Dixon’s immediate focus is to get into more components on the mobile side, such as displays, precision parts, and machinery. The company is also looking at something for EVs, industrial, and automotive, primarily on the industrial and automotive side, where PCBAs are concerned.
I’ve observed that you’re always looking for smaller acquisitions. What was the impetus for acquiring iSmartU? Where does it fit into your overall strategy and what can it do for you in terms of incremental business?
Saurabh Gupta: iSmartU is a manufacturing company that manufactures smartphones and feature phones for brands like Itel, Tecno, Infinix, and it is part of a group called Transsion Group. It is one of the largest conglomerates in the world based in China and has a very large market share not only in India but also globally. It has a very large market share in the feature phone segment in India and also has a market share of 12%-14% in smartphones and has been doing very well. Our goal here was to add another player and strengthen the relationship over a period of time. In addition to this acquisition, the way we have a large capacity in smartphones, we wanted to go deep into manufacturing for these brands as well.
How much increased business do you expect to generate in this segment in the next fiscal year?
Saurabh Gupta: So last year, this iSmartU had a revenue of almost Rs 8,000 crore. They had a market share of 10% to 12% in smartphones in India and almost 30-35% in feature phones. The acquisition was completed last week, August 13. This year, it will only cover seven months. But on an annual basis, the business is expected to generate revenues of between Rs 7,000 crore and Rs 8,000 crore in the next fiscal. This year, it will be proportional to seven to eight months.
Why did you buy just over a majority stake in the company? Why didn’t you buy 100%?
Saurabh Gupta: The reason is because they have a very strong team and they want to be part of the company and also want to continue the operations of the iSmartU team that has done an amazing job in India. We both bring expertise and they will continue the operations. So they wanted to keep a large minority and that is why we did not buy 100%.The stake is valued at Rs 23.8 billion, which means the enterprise value is roughly Rs 45-46 billion.
Saurabh Gupta: No, that is not correct. That was the same number as the net worth at the end of December and of course it would have changed because it is a profit making company. So that number would have changed in the balance sheet on August 13. Then there will be more incentives for the next 3-4 years based on PAT delivery. So overall, the deal value for the next 3-4 years could be close to Rs 540-550 crore.
ET Now: In terms of diversification, where is the company headed next? You are also planning to enter the EV segment, so in terms of product profile, at least that is what the brokerage report says. Do you have a firm timeline or investment plan? Are there any other Sunrise segments that you are looking at?
Saurabh Gupta: Our immediate focus is to bring in more components on the mobile side. So we are looking at getting into displays. We are looking at getting into precision component machining. In mobile, we already have a big play and the idea is to go deeper at the manufacturing level. Secondly, coming back to your point about EV, yes, we are looking at something on the industrial and automotive side, mainly related to PCBAs. It can be used in EVs, industrial, automotive and that is why we are setting up a campus in South India because that is where the automotive hub is. Yes. So these are two major areas apart from telecom that also look very promising.
There are strong orders from the two largest telecom companies in India, and the same is true in other verticals where there are expansion plans and backward integration plans. But mobile, IT hardware and telecom will also be growth triggers.
A new medical manufacturing incentive scheme for medical devices is expected to be launched, and your company has a small volume of sales in the diagnostic testing machine segment. Do you expect to move further into this type of niche market with higher margins?
Saurabh Gupta: Not now, but if given the opportunity, it’s a high-margin product category and we would like to go into a low-volume, high-margin category. Medical fits in here. But we haven’t done any kind of work on that. So if given the option, if it fits into the core of the overall electronics as a category and some brand owner gives us some choice or option, we’ll look at it. But there’s nothing, and there’s no work going on right now on that particular aspect.
The Street believes that the overall EMS market in India could reach nearly Rs 4.5 lakh crore in the next 15-18 months and Dixon could have a market share of over 10% in that market. Is this a fair estimate?
Saurabh Gupta: We believe so too. India’s share of the global electronics space is just 2.5-3% and analysts and reports are predicting that it will go up to high single digits by 2030 and has the potential to go up to almost 20% by 2040. Dixon is a leading EMS player in India and we have been working hard to increase our wallet share and continuously attract new customers and now there is an opportunity in exports as well. So we stand to capture a huge opportunity in the overall available pie.
