Dixon Technologies Says This Is ‘Y2K Moment’ For Indian Contract Manufacturers

Dixon Technologies Ltd. expects India to become a hub of contract manufacturing for consumer electronics as companies focus more on branding and distribution.

“More and more brands are going to focus on branding and distribution, and manufacturing as part of the value chain will be outsourced. Even designing, particularly of the mass products, will be outsourced,” Managing Director Atul Lall told BloombergQuint in an interview. “This is an inflection point for the industry. It’s some kind of a Y2K moment. India will emerge as an electronic manufacturing hub, servicing not only in the domestic market but also in certain categories globally.”

Dixon Technologies—a contract manufacturer of lighting, televisions, mobile phones and home appliances for Xiaomi, Samsung, Voltas, LG, Flipkart and Foxconn—said Indian companies should focus on low-cost manufacturing and low-cost automation. They should also have higher operational efficiencies and volumes, coupled with better designing capabilities. “All OEMs (original equipment makers) will have to play a part in this movement.”

This comes at a time the lockdown to contain the new coronavirus pandemic stalled all activities, hurting sales of everything from cars to appliances. But as curbs ease, Dixon Technologies expects the consumer durables industry to witness a lot of pent-up demand. Brands with an online presence, according to Lall, are likely to do well.

The company saw its revenue improve in May. Production has reached 85-90% capacity utilisation for televisions and certain other segments. The demand for low-end mobile phones has been extremely good, Lall said, adding the peak season for the washing segment is expected to be good as the monsoon kicks in.

Medical electronics should partially compensate for loss in demand in the first half ending September, Lall said. Dixon Technologies expects to receive quality certification for its medical devices by July-end and start commercial production in the third quarter starting Oct. 1.

Long-Term Targets

• Dixon Technologies expects to grow 20-25% each year.
• The momentum for domestic manufacturing, aided by government schemes, is beneficial for the company.
• The company is also looking at exports.
• Main focus is a prudent backward integration and migrating to own designs, which will help in improving margin.
• Capital allocation will be prudent and frugal.
• Return on capital employed at 30% and return on equity of 25% will be maintained in the coming years.

Shares of Dixon Technologies has risen 62% so far this year compared with a 22% drop in the Nifty 500 Index.

Watch the full interview here: