Dixon’s immediate focus is to get into more components on the mobile side like display, precision components, and mechanicals. The company is also looking at something on the industrial and automotive side mostly to do with PCBA, which can be for EVs, industrials, and automotives.
I have been observing 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 entity that manufactures 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 world’s largest groups based out of China and they have a very large market share globally as well as in India. In India, they have a very large market share in the feature phone category and they have a 12% to 14% market share in smartphones as well and they continue to do very well. Our objective here was to add another player, and strengthen the relationship over a period of time. Like the way we have a large capacity outside this acquisition on smartphones, we wanted to get deep into manufacturing for these brands as well.
How much incremental business do you see from this part going forward in the next financial year?
Saurabh Gupta: So, last year, this iSmartU did almost Rs 8,000 crore of revenues. They had a 10% to 12% market share in smartphones and almost a 30-35% market share in feature phones in India. This acquisition was consummated last week only, August 13th was the date. We will have only seven months’ kind of performance for this year. But hopefully, at an annual level, this business can generate anywhere between Rs 7,000 crore to Rs 8,000 crore of revenues for the next financial year. This year, it will be proportionate for seven to eight months.
Why have you bought a little over a majority stake in the company? Why not 100% buyout?
Saurabh Gupta: The reason is they have a very strong team and they also want to be part of the company and we also want that the iSmartU team which has done a phenomenal job in India, should continue to run the operations. Both of us bring our expertise and they will continue to run the operation. So, they wanted to retain a large minority and that was the reason we didn’t do a 100% buyout.The stake is valued at Rs 238 crore. That means the enterprise value is roughly about Rs 450-460 crore.
Saurabh Gupta: No, that is not right. That was a number as in December-end net worth which of course would have changed because it is a profit-generating company. So the numbers would have changed on August 13 in the balance sheet. Then there will be some more incentives which will be based on PAT delivery 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 odd crore.
ET Now: In terms of diversification, where is the company headed next? When it comes to product profile as you plan to get into the EV segment as well, at least that is what broking reports seem to be suggesting. Any timelines, or any investment plans that you may have firmed up? Any other sunrise sector that you may be looking at?
Saurabh Gupta: Our immediate focus is to get into more components on the mobile side. So, we are looking into getting into the display. We are looking into getting into the precision components mechanicals. In mobile, we already have a large play, the idea is to go deeper in the level of manufacturing. Secondly, coming to your point on EVs, yes, we are looking at something on the industrial and automotive side mostly to do with PCBA, which can be for EVs, industrials, automotive and that is the reason we are setting up a campus down in South India, because that is where the automotive hub is. Yes, so these are the two focus areas apart from telecom which also looks very promising.
You have a strong order book from two of the largest telecom companies in India and so is the case with other verticals where we have an expansion plan and a backward integration plan. But mobile, IT hardware, and also telecom will be the triggers for growth.
A new medical manufacturing incentive scheme is expected to be launched for medical devices and you as a company have a small portion of revenue coming in from this segment in diagnostic testing machines. Are we going to see you move more into this kind of niche product with a high margin?
Saurabh Gupta: Not as of now, but given an opportunity, it is a high-margin product category and we want to get into categories that are low volume and high margin. The medical category fits into it. But we have not done any kind of work on that. So given a choice, if it fits into our core of overall electronics as a category and given some choice or option by any brand owner, we will look into it. But there is nothing, no work on that particular side is going on right now.
The Street believes that in the next 15 to 18 months, the overall EMS market in India could be almost Rs 4.5 lakh crore and Dixon could have over 10% market share in that. Is that a fair estimate to go with?
Saurabh Gupta: We also believe so. India’s share of global electronic space is just 2.5-3% and analysts or reports are projecting that it will go to higher single digit by 2030 and has the potential to go to almost 20 odd percent by 2040. Dixon is the leading EMS player in India, where we have looked to capture a higher share of wallets and continuously look to get new customers on board and now the opportunities are coming on the exports as well. So, we will be able to capture a large opportunity of that overall available pie.
