Dixon Technologies IPO – Should you invest in this IPO?
Dixon Technologies IPO would open for subscription on 6th September, 2017. Dixon Technologies Ltd is the largest home-grown design-focused and solutions company engaged in manufacturing products in the consumer durables, lighting and mobile phones markets in India. Its consolidated revenues grew at 34% CAGR in last 5 years. It posted consolidated profit of 2% for FY2017. What are the positive factors in Dixon Technologies (India) Ltd IPO? What are the hidden factors in Dixon Technologies IPO? Is Dixon Technologies (India) Ltd IPO Price is reasonably priced? In this article, I would provide some interesting insights and do Dixon Technologies (India) Limited IPO Review.
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About Dixon Technologies Ltd
Dixon Technlogies is the largest home-grown design-focused and solutions company engaged in manufacturing products in the consumer durables, lighting and mobile phones markets in India. Its diversified product portfolio includes (i) consumer electronics like LED TVs; (ii) home appliances like washing machines; (iii) lighting products like LED bulbs and tubelights, downlighters and CFL bulbs; and (iv) mobile phones. They also provide solutions in reverse logistics i.e. repair and refurbishment services of set top boxes, mobile phones and LED TV panels. As per the Frost & Sullivan Report, they are the leading manufacturer of lighting products of CFL, LED bulbs, LED TVs and semi-automatic washing machines in India. Its key customers include Panasonic India Private Limited, Philips Lighting India Limited, Haier Appliance (I) Pvt. Ltd., Gionee, Surya Roshni Limited, Reliance Retail Limited, Intex Technologies (I) Ltd., Mitashi Edutainment Pvt. Ltd., Dish Infra Services Private Limited
Dixon Technologies IPO Issue details
- IPO open date: 6-September-2017
- IPO close date: 8-September-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 1,760 to Rs 1,766 per share
- Issue size: Rs 600 Crores on higher price band
- Dixon Technologies IPO Lot size: 8 Shares and in multiples of 8 shares there-off
- Minimum investment: Rs 14,128 based on higher price band.
- Leading Managers: IDFC Bank, IIFL Holdings, Motilal Oswal Investment Advisors and Yes Securities
- Listing: BSE / NSE
- Download Dixon Technologies IPO RHP Prospectus at this link.
What is the Grey Market Premium (GMP) of Dixon IPO?
Grey Market Premium (GMP) helps in knowing the premium of the IPO Shares on listing day. It also allows investors to sell the IPO Shares or IPO Application at certain premium before they list. Dixon Technologies India IPO Grey Market Premium is still not trading. Keep this space to watch more info about GMP of Dixon IPO.
Objects of the Dixon Technologies (India) Ltd IPO issue
Company proposes to utilise the funds which are being raised through the Issue towards funding the following objects:
1) The Proceeds from the Offer for Sale
The proceeds from the Offer for Sale (net of Offer related expenses of the Selling Shareholders) shall be received by the Selling Shareholders and Company shall not receive any proceeds from the Offer for Sale.
2) Objects of the Fresh Issue
Company proposes to utilise the Net Proceeds towards funding the following objects:
a) Repayment/pre-payment, in full or in part, of certain borrowings availed by our Company
b) Setting up a unit for manufacturing of LED TVs at the Tirupati Facility;
c) Enhancement of our backward integration capabilities in the lighting products vertical at Dehradun I Facility;
d) Upgradation of the information technology infrastructure of Company and
e) General corporate purposes
Company Financials (Consolidated reinstated)
1) The company generated revenue of Rs 768 Crores for the year ended Mar-13 and Rs 2,458 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 4.9 Crores for the year ended Mar-13 and profit of Rs 50.3 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 48.8 and 3 years average EPS is Rs 41.66.
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Company Financials (Standalone reinstated)
1) The company generated revenue of Rs 726 Crores for the year ended Mar-13 and Rs 1,645 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 1.9 Crores for the year ended Mar-13 and profit of Rs 46.4 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 45.07 and 3 years average EPS is Rs 37.2.
What are the key strengths of Dixon Technologies (India) Limited?
Here are the key strengths of the company.
1) Leading market position in key verticals.
2) Strong relationships with a diverse top-tier customer base.
3) Experienced Promoter and seasoned management team.
4) End to end solutions provider with dedicated research and development capabilities.
5) Strong Financial Performance and stable cash flows.
What are the Strategies of Dixon Technologies (India) Ltd?
Here is what company want to focus on the strategies.
1) Continue to focus on ODM model.
2) Continue to strengthen company existing product portfolio and diversify into products with attractive growth and profitability prospects.
3) Development of company service offerings.
4) Expand existing relationships with customers into other product verticals.
5) Expansion of industrial footprint into new geographies.
6) Continue to strive for cost leadership.
Reasons to invest in Dixon Technologies IPO
Its posted strong revenue growth in the last 5 years. Its consolidated revenues grew at 34% CAGR in last 5 years. Its standalone revenues grew at 23% CAGR in last 5 years.
Risk Factors / Reasons not to invest in a Dixon Technologies Ltd IPO
- It earns thin margins in the last 5 years. Its consolidated margins for FY17 is 2% and standalone margins are at 2.8%. However with the kind of business the company does, one cannot expect high returns.
- They are highly dependent on certain key customers for a substantial portion of company revenues. Loss of relationship with any of these customers may have a material adverse effect on company profitability and results of operations.
- They do not obtain firm and long-term volume purchase commitments from company customers. If company customers choose not to renew their agreements with us or continue to place orders with them, company business and results of operations will be adversely affected.
- The markets in which company customers compete are characterized by consumers and their rapidly changing preferences, advancement in technology and other related factors including lower manufacturing costs and therefore as a result company Company may be affected by any disruptions in the industry.
- Company business and results of operations are dependent on the contracts that they enter into. Any breach of the conditions under these contracts may adversely affect company business and results of operations.
- They may, from time to time, look for opportunities to enter strategic alliances, acquire businesses or enter into joint venture arrangements. Any failure to manage the integration of the businesses or facilities post such acquisition or joint venture may cause company profitability to suffer .
- Company continued success is dependent on company senior management and skilled manpower. company inability to attract and retain key personnel or the loss of services of company Promoter or Managing Director may have an adverse effect on company business prospects.
- Some of company manufacturing facilities located in Dehradun are availing certain tax benefits which are available for a specified period of time. Expiry or early withdrawal of such tax benefits may adversely affect company results of operations and prospects. Further, certain exemptions available earlier have been withdrawn under the GST regime.
- Other risk factors (Internal and external) can be viewed in the draft prospectus.
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Recommendation / Investment strategy – Dixon Technologies IPO
1) On the upper price band of Rs 1,766 and on standalone FY17 EPS of Rs 45, P/E ratio works out to 39x. Even based on last 3 years standlone EPS of Rs 37, P/E ratio works out to 47x. Means, company is asking higher price band of Rs 1,766 in the P/E ratio of 39x to 47x. There is no listed peer to compare similar business, hence the issue cannot be ascertained whether it is under priced or over priced.
2) Company standalone revenues grew at 23% CAGR and consolidated profits grew at 34% in last 5 years. However it earns low margins. We cannot ascertain whether the issue price is under priced or over priced. Recent SIS IPO listed with 8% premium, however currently trading at 7% loss. Cochin Shipyard IPO which was expected to make good debut has closed with 22% profits on the day of listing and currently at just 16% high from issue price. Considering these factors, high risk investors can invest in this IPO with 2 to 3 years time frame. However, one may or may not get listing gains.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Dixon Technologies IPO – Should you Invest in this IPO
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Issue is fully priced. Not worth it.