
(Aditya Infotech Limited) holds trademark for CP Plus and Dahua brands. Furthermore, DTIL has also ventured into Set Top Box
and Medical Electronics segment. DTIL under PEPL has started manufacturing set top boxes for Jio (Hybrid & Cable), Dish TV and
Airtel. DTIL has also recently closed the ODM sublicensing rights with Google related to Android and Google TV which will open
up lot of opportunities for the company as 60% to 65% of Indian market is on this platform. DTIL has also entered into a 40-60

1
Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications

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JV with Rexxam, Japan to manufacture these boards of air conditions for Daikin and a 50:50 JV with Imagine Marketing for its
flagship brand, Boat for manufacturing variables in hearables.

Diversified operations and revenue streams under different segments/verticals under DTIL, DTIL’s entry into
new verticals to contribute to revenue growth in future
DTIL’s revenues are diversified across different product segments. Mobile & EMS and Consumer electronics are the two major
segments for DTIL which contribute to around 42% and 36% of total revenue of DTIL in 9MFY23. Lighting products, home
appliances and security systems contributed 9%, 9% and 4% of DTIL’s revenue, respectively. Nevertheless, Dixon’s wholly owned
subsidiary, Padget Electronics Pvt Ltd (PEPL) is a beneficiary of Government of India’s recently launched Production Linked
Incentive (PLI) scheme (Approved by the Ministry of Electronics and Information Technology in October, 2020) for mobile
phones/electronics, which would provide production linked incentives over next four years to the eligible entities for manufacturing
of mobile phones and company has started production under this scheme from March 2021 onwards for Motorola, Nokia, Karbonn,
Panasonic and Gionee. This apart, the company has made application under PLI scheme under several segments (IT hardware,
wearables, LED lights and telecom). This is expected to provide significant boost to DTIL’s scale of operations and profits, given
the incentive available under the scheme.

Healthy financial profile

DTIL witnessed a healthy growth in its revenue for FY22 despite challenging environment. The revenue grew by 66% y-o-y to
₹10,697 crore as against ₹6,449 crore in FY22. Revenue growth has been driven by growth momentum across all the
segments/verticals of its operations on the back of increased volumes and focus on backward integration. DTIL’s Consumer
segment is largest segment for the company, which contributed 48% (PY: 60%) of total revenue witnessed a growth of 34%.
However, the Mobile and EMS segment showed a robust growth of 274% in total revenue and in absolute terms the revenue
stood at ₹3,138 crore in FY22 as against ₹839.76 crore in FY22. Other segments of the DTIL witnessed a healthy growth ranging
from 16%-82%. In line with the industry, the profitability in FY22 witnessed a dip from 5.29% to 4.58% primarily due to the
elevated commodity and freight cost, and lag in passing on this increase to the customers. The margin has also reduced as there
is a change in sales mix as well, with the share of mobile division having increased significantly. The company also faced disruption
and volatility in raw material prices due to shortage in supply of semi-conductor chips coupled with increasing share of mobile
division in its revenue.
During 9MFY23, DTIL reported a revenue of ₹9,130 crore (PY: ₹7,746 crore) registering a Y-o-Y growth of 18% over 9MFY22
revenue. PBILDT margin improved slightly to 3.95% as against 3.39% in 9MFY22.

Key weaknesses
Dependence on client’s business plans and performance, nevertheless, strong financial profile of customers and
DTIL’s long-standing relationship with key customers partially mitigates the risks
As customary to the EMS industry, DTIL’s revenues are linked to the business plans and performance of its clients. Furthermore,
a major part of DTIL’s revenues and hence operating profitability is derived from its top customers (Motorola, Xiaomi, Samsung,
Phillips and Panasonic). The customer concentration exposes the company to the risk of client loss or issues in the customer’s
business that may affect DTILs business as well. Nevertheless, Dixon has successfully maintained strong relationships with its key
customers. Some of its customers have long standing relationships with the company ranging between 10-12 years. Also, Dixon
is constantly expanding its customer base in existing segments and DTIL’s plans of venturing into newer segments will help it to
mitigate this risk. Nevertheless, the company needs to make persistent efforts to maintain its cost competitiveness through
continuous improvement in processes, products and manufacturing capabilities given the dynamic nature of the product segments.

Competition, Risk of forex fluctuation and risk of technological obsolescence leading to continuous R&D
requirement and improvements in processes and products
Consumer Durables/EMS industry is accustomed to continuous innovations in products, persistent improvements in processes and
rapid changes and adoption of new and better technologies. Given the risk of technological obsolescence, the industry players
are required to undertake continuous upgrades/improvements to sustain their competitive advantage. However, the company has
always acknowledged and embraced changing and advancing technology. DTIL have 6 R&D centres which are equipped with the
latest technology. Moreover, the company has expanded its product portfolio along with a change in technologies in the market.
The company faces competition not only from other EMS players but also from in-house manufacturing capabilities of large
corporates. These factors limit pricing flexibility and bargaining power with customers, thereby putting pressure on operating
margins. Further, the company is exposed to risks pertaining to any adverse regulatory changes (like changes in custom duty,
taxation, etc.), foreign exchange fluctuation risk and risk of fluctuation in prices of raw material. However, the risk of fluctuation
in forex and prices of raw material is abated to an extent with the company’s ability to pass on these variation to their clients.

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Moderately high leverage and TOL/TNW

DTIL has relatively high net TOL/TNW of 3.33x for FY22 (PY: 2.88x). DTIL’s operations depends upon sizeable utilization of credit
period from its suppliers, however many of these have back-to-back arrangements with DTIL’s corresponding clients. The
company’s operations require sizeable working capital limits (fund-based and non-fund based). DTIL utilises non-fund-based
facilities such as LCs for procurement of raw material, fund based working capital facilities like bill discounting and other working
capital borrowings to meet its working capital requirements and depend upon significant creditors in the form of suppliers of raw
materials; However, part of company’s creditors are backed by Bank Guarantees (BGs) from its clients which mitigates the credit
risk to an extent. The company plans to undertake sizeable capex, a part of which is likely to be funded by long-term borrowings,
thereby increasing the debt servicing obligations. However, its increased scale and profitability is expected to keep the coverage
healthy.

Liquidity: Adequate
The company has adequate liquidity with the liquid balance of ₹166 crore as on December 31, 2022 compared to ₹311 crore as
on March 31, 2022. The net cash flows from operation in FY22 and FY21 stood at ₹273 crore and ₹170 crore and the gross cash
accruals stood for FY22 and FY21 stood at ₹275 crore and ₹207 crore respectively. As against the cash generated from operations
the long-term debt repayment stood minimal at ₹8 crore and ₹1 crore respectively in FY22 and FY21 respectively.

Environment, social and governance risk

CARE Ratings believes that DTIL's environment, social, and governance (ESG) profile supports its strong credit risk profile. The
EMS sector has a significant impact on the environment on account of being energy intensive, generating hazardous waste and
also carbon emission. The sector's social impact is characterised by health hazards, leading to a higher focus on employee safety
involved in manufacturing activities and well-being of the local community, given the nature of its operations. The annual report
for FY22 highlights the below initiatives undertaken by the company:

Environmental practices:
• The company is working with Andhra Pradesh State Energy Efficiency Development Corporation Limited (APSEEDCO) to
implement eco-energy solutions for its plant in Tirupati.
• Energy audits were conducted for all manufacturing units to identify the key areas of energy savings and broad cost-
benefit analysis.
• The company has partnered with Greeniwa Recycler Pvt Ltd to recycle products and dispose of e-waste and its has also
teamed up with Steam Oil & General Industries to dispose of hazardous oil waste created during production processes.
• The company has also planted 1,001 trees at Tirupati during FY22

Social:
The company has adopted people-oriented philosophy and fair employment practices that helps it create an inclusive and
conducive work environment. During FY22, the company has organised 15,121 training and development programs for its
employees. The CSR spend of the company for FY22 stood at ₹ 2.97 crore with focus areas being education, hunger
eradication, socioeconomic development, senior citizen welfare, and preventative healthcare.

Governance
The company is focused on establishing a sound corporate governance system, emphasising the need to ensure internal
openness and accountability. The company aims to achieve its governance goals accomplish by cultivating a
compliance culture, supporting ethical behaviour within the organisation, and encouraging every employee to follow
all applicable laws, rules, and company’s policies.

Applicable criteria
Policy on default recognition
Consolidation
Financial Ratios – Non financial Sector
Liquidity Analysis of Non-financial sector entities
Rating Outlook and Credit Watch
Short Term Instruments
Manufacturing Companies
Policy on Withdrawal of Ratings

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About the company and industry

Industry Classification
Macro Economic Sector Industry Basic Industry
Indicator
Consumer Discretionary Consumer Durables Consumer Durables Household Appliances

DTIL, incorporated in 1993 by Sunil Vachani, a diversified Electronic Manufacturing Service (EMS) company with operations in
various sub-segments of the electronic products vertical. DTIL has operations in consumer electronics (LED TVs), lighting (LED
Lights, Ballast, Tube Lights, Battens and Downlighters), home appliances (Washing Machines), Security Surveillance systems and
mobile phone & EMS segments and also undertakes reverse logistics operations (Repair & refurbishment Services for LED TVs
and Set-top boxes). The company undertakes manufacturing of security surveillance equipment & medical electronics through a
JV company viz. AIL Dixon Technologies Private Limited (ADTPL). DTIL ventured into mobile phone manufacturing in 2016 through
a JV (50%) Padget Electronic Pvt. Ltd. (PEPL) with the Jaina Group. DTIL consolidated its shareholding in the company with the
acquisition of the JV partner’s share in April 2019. Thereafter, PEPL became its wholly-owned subsidiary. In January 2018, it
entered into manufacturing of surveillance and security equipment like closed-circuit television cameras (CCTVs) and digital video
recording (DVR) through ADTPL, its 50% JV with Aditya Infotech Ltd. Recently, DTIL has also entered into a 40-60 JV with
Rexxam, Japan to manufacture these boards of air conditions for Daikin and a 50:50 JV with Imagine Marketing for its flagship
brand, Boat for manufacturing variables in hearables.
The company operates through two business models, first one is OEM (for consumer electronics, lighting, mobiles & EMS, Security
Systems & Reverse Logistics), where the product is made as per customer design and specifications, and ODM (Consumer
electronics, Lighting & Home Appliances segment), where it supplies own design products to the customers. DTIL has total 18
manufacturing facilities and six R&D centres. The company also remains one of the largest beneficiaries of government’s PLI
scheme.

Brief Financials (₹ crore) March 31, 2021 (A) March 31, 2022 (A) 9MFY23

Total operating income 6449 10697 9130

PBILDT 295 385 360

PAT 160 190 174

Overall gearing (times) 1.00 NA NA

Interest coverage (times) 9.03 7.78 7.93

A: Audited, UA: Un-Audited, NA: Not available; Note: ‘the above results are latest financial results available’

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating history for the last three years: Please refer Annexure-2

Covenants of the rated instruments/facilities: Detailed explanation of the covenants of the rated instruments/facilities is
given in Annexure-3

Complexity level of the various instruments rated: Annexure-4

Lender details: Annexure-5

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Annexure-1: Details of instruments/facilities

Rating
Date of
Maturity Size of the Assigned
Name of the Issuance Coupon
ISIN Date (DD- Issue along with
Instrument (DD-MM- Rate (%)
MM-YYYY) (₹ crore) Rating
YYYY)
Outlook
Non-fund-
based - ST- - - - 0.00 Withdrawn
Letter of credit

Annexure-2: Rating history for the last three years

Current Ratings Rating History

Date(s) Date(s) Date(s) Date(s)

Name of the
and and and and
Sr. No. Instrument/Bank Amount
Rating(s) Rating(s) Rating(s) Rating(s)
Facilities Type Outstanding Rating
assigned assigned assigned assigned
(₹ crore)
in 2022- in 2021- in 2020- in 2019-
2023 2022 2021 2020
1)CARE 1)CARE
Non-fund-based - A1+ A1+
1 ST - - - -
ST-Letter of credit (06-Apr- (03-May-
22) 21)

*Long term/Short term.

Annexure-3: Detailed explanation of the covenants of the rated instruments/facilities: Not Applicable

Annexure-4: Complexity level of the various instruments rated

Sr. No. Name of the Instrument Complexity Level

1 Non-fund-based - ST-Letter of credit Simple

Annexure-5: Lender details

To view the lender wise details of bank facilities please click here

Annexure-6: Entities being consolidated

Companies consider under consideration Subsidiary/Associate % of share held
Dixon Global Private Limited Subsidiary 100%

Padget Electronics Private Limited Subsidiary 100%

Dixon Electro Manufacturing Private Limited Subsidiary 100%

Dixon Technologies Solutions Private Limited Subsidiary 100%

Dixon Electro Appliances Private Limited Subsidiary 51%

AIL Dixon Technologies Private Limited Joint Venture 50%

Rexxam Dixon Electronics Private Limited (formerly Joint Venture 40%

Dixon Devices Private Limited)

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Note on the complexity levels of the rated instruments: CARE Ratings has classified instruments rated by it on the basis
of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any
clarifications.

Contact us

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CARE Ratings Limited E-mail: [email protected]
Phone: +91-11-4533 3200
E-mail: [email protected] Name: Mayank Sanghvi
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CARE Ratings Limited
E-mail: [email protected]

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sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
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