Dixon Technologies vs. PG Electroplast: A Comprehensive Analysis of India's Top EMS Stocks

India, once considered an underdeveloped nation, has rapidly ascended to become a significant player in the global electronics manufacturing landscape. This transformation is largely driven by strategic government initiatives like the Production Linked Incentive (PLI) scheme, robust domestic and international demand, and a skilled workforce available at competitive costs. The electronics manufacturing industry in India is projected to double within the next five years, reaching an estimated market size of US$250 billion, with exports playing a major role in this growth.

As India positions itself as a global hub for electronics manufacturing, especially in areas such as mobile phones, air conditioners, and televisions, two companies stand out: Dixon Technologies and PG Electroplast. Both have made significant strides in the industry, but which is the better investment? Let’s delve into a detailed comparison of these two prominent players across various parameters.

Business Overview

Dixon Technologies

Dixon Technologies has firmly established itself as one of India’s leading electronics manufacturers. The company operates primarily as an Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM), catering to a wide range of industries. Its product portfolio includes LED TVs, consumer durables, lighting products, home appliances, and security systems. Dixon’s extensive manufacturing capabilities are evident in its broad product portfolio, ranging from 6 kg to 14 kg appliances.

In addition to manufacturing, Dixon Technologies also provides repair and refurbishment services, which further enhances its value proposition to clients. The company boasts a diverse clientele, including industry giants like Samsung, Xiaomi, OnePlus, Havells, Bajaj, Acer, Lenovo, and Godrej. With a market capitalization of Rs 791 billion, Dixon Technologies is a formidable force in the Indian electronics manufacturing sector.

PG Electroplast

PG Electroplast is another leading player in India’s electronics manufacturing sector, specializing in both OEM and ODM services, along with plastic injection molding. The company’s product range spans washing machines, air conditioners, coolers, and various electronic devices. Additionally, PG Electroplast manufactures molds for applications in automotive appliances, white goods, and home and kitchen appliances.

The company’s client base includes prominent names such as Usha, Whirlpool, Carrier, LG Electronics, Jaguar, and SMR. With a market capitalization of Rs 132.2 billion, PG Electroplast may not match Dixon in scale, but it has carved out a significant niche for itself, particularly in the ODM space for air conditioners and washing machines.

Manufacturing Capabilities and Market Position

When comparing manufacturing capabilities, Dixon Technologies operates across 22 facilities, including three research and development (R&D) centers located in India and China. The company holds the title of the largest LED TV manufacturer in India and is the top ODM player in the lighting segment.

PG Electroplast, while smaller in scale, is the second-largest ODM for air conditioners and washing machines in India. The company currently operates eight manufacturing facilities across the country, with plans to expand further in the near future. Although Dixon Technologies leads in terms of manufacturing capacity and market cap, PG Electroplast’s specialized focus and rapid expansion make it a strong contender in the electronics manufacturing services (EMS) space.

Stock Market Performance

In terms of stock market performance, PG Electroplast has outpaced Dixon Technologies over the past year, delivering a remarkable 183% return compared to Dixon’s 168%. Both stocks have outperformed the Nifty 50 index, which saw a 30% return during the same period. This impressive performance cements their status as multibagger stocks, offering significant returns to investors.

Revenue Growth

Revenue is a critical indicator of a company’s growth trajectory. Dixon Technologies generates the majority of its revenue from manufacturing mobile phones, followed by consumer electronics. The company has the capacity to produce over 30 million smartphones and 50 million feature phones annually. Over the past five years, Dixon’s revenue has grown at a compound annual growth rate (CAGR) of 32.1%, driven by its diversified revenue streams and strong volume growth in the mobile phone segment.

On the other hand, PG Electroplast’s revenue growth has been driven by its focus on manufacturing air conditioners, washing machines, and coolers. As the second-largest ODM for washing machines and air conditioners, PG Electroplast has achieved a revenue CAGR of 33.8% over the past five years. This growth is attributed to steady revenue from its products business. While both companies exhibit strong revenue growth, PG Electroplast has a slight edge in this area, reflecting its rapid expansion and market demand for its products.

Profitability Analysis

Profitability is another crucial metric for assessing a company’s financial health. Dixon Technologies has seen its earnings before interest, tax, depreciation, and amortization (EBITDA) grow at a CAGR of 24.6% over the past five years, with net profits increasing at a CAGR of 25.5%. This growth is largely due to economies of scale achieved through operational expansion.

PG Electroplast, however, has outperformed Dixon in profitability. The company’s EBITDA and net profit grew at a staggering CAGR of 43.9% and 120.3%, respectively, over the same period. This significant growth in profitability is attributed to robust revenue expansion and effective cost management. PG Electroplast’s EBITDA and PAT margins have also seen substantial improvement, averaging 8.7% and 4%, respectively, compared to Dixon’s 4% and 2%.

Debt Management

Both Dixon Technologies and PG Electroplast have leveraged debt to finance their expansion strategies. As of March 2024, Dixon Technologies’ net debt stood at Rs 540 million, while PG Electroplast’s net debt was higher at Rs 1,781.5 million. Despite the higher debt levels, both companies have maintained healthy debt-to-equity ratios, with Dixon at 0.3x and PG Electroplast at 0.4x.

Looking ahead, both companies plan to continue investing in capital expenditures (capex) to fuel their growth. Dixon Technologies has earmarked Rs 6,000 million for capex in the coming yea”, focusing on both inorganic and organic expansion. PG Electroplast, meanwhile, plans to invest Rs 3,800 million in capex, including the construction of a new manufacturing facility in Rajasthan. These investments are likely to increase their debt levels in the short term but are expected to drive long-term growth.

Strategic Initiatives and Future Outlook

Dixon Technologies is not resting on its laurels; the company plans to expand its customer base across various product categories, aiming to increase both revenue and profitability. PG Electroplast is also positioning itself for future growth by investing in research and development (R&D), expanding its product offerings, and enhancing capacity for existing products. Notably, PG Electroplast has also committed to sustainability, partnering with a solar power plant to meet over 40% of its peak electricity requirements.

Both companies are well-positioned to benefit from the Indian government’s support for electronics manufacturing through initiatives like the PLI scheme. As demand for electronics continues to grow, both domestically and globally, Dixon Technologies and PG Electroplast are likely to see sustained growth in the coming years.

In conclusion, In the battle between Dixon Technologies and PG Electroplast, both companies have their strengths. Dixon Technologies leads in market cap, manufacturing capacity, and client diversity, making it a dominant ”layer in the EMS space. However, PG Electroplast’s impressive stock market performance, superior revenue growth, and profitability make it a compelling alternative, especially for investors looking for high-growth opportunities.

Ultimately, the choice between these two companies will depend on an investor’s specific goals—whether they prioritize market leadership and established operations (Dixon Technologies) or high growth potential and profitability (PG Electroplast). Both companies are poised for continued success as they capitalize on the burgeoning electronics manufacturing industry in India.