CS - Amber IC, Dixon IC - 8 Dec 2020 PDF

8 December 2020
Equity Research
Asia Pacific | India
India Consumer Durables Sector

The Rs6 tn prize and its contestants
Electronics Manufacturing Services | Initiation
Figure 1: Rs6 tn prize in electronics/durables; Amber, Dixon have manufacturing lead

Research Analysts
Lokesh Garg
91 22 6777 3743
lokesh.garg@credit-suisse.com
Gaurav Birmiwal
91 22 6777 3873
gaurav.birmiwal@credit-suisse.com
Source: Company data, Credit Suisse estimates
The Rs6 tn prize and its contestants; initiate coverage on Amber Enterprise/Dixon
Technologies with OUTPERFORM ratings. The Indian electronics and consumer
durables market is about Rs4 tn in FY20 and is estimated to grow to ~Rs6.5 tn by FY25E.
Import intensity is high, and the government is trying to capture more value domestically by
imposing duties, standards/non-tariff barriers, and focussed incentives such as production-
linked incentives. Apart from being brand owners, Amber and Dixon are leading competitors
from a manufacturing perspective. While both stocks have outperformed recently, we initiate
coverage with OUTPERFORM ratings based on their strong extant platform and growth
outlook, multiple medium-term opportunities, still-reasonable valuations on FY23E basis,
strong cash flows and return ratios, and an incremental catalyst of activation of phased
manufacturing programme and incentive scheme beyond mobiles.
Amber and Dixon are well placed to leverage this manifold tide. Opportunities range
from (1) growing domestic market (10-15% CAGR); (2) market share (positive recent
trend); (3) new categories (commercial AC, laptops, refrigerators and components); (4)
vertical integration/own designs (enable higher margins); and (5) export markets (trials on
—may take time to scale). Amber now manufactures about 25% of ACs sold in India, with
15 manufacturing facilities, and has built/acquired capabilities for vertical integration. Dixon
has dominant capacity market share across multiple categories (TVs, mobiles, washing
machines, LEDs, set top boxes, etc.) with its own design in washing machines and LEDs.
Dixon is one of the approved domestic manufacturers in the PLI scheme for mobiles.
Prefer Dixon; highlight ABB/Siemens on manufacturing investments. We prefer
Dixon to Amber, based on its diversified business across categories and dominant ODM
share in LEDs and washing machines. Key risks for both relate to execution (e.g.
management bandwidth, choosing partners and investment decisions etc.), contract
workforce, and own manufacturing by brands/global contract manufacturers. Specific risks
include dependence on seasonality, weather dependency in case of Amber; and slow
exports ramp up and (2) surprising stake reduction by Dixon promoters in IPO as well as
recently. We highlight ABB/Siemens on related manufacturing investments & automation.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS,
LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business
with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
8 December 2020
Focus charts and tables

Figure 2: Low market size ex-mobile/lighting reflects potential Figure 3: Import intensity high, particularly incl. components
25.0
Local (mn units, FY20) Imported
20.0
15.0
5.1
14.7
10.0
0.7
1.9
5.0 3.3 10.9
7.5
5.8 4.4
3.9
0.0
RAC Washing Machines Refrigerators Flat Panel TV Air Cooler
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 4: 15/28% revenue/PAT CAGR; below EBITDA leverage Figure 5: 35% revenue and PAT CAGR on PLI and other drivers
Figure 6: Amber has stronger value add and margins Figure 7: Stocks outperformed on policy support/performance
Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates
Figure 8: FY23E valuations in line with strong industrial peers Figure 9: Rating and TP summary of highlighted stocks
Source: Credit Suisse estimates Note: Priced as of 7-Dec-2020. O = Outperform, N = Neutral.

Source: Refinitiv, Credit Suisse estimates
India Consumer Durables Sector 2

8 December 2020
The Rs6 tn prize and its contestants

Manufacturing can emerge as a growth driver
Manufacturing could emerge as a growth driver as fundamental steps like GST, lower tax, Manufacturing can be a significant growth
driver; the government’s PLI scheme aims to
bankruptcy law and labour reforms are supported by coordinated tactical steps such as higher
kick-start the process, with strong industry
duties (incl. a phased manufacturing programme), import bans and non-tariff barriers (licences participation
and standards etc.) and focused incentives. We have already seen such steps in consumer
durables (ACs, TVs), electronics (mobiles), defence, and capital goods with positive early results.
Buoyed by this success, the government has approved a PLI scheme for 13 sectors which will
be provided with incentives (4-5% of sales) related to incremental production. The mobile
scheme is already out with an aim to shift manufacturing to India—starting from assembly
(mobiles have >40% share in electronics sector) as a first step, and then graduating to value
addition in accessories, components, design and associated products (laptop, computers) over
a period of time. Industry participation and feedback is positive with large contract players
setting up facilities and confident of achieving ceiling revenues. Given the strong impetus these
moves can provide, we: (1) initiate on contract manufacturers Amber/Dixon with OP ratings and
upside of 31%/21%; and (2) highlight ABB/Siemens as key beneficiaries of investments in
manufacturing and increasing automation investments from a competitive and ESG perspective.
Amber/Dixon have a lead in leveraging this space

The Indian electronics and consumer durable industry is ~Rs4 tn and growing rapidly (to Rs6 tn Rs6 tn electronics industry; Amber and Dixon
address many components like AC, mobile, TV,
by FY25E) because of low current penetration levels. Amber and Dixon have taken the lead in
washing machines, LED. Dixon is part of
contract manufacturing of consumer durables and are poised to leverage this multi-dimensional mobile PLI
tide. Opportunities range from: (1) a growing domestic market; (2) market share; (3) new
categories; (4) vertical integration/own designs; and (5) export markets. Amber now makes
~25% of ACs sold in India and has built/acquired capabilities for inverter PCB assemblies,
motors, and mobility (rail/bus) applications. In the near term, Amber aims to increase market
share (specifically helped by the embargo on the import of gas-filled ACs) and scale up its
components business for ACs and other durables, apart from targeting overseas markets and
commercial ACs. Dixon has a presence with dominant capacity market share across multiple
categories such as TVs, mobiles, washing machines, LEDs, set-top boxes and CCTV cameras,
among others, with its own designs/higher margins in washing machines and LEDs. Dixon is
one of the approved domestic manufacturers in the PLI scheme for mobiles and is already
looking to tie up with three OEMs that can more than meet the target to get incentives under
the scheme. Both have marquee and diversified customer bases (incl. MNCs). This reduces
concentration risk and can help scale up exports for global markets for these MNCs itself.
Rate Amber/Dixon as OP on opportunity basket

We initiate with OP ratings on Amber (TP Rs3,000; 31% upside) and Dixon (TP Rs14,000; Initiate with OP on Amber (31% upside) and
Dixon (21% upside) on strong growth outlook.
21% upside) based on: (1) strong near-term growth outlook (EPS CAGR of 28/34% during
Risks stem from increasing competition and
FY20-23E); (2) multiple dimensions of opportunities (vertical integration, exports, broader potential execution ramp-up challenges
product basket); (3) strong extant platform in the form of relationships, manufacturing scale and
track record; (4) strong cash flows and return ratios (RoE of 17/34% for Amber/Dixon); and
(5) still (incl. recent outperformance) reasonable valuations on FY23E earnings basis (P/E of
23/34 for Amber/Dixon). Global contract manufacturers trade at low double digit P/E (avg. of
11x FY22E basis); however, their current size (revenues of US$25-180 bn) is an indicator of
the potential that lies ahead. We prefer Dixon amongst the two, based on its diversified
business across categories and dominating ODM share in LEDs and washing machines. Key
risk relate to execution (e.g. management bandwidth, choosing partners and investment
decisions etc.), contract workforce, margins (we build flat for Dixon, and Amber uptick is based
on subsidiaries and components) and own manufacturing by brands/global contract
manufacturers. Key risks: (1) Amber: dependence on seasonal, weather dependant AC and
slow exports ramp up and (2) Dixon: stake reduction by promoters in IPO as well as recently.
Key catalyst can be PMP and PLI for ACs and other electronics.

8 December 2020
Figure 10: India Industrials Comp table—Amber Dixon trade in line with strong industrial players
CMP Mkt Cap Target Rating Sales EPS P/E (X) EV/E (X) P/B (X) RoE (%)
(Rs) (Rs bn) (Rs) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E
Capital Goods
Larsen & Toubro 1,170 1,642 1,325 O 1,455 1,381 1,656 68 45 75 17 26 16 17.0 19.0 13.8 2.5 2.2 2.0 14.8 8.8 13.5
Bharat Heavy Electricals Ltd 35 122 25 N 215 198 264 1 (3) 1 27 (12) 23 3.9 (6.6) 5.5 0.4 0.4 0.4 1.5 (3.5) 1.8
Cummins India 568 157 490 N 52 43 51 23 21 24 24 27 24 25.7 28.0 23.0 3.8 3.6 3.4 15.6 13.7 14.7
Thermax 916 103 650 U 57 43 51 19 17 27 49 53 34 25.0 35.1 23.1 3.4 3.4 3.1 7.0 6.4 9.4
Voltas 809 268 870 O 77 67 89 17 15 25 47 54 33 36.4 52.5 28.8 6.3 5.8 5.1 13.6 11.2 16.6
Bharat Electronics 115 280 115 O 126 128 134 7 7 8 16 16 15 11.2 11.7 10.9 2.8 2.6 2.5 19.0 16.8 16.9
Cap Goods aggr. 2,572 1,981 1,858 2,244 22 27 19 18.6 21.7 15.6 2.9 2.7 2.4
Automation
Siemens Ltd 1,536 547 1,450 N 137 99 144 31 21 38 50 72 40 34.6 51.6 30.1 6.0 5.8 5.2 0.1 0.1 0.1
Honeywell Auto 30,925 273 33 33 37 556 594 711 56 52 44 n/a n/a n/a 12.6 10.2 8.3 25.0 21.7 21.3
ABB India 1,154 244 1,350 O 73 61 75 18 12 24 66 98 48 43.3 76.1 35.3 6.9 6.7 6.1 0.1 0.1 0.1
1,065 243 193 256 55 73 43 27.7 44.0 23.6 7.9 7.1 6.2
India Outsourced Manufacturing

Amber Enterprise 2,292 77 40 33 49 52 23 65 44 100 35 25.6 35.6 18.8 6.4 5.4 4.8 n/a 5.8 13.6
Dixon 11,523 135 44 55 98 103 132 247 112 87 47 60.9 51.5 29.9 24.6 19.6 14.0 26.2 22.9 31.9
212 84 88 147 87 92 43 48.1 45.7 25.9 18.0 14.4 10.7
India Outsourced Manufacturing

Adani Ports & SEZ 471 958 425 O 114 122 161 19 22 28 25 21 17 16.3 14.6 10.8 3.7 3.3 2.9 15.0 16.3 18.5
Container Corporation of India 410 250 375 N 65 59 67 21 12 14 20 34 29 15.2 20.6 17.3 2.5 2.4 2.3 12.3 7.1 8.1
1,208 179 181 228 22 29 24 15.6 18.4 15.0 2.9 2.7 2.5
Bearings
Timken India 1,164 88 16 14 17 33 23 34 36 51 35 23.6 30.0 21.6 5.6 5.9 5.1 16.9 12.3 16.4
Schaeffler 4,220 132 36 43 50 81 126 155 52 33 27 26.4 18.6 15.5 4.3 3.9 3.5 8.3 12.1 13.4
SKF 1,678 83 28 25 29 59 45 62 29 38 27 22.1 25.9 18.7 4.4 5.0 4.4 16.1 13.0 17.8
302 80 82 96 41 40 29 24.4 23.9 18.1 4.7 4.8 4.2
EPC
KEC Intl 367 94 120 127 141 22 23 28 17 16 13 9.0 9.0 7.7 3.4 2.8 2.4 21.6 18.7 19.8
EIL 77 49 32 28 31 7 6 8 11 12 10 n/a n/a n/a 2.1 2.0 1.9 18.6 16.8 18.9
Kalpataru Power 350 52 79 78 87 28 29 36 12 12 10 6.6 6.8 5.8 1.5 1.4 1.2 13.1 12.1 13.3
Techno Electrc 220 24 8 11 14 16 17 20 14 13 11 8.8 8.2 7.0 1.6 1.5 1.3 12.3 11.9 13.0
219 239 243 272 14 14 11 6.4 6.4 5.5 2.5 2.1 1.9
General Industrials
AIA Engineering 2,063 195 30 28 33 63 56 65 33 37 32 26.8 28.7 23.7 5.3 4.7 4.2 16.4 13.4 14.1
Grindwell Norton 664 73 16 15 17 16 16 19 40 42 35 26.8 28.5 23.8 6.2 5.8 5.4 16.0 14.3 15.8
BJEL 621 71 49 48 55 (0) 7 17 95 36 41.7 39.1 23.6 5.1 4.9 4.4 (0.0) 5.7 13.1
CUMI 378 72 26 25 28 14 13 15 26 30 25 17.7 18.3 15.6 3.9 3.5 3.2 15.2 12.2 13.3
ABB Power 1,255 53 35 42 46 39 57 72 33 22 17 n/a n/a n/a 5.8 4.8 3.9 18.7 24.0 24.7
Lakshmi Mach 4,623 49 16 14 23 44 79 207 105 59 22 n/a n/a n/a 3.0 2.4 2.2 n/a 4.7 10.4
Elgi Equipments 136 43 18 17 21 1 2 4 101 82 36 32.2 29.4 19.0 5.6 5.7 5.1 5.5 6.6 13.9
BEML 741 31 30 35 40 n/a 17 30 n/a 43 25 n/a n/a n/a 1.4 1.3 1.3 n/a 3.2 5.3
Ge T&D India 111 29 32 33 37 (14) 1 4 (8) 120 29 n/a n/a n/a 2.7 2.8 2.6 (28.7) 1.5 5.4
Triveni 84 27 8 7 9 4 4 4 22 22 20 16.3 16.3 14.8 5.1 4.5 3.9 25.3 21.4 20.7
Ingersol Rand IN 649 20 7 n/a n/a 27 n/a n/a 24 n/a n/a n/a n/a n/a 5.4 n/a n/a 21.2 n/a n/a
KSB 577 20 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Greaves Cotton 84 19 18 16 18 6 3 6 14 24 14 n/a n/a n/a 2.2 2.4 2.2 15.4 10.9 16.9
KOEL 123 18 34 29 33 12 9 12 11 14 10 5.8 7.2 5.7 1.0 1.0 0.9 9.8 7.8 9.8
Va Tech Wabag 204 13 26 27 32 19 16 24 11 13 9 7.7 8.2 6.0 0.9 0.9 0.8 8.1 7.3 10.1
Voltamp 1,207 12 9 7 9 88 90 101 14 13 12 n/a n/a n/a 1.6 1.5 1.4 12.5 11.8 12.1
Inox Wind 51 11 8 n/a n/a (13) 1 3 (4) 57 16 n/a n/a n/a n/a n/a n/a n/a n/a n/a
757 361 341 400 32 45 26 17.8 18.1 13.9 4.3 3.8 3.5
Priced as of 7-Dec-2020. O = Outperform, N = Neutral, U = Underperform

Source: Company data, Refinitiv, Credit Suisse estimates

8 December 2020
Figure 11: Global EMS players—large revenue potential, low 2-4% margins and ~10x P/E
CMP Mkt Cap Sales EBITDA % EPS P/E (X) EV/E (X) P/B (X) RoE (%)
(LCY) ($ bn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E
ODM / EDM
Taiwan
Hon Hai Precision 88 43,139 172,986 172,840 181,590 3.4 3.5 4.0 0.3 0.2 0.3 12 13 11 7.2 6.9 5.8 1.0 1.0 0.9 9.2 8.0 8.8
Quanta Computer 81 11,130 37,424 39,750 40,425 3.6 3.5 3.7 0.2 0.2 0.2 14 12 12 8.4 8.0 7.5 2.3 2.2 2.1 17.3 17.5 17.6
Pegatron 69 6,358 47,176 50,448 50,348 2.9 2.9 3.0 0.3 0.2 0.2 9 10 10 3.3 3.1 3.0 1.1 1.0 1.0 12.9 10.4 10.1
Wistron 32 3,173 28,909 28,870 30,824 2.9 3.4 3.6 0.1 0.1 0.1 11 10 9 6.6 5.7 5.1 1.2 1.1 1.0 11.3 11.2 13.2
Compal Electronics 20 3,136 33,808 35,027 35,145 1.6 1.7 1.7 0.1 0.1 0.1 13 11 10 7.3 6.5 6.3 0.9 0.9 0.8 7.1 8.4 10.0
Inventec Co Ltd 24 3,048 17,513 18,668 19,267 2.0 2.2 2.3 0.1 0.1 0.1 12 12 12 9.5 8.0 7.3 1.6 1.6 1.5 13.3 11.7 13.0
Singapore
Flex Ltd 17 8,445 24,210 22,917 23,784 6.5 6.0 6.2 1.2 1.3 1.4 14 13 12 6.2 7.2 6.6 3.3 2.5 2.3 22.0 20.6 19.9
America
Jabil 41 6,064 27,266 26,580 27,555 5.9 6.9 7.0 2.9 4.1 4.4 14 10 9 4.7 4.1 3.9 3.4 2.8 2.5 24.3 31.4 29.4
Sanmina 33 2,163 6,960 7,209 7,839 5.5 5.9 5.8 3.1 3.3 3.5 11 10 9 n/a n/a n/a n/a n/a n/a 13.2 13.6 n/a
Celestica 11 1,068 5,771 5,434 5,755 5.3 5.5 5.5 1.0 1.0 1.1 9 9 8 4.2 4.3 4.1 n/a n/a n/a 9.2 8.7 n/a
India
Dixon Technologies 11531 1,832 621 718 1,030 5.1 4.9 5.2 1.5 1.9 3.1 106 83 50 58.7 52.9 34.5 25.2 19.5 14.5 26.9 26.4 33.3
Amber Enterprises 2291 1,047 559 415 646 7.8 8.1 8.9 0.7 0.4 1.0 42 72 30 24.7 31.9 18.7 6.5 4.8 4.3 15.8 7.9 15.3
90,604 403,203 408,875 424,207 14 14 12 7.9 7.6 6.4 2.1 1.8 1.6
Priced as of 7-Dec-2020.
We present the consumer durables valuations comparison table below and present a profile of
these companies in terms of product mix and financials in the appendix section.
Figure 12: Consumer durables trade at high P/E of 40-50x

CMP Mkt Cap Target Rating Sales EPS P/E (X) EV/E (X) P/B (X) RoE (%)
(Rs) (Rs bn) (Rs) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E
Consumer Durables
Havells India Ltd 825 516 775 N 94 91 108 12 12 15 70 66 54 49.0 42.2 35.3 12.0 11.0 9.9 17.2 17.6 19.0
Whirlpool India 2,140 272 60 57 70 39 32 52 55 66 41 38.5 45.8 29.8 10.6 9.1 7.5 4.1 15.3 21.2
Voltas 809 268 870 O 77 67 89 17 15 25 47 54 33 36.4 52.5 28.8 6.3 5.8 5.1 13.6 11.2 16.6
Crompton Greaves Consumer 331
Electrical208
Limited 390 O 45 44 52 8 7 9 42 45 37 35.0 33.7 28.1 n/a 11.6 9.6 38.7 28.4 28.8
V Guard 190 82 25 24 28 4 4 5 44 51 38 31.6 36.0 27.1 8.2 7.5 6.6 19.6 14.9 17.9
TTK Prestige 5,843 81 5,500 N 21 19 23 142 125 165 41 47 35 30.0 32.1 24.8 6.2 5.6 4.9 16.0 13.2 16.0
Blue Star Ltd 821 79 54 44 55 15 10 19 54 85 44 28.8 34.4 23.0 10.0 9.9 9.0 17.7 11.2 20.8
BJEL 621 71 49 48 55 (0) 7 17 nm 95 36 41.7 39.1 23.6 5.1 4.9 4.4 (0.0) 5.7 13.1
Johnson Controls 2,227 61 22 18 24 31 12 42 72 192 53 35.2 55.9 28.0 8.8 8.3 7.2 13.0 5.6 14.4
Symphony 887 62 11 9 11 27 17 26 33 51 34 29.9 43.2 28.3 9.7 9.1 8.0 28.5 18.4 26.1
Finolex Cables 356 54 29 25 30 26 18 25 14 20 14 14.6 18.5 13.5 2.0 1.9 1.7 15.6 10.0 12.7
OEL 228 48 21 18 23 4 4 6 62 62 39 n/a n/a n/a 13.5 11.7 9.7 23.6 20.3 26.1
Kei Industries 429 39 49 44 52 31 29 35 14 15 12 n/a n/a n/a 2.3 2.2 1.9 22.3 15.5 16.3
IFB Industries 832 34 26 25 32 7 2 18 127 396 46 27.6 24.5 14.5 5.2 5.0 4.4 4.2 0.6 11.6
Consumer Durbles aggr. 1,873 581 531 653 38 51 30 26.7 28.8 20.3 5.9 6.3 5.5
Priced as of 7 December 2020.


8 December 2020
Table of Contents
The Rs6 tn prize and its contestants 3
Manufacturing can emerge as a growth driver .................................................................. 3
Amber/Dixon have a lead in leveraging this space ............................................................ 3
Rate Amber/Dixon as OP on opportunity basket .............................................................. 3
Manufacturing can emerge as a growth driver 8

Duties, restrictions and incentives all afoot ....................................................................... 8
PLI scheme can act as a catalyst in many sectors .......................................................... 10
Globally, Samsung and Apple are key and have participated here .................................... 14
China and Vietnam are key exporters; a few key brands hold the bulk of the market ......... 15
Amber/Dixon have led to leverage this space 19

Consumer durables/electronics: the Rs6 tn prize ............................................................ 19
Global contract manufacturers: Rapid growth and massive scale ...................................... 22
Rate Amber/Dixon as OP on opportunity basket 27

Risks: Execution, contract labour and competition .......................................................... 28
HOLT view on Amber and Dixon ................................................................................... 30
Amber Enterprises 33
Unrivalled position in domestic AC manufacturing ........................................................... 35
Opportunities: exports, components and non-AC ............................................................ 35
Reasonable valuation for platform and growth outlook ..................................................... 35
Unrivalled position in domestic AC manufacturing ........................................................... 36
Large components opportunity, including non-AC 42

Several critical components done in subsidiaries ............................................................. 43
Exports: Stagnant global market—components can scale faster ...................................... 44
Reasonable valuation for platform and growth outlook 46

Financials—27% EPS CAGR, with RoE up to 17% ....................................................... 46
Dixon Technologies 51
Leading EMS player with a diversified presence ............................................................. 53
Multiple dimensions of opportunities; conducive time ...................................................... 53
Manifold growth likely; execution on this large canvas is the key risk ................................ 53
Leading EMS player with a diversified presence 54
Multiple dimensions of opportunities; conducive time 56
Manifold growth likely; execution is key risk 63

Financials: 25% revenue CAGR, margins at 5% ............................................................ 63

8 December 2020
Voltas 71
Havells India Ltd 73
ABB India 75
Siemens Ltd 77
Company profiles 79
Whirlpool of India ......................................................................................................... 79
IFB Industries .............................................................................................................. 80

8 December 2020
Manufacturing can emerge as a growth driver

Manufacturing can emerge as a growth driver as fundamental steps such as GST, lower Manufacturing can be a significant growth
driver; the government’s PLI scheme aims to
manufacturing tax, bankruptcy law and labour reforms are supported by coordinated tactical
kick-start the process, with strong industry
steps such as higher duties (including phased manufacturing programme), imports bans, and participation
non-tariff barriers (licences and standards, etc.), and focussed incentives such as production-
linked incentives (PLI). We have already seen such steps in consumer durables (ACs, TVs),
electronics (mobiles), defence, and capital goods, with positive early results. Given the strong
impetus these moves can provide, we: (1) initiate on contract manufacturers Amber and Dixon
with an OP rating and upside of 31%/21%; and (2) highlight ABB/Siemens as key
beneficiaries of investments in manufacturing and increasing automation investments from a
competitive and ESG perspective.
Duties, restrictions and incentives all afoot

The government is taking several steps in an attempt to scale up a relatively stunted
manufacturing sector, to provide employment opportunities and reduce dependency on imports.
These are supplemented by state-level incentives and inter-state competition to attract
investments.
Figure 13: Recent steps by the Indian government to boost manufacturing
Import restrictions and non-tariff barriers on finished goods

The government has increased its focus on import restrictions and non-tariff barriers; e.g. Measures like import restrictions, non-tariff
barriers and phased manufacturing
import of gas-charged air conditioners was banned and import of fully-made TVs is now subject
programmes aim to promote domestic
to licensing. Earlier in the year, a phased embargo on capital goods equipment, especially in the manufacturing.
power sector, and defence products was introduced. In addition, measures like prescribing
standards for finished goods imports in the sphere of toys, etc., are aimed at curbing sub-
standard imports.
Phased manufacturing programme to promote indigenisation

In order to promote domestic manufacturing in sectors facing high imports or cheaper imports,
incentives are provided through a differential duty structure for components and final products,
to incentivise domestic value add. If a long-term plan of duty imposition can be published
beforehand, then industry can suitably plan its manufacturing for itself and this is called a
phased manufacturing programme (PMP). Presently, PMP is in operation for cellular mobile
handsets and e-vehicles. The government has already banned import of fully-assembled ACs
8 December 2020
with refrigerants. A PMP scheme for air conditioners in in the works (link), with BCD (Basic
Customs Duty) on compressors proposed to be increased to 20% in five years, from 12.5%
currently, and BCD on PCB controller, motor, cross flow fan, evaporator, metal and plastic parts
proposed to be raised to 20%, from 10% now.
Mobile handset manufacturing has emerged as a key sector under the “Make in India” initiative
of the government. The production of mobile handsets has gone up from approx. 60 mn units
valued at US$3 bn in 2014-15 to approx. 290 mn units valued at US$26 bn in 2018-19.
The excise duty-based Phased Manufacturing Programme (PMP) was formulated and
implemented in 2016-17 for charger/adaptor, battery pack and wired headset, with the
objective to substantially increase the domestic value addition for establishment of a robust
cellular mobile handset manufacturing eco-system in India.
Figure 14: Mobile phone PMP has been implemented with reasonable success
Year Sub-assembly
2016-17 (i) Charger/adapter, (ii) battery pack, (iii) wired headset—implemented: 15% BCD
2017-18 (iv) Mechanics, (v) die cut parts, (vi) microphone and receiver, (vii) key pad, (viii) USB cable—
implemented: 15% BCD
2018-19 (ix) Printed Circuit Board assembly (PCBA)—implemented: BCD increased to 20% w.e.f.
01.04.2020), (x) camera module, (xi) connectors—implemented: 10% BCD
2019-20 (xii) Display assembly, (xiii) touch panel/ cover glass assembly—BCD deferred till 30.09.2020. It
will be 10% w.e.f. 01.10.2020), (xiv) vibrator motor / ringer—implemented: 10% BCD w.e.f.
01.04.2020)
Source: MEITY, Credit Suisse
News reports (link) suggest that a phased manufacturing programme for air conditioners is in
the works, and is likely to increase the Basic Customs Duty (BCD) for various components as
well as the finished products to promote domestic manufacturing.
Figure 15: Proposed PMP details on air conditioners to aid indigenisation

Current Proposed BCD
BCD (in year 5)
Finished air-conditioners 20% 30%
Compressor 12.5% 20%
PCB controller, motor, cross flow fan, evaporator, metal, plastic parts 10% 20%
Source: News reports, Credit Suisse estimates
Duties have increased recently for products like air conditioners and solar panels. In the case of
solar panels, the same replaced an anti-dumping duty that was applicable on imports earlier.
Figure 16: Higher import duty to aid domestic manufacturing Figure 17: Duties increased in multiple durables to promote
(incl. countervailing duty) indigenisation
60
Total Customs duty on AC (%)
50
Solar Panels
40
30
20
10
0
Mar-16 Feb-17 Feb-18 Jul-19 Feb-20
Source: Company data, Credit Suisse estimates Source: MEITY

8 December 2020
PLI scheme can act as a catalyst in many sectors

The PLI scheme approved by the cabinet identifies 13 sectors which would be provided with The PLI scheme approved by the cabinet
identifies 13 sectors which would be provided
incentives (typically 4-5% of sales) related to incremental production. These sectors are chosen
with incentives (typically 4-5% of sales) related
for their potential for indigenisation (consumer durables), strategic nature (advanced cell to incremental production.
chemistry and automobiles) and exports scale-up (textiles, food processing, etc.).
Rs 2 tn of incentives can beget US$70 bn of GDP

As per CS’ strategy report on the PLI scheme, we estimate that by FY27 the scheme could
generate US$160 bn in new sales, and US$70 bn of domestic value-add, thus adding 1.7% to
FY27 GDP. Over five years this is an addition of 0.34% annually: a meaningful boost to the
medium-term growth rate. India’s external account could improve by US$60 bn, or 1.4% of
FY27 GDP. Some of these schemes might need a few iterations though, as the government
tries to discover the right level of incentives.
The reorientation of MEIS subsidy is likely to be highly productive: a fourth of the subsidy was
going to jewellery, and it is now linked to incremental investment and growth.
The direct impact of these schemes would be much larger on labour (2.8 mn jobs) than on
capex (US$28 bn), but this is likely to trigger significant activity upstream as well. We do not
factor in those gains here.
Three schemes already notified: mobiles in action

The government has notified details for three of the schemes: electronics manufacturing in The government has notified details for three
schemes: electronics manufacturing in mobile
mobile phones and electronic components (Rs410 bn), critical bulk drugs (Rs69 bn) and
phones (Rs410 bn), critical bulk drugs (Rs69
medical devices (Rs34 bn). Bulk drugs PLI has specified value-add targets, while the other two bn) and medical devices (Rs34 bn).
have not. Each of the schemes has specified ceiling incentives that companies can earn,
subject to capex and revenue target requirements.
The scheme in mobile is first out of the stable with an aim to shift manufacturing to India
starting from assembly (mobiles have >40% share in the electronics sector) as a first step and
then move to more value-add areas in accessories, components, design and associated
products (laptop, computers, etc.) progressively over a period of time.
Industry participation and feedback is positive with large contract manufacturers setting up
facilities and being confident of achieving ceiling revenues.
The mobile scheme has three parts: (1) global manufacturers have to produce phones above
Rs15,000/unit and have higher threshold of revenues, (2) carve out for domestic
manufacturers for phones below Rs15,000/unit and (3) specific components.
Electronic components within the PLI covers the manufacture of the following components:
- SMT components;
- Discrete semiconductor devices including transistors, diodes, thyristors, etc.;
- Passive components including resistors, capacitors, etc. for electronic applications
- Printed Circuit Boards (PCB), PCB laminates, photopolymer films, PCB printing inks;
- Sensors, transducers, actuators, crystals for electronic applications;
- System in Package (SIP);
- Micro/nano-electronic components such as micro electromechanical systems (MEMS) and
nano electromechanical systems (NEMS);
- Assembly, testing, marketing and packaging (ATMP) units.
Allocation of the total Rs409 bn has been divided between the five years, sub-divided further
into each of the sub components (mobile phones: international and domestic, and electronic
components). Each of the participants get equal allocation per year within their respective
categories.
The PLI scheme contains provisions to divide the category allocation among other participants
over their limit in case some participants do not meet their limits.

8 December 2020
Mobile PLI scheme targets are not tough in context of global

market
PLI scheme participants are confident of achieving ceiling revenues and some of them applied
for two licences suggesting comfort to meet the incentive thresholds easily. The global market
is about 1,400 mn mobile phones p.a. amounting to US$350 bn p.a.
PLI target for a global manufacturer is is incremental sales of Rs250 bn/500 bn five years out.
At minimum incremental sales it is about US$3.3 bn p.a. Five such players would thus have to
do revenues of about US$15 bn p.a. five years from now which is not tough in a global context
of the market.
Vietnam exports mobile phones worth US$65 bn and China exports mobile phones worth
US$225 bn p.a. The rapid scale-up of Vietnam’s exports suggest that ramp-up can be sharp
as well.
No specific indigenisation target; trickle down to take care

The PLI scheme per se does not have mandatory indigenisation targets. Value add is a
subjective agreement and is not hard coded. This can be a problem. Industry has subjectively
agreed to boost indigenisation levels and some of that may result in capex requirements.
Industry believes that large-scale assembly is a way to boost value addition over a period of time
as doors open for Indian entrepreneurs to participate in the supply chain in multiple ways such
as passives (resistors, capacitors), chip assembly, PCB and assembly, testing and validation etc.
Domestic value addition is expected to grow from the current 15-20% to 35-40% in case of
mobile phones and 45-50% for electronic components.
Vertical integration is required and there may be roadblocks

There can be limitations as there is lot of dependency on imports in basic areas like PCB
manufacturing and PCB assembly and that has to get started in India for various purposes.
There is no large scale semiconductor fab or core wafer/chip production facility and that is a
sizeable limitation. Currently the electronics sector is dotted with small entrepreneurs and these
do not have the wherewithal to invest in these areas.
The government machinery is wary of attracting large investment as a lot of incentive needs to
be placed on the table for such a facility and the government finds it difficult to do that for a
particular entrepreneur. Several ideas like Vedanta’s TV (open cell) manufacturing plant got
scuttled.
Incentive is quite large relative to capex and industry margins

Given industry margins are in the 5-6% range anyway, if equivalent incentive is given then the
incentive is fairly large. A lot of this incentive would have to be shared with the OEM/brand by
the contract manufacturer; 4% on Rs250 bn of targeted sales in the terminal year of the
scheme is Rs10 bn, which is equivalent to a contract manufacturer’s entire minimum capital
expenditure requirements.
We have interacted with several industry participants on PLI and electronics sector including
participants in all three categories i.e. domestic, foreign and component players.
Industry involvement has assured a rapid uptake

Industry is directly involved in drafting the policy itself and that is why take up is so quick
(manufacturing facilities are in the process of shifting) and positive. There is an element of
policy design here, as those who are supposed to benefit are actively participating in shaping
the policy as well. A lot of incentive is being placed on getting the Apple supply chain to shift to
India. That may be a worthwhile objective, given Apple has 35% of global mobile revenue share
and combined with Samsung (another participant) account for 60% of the global mobile
revenue share. Ultimately all this production (of mobiles) has to be sold, so OEMs/Brands have
8 December 2020
to shift to sourcing from India in large numbers. For Apple OEMs it is easy since they are
essentially shifting current volumes from China.
Scheme administration would be a test case given its

importance
So, even though there is lot of top-driven action, it has to percolate across government
machinery. PLI incentives should not face unnecessary delays etc.
Mobiles is just one part; other electronics consumer durables

to follow
While the focus on mobile is right, as that is 40% of electronics demand, there has to be similar
focus on laptops, cameras, LEDs etc. The components sector part of the scheme should also
have received more focus.
Watch out for WTO compliance

PLI is not necessarily WTO compliant, but here a well-known gamble is being taken: India
provides targeted incentives for five years, and by the time a case is filed with the WTO and a
decision is taken, the shift might have happened already.
Electronics manufacturing: domestic production has grown

India imported US$57 bn of electronics products in FY2019, and processes them domestically US$70 bn of domestic electronics production
for FY19, US$9 bn exports, Mobile phones
(leading to the domestic value-add component) before either consumption or export. This
form a large part of the same.
number adds up to ~US$70 bn worth of electronics production for FY19. India also exports
US$9 bn worth of electronic products. The domestic market is ~US$60 bn.
Figure 18: Electronics exports has increased to ~US$9 bn, production up to US$70bn
Source: MEITY, Credit Suisse
The US$70 bn number can be further broken down into various sub segments like mobile
phones (~40% of the pie, ~Rs2.3 tn/US$30 bn), televisions at 8% (including both traditional
as well as LED TVs), laptops and notebooks at 6% (~Rs400 bn), followed by a large number of
items like monitors, memory, lighting, meters, etc.
This pie chart also suggests why such a large PLI scheme has come up for mobiles on a priority
basis.

8 December 2020
Figure 19: Mobile phone & TV dominate US$70 bn electronics Figure 20: Mobile phone manufacturing has picked up sharply
market to Rs2.3 tn in FY20
Source: Company data, Credit Suisse estimates Source: MEITY, Credit Suisse estimates
Domestic manufacturing has sharply picked up in the case of mobile phones, growing to
Rs2.25 tn in FY20, compared to Rs0.2 tn in FY15, indicating at least some degree of
processing happening in India due to the start of the indigenisation process. Pick-up is seen
across segments like consumer electronics, electronic products, LED among others, with total
revenue adding up to Rs5.5 tn (~US$73 bn).
To promote manufacturing in electronics, and more specifically mobile phones and components,
the government has come out with a production linked incentive (PLI) scheme, which targets
more than doubling the current production of mobile phones (of ~Rs2.3 tn), with incentives
payout with production of ~Rs2.3 tn worth of mobile phones in Year 4.
The stated objective of the scheme too targets a large export component—Rs6.5 tn (US$86
bn), out of total production of Rs10.5 tn (US$140 bn)–which is not large in the global market
context (1.5 bn units, ~US400 bn), at ~20% of global production.
Figure 21: Mobile phone PLI allocation per year

140 450
Allocation/year (Rs bn) 400
120 115
Cumulative Allocation
350
100
84 300
81
76
80 250
60 53 200
150
40
100
20
50
0 0
Year 1 Year 2 Year 3 Year 4 Year 5
Allocation of the total Rs409 bn has been divided between the five years, sub divided further Allocation of the total Rs409 bn has been
divided between the five years, with maximum
into each of the sub components (mobile phones—international and domestic and electronic
incentives available in year 4.
components). Each of the participants get equal allocation per year within their respective
categories.
The PLI scheme contains provisions to divide the category allocation among other participants
over their limit, in case some participants do not meet their limits.
Subdividing the annual allocation amongst the three sub-categories within the PLI scheme, we
have mapped out the base and ceiling revenues needed by an entity to maximise the benefits

8 December 2020
under the PLI scheme. Going by the way the allocations are currently structured, maximum
incentives will accrue in year 4. One of the key objectives of the scheme is to slowly wean the
industry away from incentives.
Figure 22: Total industry will generate Rs3.4 tn of additional revenues over base year to maximise incentives in Year 5
Globally, Samsung and Apple are key and have

participated here
There were five slots in India's Production Linked Incentive scheme for global manufacturers, of Large Global OEMs (like Samsung, Foxconn,
Pegatron and Wistron) have participated;
which two have been given to Foxconn (including Rising star), and one each to Pegatron,
component makers also expand
Wistron and Samsung. Five slots for local firms have gone to Lava, Dixon (Padget), Bhagwati
(MIcromax), UTL Neolyncs (Karbonn) and Optiemus (Wistron JV).

8 December 2020
Figure 23: Mobile and component PLI winners comprise large international and domestic players
International
Samsung Has strong presence in the Indian market, with 26% market share and 22% global market share. It also has 15% market share in the
feature phones segment in the country. Its facility is based out of Noida, and has a capacity of ~5.6 mn units/month
Foxconn Hon Hai Foxconn will reportedly be investing US$1 bn to expand its plant in Chennai, over three years. It makes phones for Apple and other players,
with a current capacity of ~8 mn units/month.
Rising Star A subsidiary of Foxconn International (FIH Mobile), makes phones for Xiaomi Corp and others, with capacity of ~8 mn units/month in
Andhra Pradesh.
Wistron Manufactures for Apple exclusively in its Bengaluru factory, which has a capacity of ~1mn units/month.
Pegatron Will be starting operations in India by 2022 with U$150mn initial investment; makes phones for Apple.
Domestic players (invoice value less than Rs15,000)
Lava Mobile manufacturer with strong presence in Feature phones, with ~15% market share in 1Q FY20. (revenue: US$640mn; EBIT:
US$22 mn).
Bhagwati (Micromax) Mobile manufacturer with interests in other consumer durables. It had a marginal share in the Indian market as of last year. (revenue:
US$359 mn; EBITDA: US$6 5mn).
Padget Wholly owned subsidiary of Dixon, already manufactures for multiple customers.
UTL Neolyncs Maker of Karbonn brand mobiles in India.
Optiemus Electronics JV between Optemius Infracom and Wistron.
Specified electronics components
AT&S Austria-based designer and manufacturer of high-end PCBs and substrates for semiconductors. Has presence in India with a unit near
Mysore.
Ascent Circuits India based manufacturer of PCBs used for electronics appliances.
Visicon
Walsin Taiwanese manufacturer of ceramic electronic components for electronic and electrical industries.
Sahasra Indian designer and manufacturer of electronic solutions—PCB fabrication, LED lighting, EMS.
Neolync India based and supplies electron tubes, digital electronic scales, electronic amplifier etc.
Additionally, apart from attracting the primary OEMs, the scheme also has the effect of
attracting secondary component makers. Salcomp, the world’s largest contract manufacturer for
chargers is moving to the erstwhile Nokia factory in Chennai, apart from other Apple OEMs like
Wistron, Foxconn and Pegatron in south India. Salcomp already makes 8 mn chargers a month
in India from its other manufacturing units in the country.
China and Vietnam are key exporters; a few key

brands hold the bulk of the market
Testing and assembly account for a small portion (~3-5%) of a smartphone value. Backward China and Vietnam account for 66/67% of
global shipments
integration needed to increase the value add component, and the accompanying margins.

8 December 2020
Figure 24: Bill of Materials for a high-end smartphone Figure 25: Bill of Materials for a mid-range phone
Supporting Test/Assembly Application
materials 3% Processor Supporting Application
Test/Assembly
Mechanicals 5% 17% materials Processor
5%
7% 2% 13%
Mechanicals Battery
Battery 13%
Other 2%
2%
Electronics Sensor Sensor
7% 3% Other 7%
Power/Audio Electronics
2% 2%
Power/Audio Cameras
Cameras 5% 7%
Mixed 13%
Signal/RF Mixed
8% Signal/RF
6%
Memory
12%
Memory
Display 9%
21% Display
29%
BoM of $420 of Galaxy S10+ BoM of $226 of Moto X
Source: TechInsight, Credit Suisse estimates Source: TechInsight, Credit Suisse estimates
China accounts for more than half of the global mobile shipments. Adding Vietnam accounts for
66/67% of mobile shipments. Vietnam has large capacities set up by Samsung and other
players as shown in the earlier table.
Figure 26: China—more than half of global mobile shipments Figure 27: Xiaomi, Vivo and Samsung have India
(2019) manufacturing

8 December 2020
Figure 28: India smartphones market share—Samsung/Xiaomi Figure 29: Global smartphone market share in units (2019)
(2019)
Under the PLI scheme, many of Apple’s supply chain vendors are planning to set up capacities
in India, with Apple having ~11% global market share.
India primarily exports feature phones, and players like Dixon have large feature phone
manufacturing capacity, with Samsung being a key customer, with 19% global share in the
Indian feature phones market in 2019.
Figure 30: India feature phones market share—Lava, Samsung, Jio lead
40 38
2018 2019
35
30 28
26
25
19
20 17
14 14
15 12
10
10 8 7 7
5
0
Samsung Jio Ite Lava Nokia Others
Source: Counterpoint, Credit Suisse
China is the largest producer of mobile phones. More recently, producers have started setting
up capacities in other geographies to diversify their supply chain, with some varying degrees of
value add at the end destinations. Some of the key large mobile manufacturing/assembling
capacities in SEA are given below.

8 December 2020
Figure 31: SEA mobile manufacturing/assembling capacities

Manufacturer Location Capacity Key customers
mn/annum
India
Foxconn Andhra Pradesh 96 Xiaomi
Foxconn Tamil Nadu 96 Xiaomi, Apple
Flex Tamil Nadu 96 Jio, Xiaomi
Samsung Noida 67.2 Samsung
Oppo Noida 60 Oppo
Vivo Noida 60 Vivo
MCM Noida 24 Transsion, Jio
DBG Haryana 24 Nokia, Wintech, Longcheers
Wistron Karnataka 12 Apple
Wintech Andhra Pradesh 36 Xiaomi, Samsung
Indonesia
Samsung West Java 12 Samsung
PT Sat Nusapersada Banten 12 Xiaomi, Asus, Nokia, Huawei
Oppo Banten 7.2 Oppo
Vivo Banten 9.6 Vivo
PT Panggung Electronics Citrabuana East Java 3.12 Huawei, ZTE
Advan Central Java 3 Advan
Polytron Central Java 3.6 Polytron
Evercoss Central Java 1.2 Evercoss
PT Tri Dharma Kencana Banten 1.8 Lenovo, Wiko
Vietnam
Samsung Yen Phong, Pho Yen, Yen 288 Samsung
Binh, Bac Ninh
Fushan Technology Bac Ninh 78 HMD Global
LG Electronics Hai Phong 14.4 LG
Vinsmart Hai Phong 4.8 Vsmart, BQ
Vinsmart Hanoi 120
Source: Canalysis, Credit Suisse

8 December 2020
Amber/Dixon have led to leverage this space

The Indian electronics and consumer durable industry is Rs4 tn, growing rapidly because of low Current market of Rs4 tn is expected to grow
rapidly on the back of low penetration levels
current penetration levels, and has rightly received the most attention. Amber and Dixon have
Amber and Dixon have large capacities relative
taken a lead in contract manufacturing of consumer durables and are poised to leverage this to market
multi-dimensional tide.
Opportunities range from (1) growing domestic market -10-15% organic CAGR growth over a
long horizon; growth can accelerate in several categories as incomes rise, power supply and
tariffs become reasonable and equipment becomes more efficient; (2) market share (both
Amber and Dixon have been gaining share in their respective categories); (3) new categories
(Dixon has added new categories, like set top boxes); (4) vertical integration/own designs; and
(5) export markets (early-stage reliability testing, sample production is on with scale up likely in
two to three years).
Amber now manufactures about 25% of ACs sold in India, with 15 manufacturing facilities, and
has built/acquired capabilities for inverter PCB assemblies, motors, and mobility (rail/bus)
applications. In the near-term, Amber aims to increase vertical integration and market share
(specifically helped by embargo on import of gas-filled ACs), and scale up the components
business for ACs and other durables. Over the medium-term it aims to expand into overseas
markets and commercial ACs.
Dixon has presence with dominant capacity market share across multiple categories such as
TVs, mobiles, washing machines, LEDs, set-top boxes and CCTV cameras, among others. It
has its own design in washing machines and LEDs, and thus earns higher margins in those
segments. Dixon is one of the approved domestic manufacturers in the PLI scheme for mobiles
and is already looking to tie up with three OEMs that can more than meet the target to get
incentives under the scheme.
Amber and Dixon have rapidly grown and have taken the lead in positioning themselves to
leverage this tide.
Consumer durables/electronics: the Rs6 tn prize

Looking at some of the key consumer durables, we have attempted to contextualise the relative
market size of items like mobile phones, laptops, refrigerators, LED TVs, ACs, lights and
washing machines—all of which are covered by Amber or Dixon—except refrigerators and
laptops.
Figure 32: India's consumer durables market is Rs4 tn in size… Figure 33: …with ~2 bulbs and ~1 phone/household demand
A large proportion of products are already seeing some degree of indigenisation, with room air-
conditioners (RACs), washing machines, refrigerator and coolers having more than 50%
domestic production.

8 December 2020
Figure 34: TVs have the lowest indigenisation; others have fairly large domestic mfg
25.0
Local (mn units, FY20) Imported
20.0
15.0
5.1
14.7
10.0
0.7
1.9
5.0 3.3 10.9
7.5
5.8 4.4
3.9
0.0
RAC Washing Machines Refrigerators Flat Panel TV Air Cooler
Amber and Dixon’s capacities account for a significant portion of the domestic market, with
varying degrees of value-add happening with the country.
Figure 35: Amber and Dixon have large market shares
Both Amber and Dixon are expected to post strong revenue growth, at 15% and 35%
respectively, with Dixon’s trajectory stronger driven by business ramp-up from participating in
mobile manufacturing PLI scheme.

8 December 2020
Figure 36: We build 15% revenue CAGR for Amber Figure 37: Dixon’s revenues are to grow at 35% CAGR
The two companies generate higher margins from ODM products (high single digits), while the
newer EMS businesses have margins in the low single digit range and account for a smaller part
of the overall EBITDA pie too.
Figure 38: Amber makes 70/75% EBITDA from air conditioners Figure 39: Bulk of Dixon’s profits come from ODM products
We prefer Dixon given its diversified presence across

categories
Amber has higher margins as well as a larger gross block and higher working capital. Amber is
essentially a stronger vertically-integrated player but it is largely focused on one category. Dixon,
on the other hand, has less manufacturing depth but has a more diversified category presence.
Figure 40: Comparison between Amber and Dixon

Rs mn Amber Dixon
Market cap (Rs mn) 78,338 131,818
Revenues (FY20) 39,628 44,001
Revenue growth (FY16-20 CAGR) 26 30
EBITDA and EBITDA margin (FY20) 3,093; 7.8% 2,231; 5.1%
PAT—FY20 1,641 1,205
P/E—FY23E (x) 23 34
Gross block including acquisitions etc. and asset turnover 14,688 4,064
R&D (absolute; percentage of sales) 201; 0.51% 47; 0.11%
Average RoCE of FY18-20 11 22
Net working capital (number of days of sales) 50 10

8 December 2020
Global contract manufacturers: Rapid growth and

massive scale
Key learnings from looking at global contract manufacturers include:
Massive scale with several contract manufacturers having revenues in the range of US$30-
40 bn. Hon Hai is in a different league altogether, with revenues of US$170 bn.
Contract manufacturers have continued to grow, and Hon Hai had 7% revenue CAGR in the
last decade.
Margins are in the low single digit range and have had a trend of contracting. This can be a
key risk for Indian contract manufacturers. Dixon also makes just 2-3% margins in several
categories such as TVs and mobile phones, etc.
P/E is in single digit range in the vicinity of 10x or so (is double digits)
Figure 41: Global EMS players recorded ~7% CAGR revenue Figure 42: Hon Hai has recorded exponential growth, growing
growth in last decade (revenues indexed) 7% in the last decade (revenues indexed)
While revenues have posted strong growth, EBITDA margins have come under pressure over
the last 15 years, driven by increased competition and rapid change in technology, with margins
in the 3-6% range for the major players today. This remains one of the key risks for both Amber
and Dixon, considering that many of these players are now setting up capacities in India.
Figure 43: Global EMS players have stable EBITDA margins in the 3-6% range
Market capitalisation in the meantime has stagnated and most of them trade on mid- to high-
single-digits valuations.

8 December 2020
Figure 44: Global EMS market cap has stagnated recently… Figure 45: …despite a steady increase in revenues
Source: The BLOOMBERG PROFESSIONALTM service, Credit Suisse Source: The BLOOMBERG PROFESSIONALTM service, Credit Suisse
Indian competitors seem to lack scale

There are several consumer durables and electronics contract manufacturers in India, but they
lack scale. Several companies are focussed on higher-value-added verticals like aerospace and
defence.

8 December 2020
Figure 46: India EMS players snapshot – Many players seem to lack scale
Company HQ Mfg plants Location Product segmentation
in India
Foxconn Taiwan 2 Chennai and Sri City Mobiles
Flex Singapore 4 Chennai, Vishakapatnam Mobiles, LED products, accessories, STB, power banks
/USA
Hipad China 1 Noida Mobiles, power banks
Salcomp China 3 Noida, Chennai Chargers
Jabil USA 2 Pune Spread across 100 plants in 28 countries globally
Networking, POS, telecom, Industrial, energy, lighting
Sanmina-SCI USA 1 Chennai
Telecom, medical, storage & computing, industrial
electronics
Sienna Corporation USA 2 Chennai, Bengaluru Custom cable & wire harnesses assembly, plastics,
magnetics
InCap Finland 1 Tumkur 11,000 sq mt area, with deliveries to all around the world
Power supplies, inverters & UPS, fuel dispensing
systems, LV/MV drives
Wistron Taiwan 2 Kolar (Bengaluru), Nasarpura Mobiles
Compal Taiwan 1 Noida Mobiles
Infineon Germany 3 Bengaluru, Delhi, Pune Has a two wheeler lab, R&D, sales and marketing offices
in India. Globally is involved in Semiconductor
manufacturing
Avalon Technologies USA 1 Bengaluru Part of Sienna Corp., USA; globally involved in PCB
analysis/ design engineering
Dixon 10 Noida, Dehradun and Tirupati Mobiles, TV, washing machines, LED, STB, camera &
DVR
Jaina Group 1 Bawal Mobiles, TV, home appliances
Centum Electronics 2 Bengaluru Aerospace, defence, communications, medical devices,
transportation
PG Electroplast 5 Noida, Roorkee and Ahmednagar Mobiles, AC, TV, washing machines, refrigerators, water
purifiers, air coolers, speakers, LED, consumer durables
Elin Electronics 3 Ghaziabad, Baddi and Goa OEM/ODM for domestic appliances, universal motor,
synchronous motor, submersible pump, sheet metal
components, injection plastic moulded components, and
dies & moulds, LED, automotive
Cyient 1 Mysore Aerospace & defence, medical devices
SGS Tekniks 5 Gurgaon, Manesar, Baddi, Provides electronics design services, PCB assembly
Bengaluru for—STB, computers, LCBs, printers, LED, medical
devices
VVDN Technologies 4 Manesar Data acceleration cards, camera, IoT devices, storage
devices
Kaynes Technologies 8 Mysore, Bengaluru, Chennai, EMS player based out of Bengaluru; they undertake pre
Cochin, Parwanoo, Manesar, and post warranty repair, apart from conceptual design,
Selaqui manufacture and testing of high reliability PCBAs, box
build, products and systems integration services, military
wire/cable harness for defence and aerospace
electronics
Syrma 3 Chennai, Bawal Sensors, RFID tags, USD drives, industors, power
supplies
NTL Electronics 4 Noida, Dehradun, Roorkee Lighting products—capacity of 5mn LED products per
month
Malhotra Electronics 1 Noida TVs, speakers, DTH receivers and DVD players
Super Plastronics 3 Noida, Una, Jammu TV, speaker, washing machines and induction cookers
Vinyas Innovative 2 Mysore, Tirupati Medical devices, defence, consumer electronics,
automotive

8 December 2020
Figure 46: India EMS players snapshot – Many players seem to lack scale
Company HQ Mfg plants Location Product segmentation
in India
Genus Electrotech 1 Gandhidham PCB, Cables, energy meters, TV, washing machines,
LED, cooler, mixer grinder
EOS Power 1 Mumbai Manufacture of medical grade power suppliers (AC/DC
SMPS switch)
Quad Electronic Sol. 1 Hyderabad Presently cater to Aerospace & defence, industrial,
telecom, power & consumer electronics segments
SFO Technologies 9 Kochi, Pune, Bengaluru, Mysore Present in EMS, ODM, system integration—Digital
electronics, power electronics, RF & wireless, optronics
Amara Raja Electronics Chitoor (AP) Has a Fuji SMT line—capabilities in EMS, sheet metal
fabrication PCB assembly
Smile Electronics 1 Bengaluru Company provides PCBA, EMS solutions, testing,
prototype fabrication
Donex Industries Delhi LED products, fan, TV, solar LED products
Hical Electromagnetic components—caters to cameras,
telecom modules, telecom components and power
converters; microwave modules for wireless
communication
Sahasra Electronics 5 NCR, Rwanda EMS, PCB fabrication operations, LED lighting
Digital Circuits 1 Baddi (HP) PCB assembly and EMS services for auto, mobile,
power, medical instruments
Kinetic Comm. 1 Pune PCB Assembly and testing for automotive applications
and water purifier, UPS, solar panels, power board
SGV Industries PCB assembly for telecom, IT, defence, cons. durables,
power applications
Rangsons 2 Mysore EMS and product assembly in medical, defence,
telecom, auto, industrial segments
Videotex 3 Ludhiana, Noida, Parwanoo TCs, headphones, entertainment systems
Brands like Micromax and Lava lost market share

For Indian brands like Micromax and Lava, margins have come under pressure, though a strong
balance sheet with limited leverage can aid long-term growth prospects. Revenues have de-
grown as brands have lost traction in the market. Micromax, Lava, as well as UTL Neolyncs
have participated in the domestic PLI scheme.

8 December 2020
Figure 47: Indian OEM players' margins have compressed

Micromax Lava
FY2015 FY2019 FY2015 FY2019
Revenue 104,505 23,688 44,882 30,663
EBITDA (incl OI) 5,874 677 2,799 788
Margins (%) 5.6 2.9 6.2 2.6
Balance sheet
SH funds 13,305 6,336 3,854 9,660
Debt 5,288 1,720 2,734 1,471
Other liabilities 689 22 472 198
19,282 8,078 7,060 11,329
Fixed assets 378 259 394 790
Other non-current assets 2,732 3,467 546 756
Net current assets 16,172 4,352 6,119 9,782
19,282 8,078 7,060 11,329

8 December 2020
Rate Amber/Dixon as OP on opportunity

basket
We initiate with OUTPERFORM ratings on Amber (TP Rs3,000; 31% upside) and Dixon (TP Initiate with OP on Amber (31% upside) and
Dixon (21% upside) on strong growth outlook.
Rs14,000; 21% upside) based on: (1) strong near-term growth outlook (EPS CAGR of
Risks stem from increasing competition and
28/34% during FY20-23E); (2) multiple dimensions of opportunities (vertical integration, potential execution ramp-up challenges
exports, broader product basket) over the medium term; (3) strong extant platform in the form
of relationships, manufacturing scale and track record; (4) strong cash flows and return ratios
(RoE of 17/34% for Amber/ Dixon); and (5) still (incl. recent outperformance) reasonable
valuations on FY23E earnings basis (P/E of 23x/34x for Amber and Dixon).
We note that global contract manufacturers trade at low double digit P/Es (average of 11x
FY22E basis); however, their current size (revenues of US$25-180 bn) is an indicator of the
potential that lies ahead.
We prefer Dixon over Amber, based on its diversified business across categories and
dominating ODM share in LEDs and washing machines.
Key risks for both relates to execution over a large opportunity basket (e.g. management
bandwidth, choosing partners and investment decisions etc.), management of a large contract
workforce, and own manufacturing by brands/global contract manufacturers.
Specific risks include: (1) Amber: dependence on seasonal, weather dependent AC category
and slow exports ramp-up; and (2) Dixon: stake reduction by Dixon promoters in IPO as well as
recently.
Key catalyst can be PMP and PLI for ACs for Amber and PLI for other electronics in case of
Dixon.
Figure 48: Valuation table
Note: Priced as of 7-Dec-2020. O = Outperform, N = Neutral.

Source: Refinitiv, Credit Suisse estimates
Amber and Dixon are not expensive in the broader context of other industrial stocks.
Figure 49: Amber and Dixon trade in line with historical averages on a FY23E basis (EV/EBITDA)
Source: Credit Suisse estimates

8 December 2020
Figure 50: On a P/E basis too, Amber and Dixon are in line with other industrials
Amber and Dixon have posted strong performance in the year driven by increased government
focus on pushing domestic manufacturing
Figure 51: Strong YTD performance by Amber and Dixon… Figure 52: …with initial performance in line with broader
market
Risks: Execution, contract labour and competition

Execution on large opportunity basket
Execution is key risk as both Amber and Dixon are vying for a large opportunity basket
while they are still small companies in terms of balance sheet and may have limitation of
management bandwidth as well.
Contract labour
Contract manufacturers like Amber and Dixon employ a large number of contract labourers
to run their day-to-day operations. Scale up might be hampered by inability to ramp up
production capacity and profitability may be impacted by increase in costs. Any change in
laws around such employment may also impact business and profitability.
Customer concentration risk
Both Amber and Dixon count a number of marquee brands as their customers, some of
whom could constitute a material portion of segment revenues. Any shift in vendors or
decision to in-house production by setting up own facilities could impact performance.
Competitors are also coming in on the back of government policy
In response to various initiatives like PLI, large overseas vendors are also setting up
domestic operations and will be competing with Dixon and other contract manufacturers to
capture the new opportunities. Technological, scale advantages and drive to capture
market share can impact the revenue and margin expectations.
8 December 2020
Margins
Contract manufacturing business is dependent on brands and thus this combined with
competition implies that there is continuous pressure on margins in this business. This is
also borne out by the global experience in this industry.
Technology risk
The EMS and consumer durables businesses and associated contract manufacturers by
their very nature are subject to technological risks stemming from new products, and
production methodologies that might reduce competitive advantage of players like Dixon.

8 December 2020
HOLT view on Amber and Dixon

CS HOLT uses a proprietary economic return measure, Cash Flow Return on Investment
(CFROI®) to assess corporate performance and valuation. By removing accounting and inflation
distortions, CFROI allows for global comparability and is a more comprehensive metric than the
traditional ROE or ROA.
HOLT view on Amber and Dixon

Comparing the CFROI profiles across global electromechanical systems (EMS) manufacturers,
Dixon and Amber have delivered the highest CFROI last year due to the stronger-than-peers
sales growth and margins. Looking ahead, IBES consensus expects these two companies to
lead the CFROI recovery path next year, which is in line with the CS research analyst’s view that
the two companies have a strong extant platform and robust growth outlook. Notably, Dixon
also stands out from a valuation angle, as it embeds the least demanding market implied
expectations relative to forecast CFROI levels.
Figure 53: CFROI benchmarking of global EMS stocks
Source: Credit Suisse HOLT®
We run CS analyst’s forecast sales, margins and asset turns from 2020E to 2022E for Amber
in the figure below. Although Amber’s CFROI is expected to come under pressure in 2020E
due to COVID-19 interruption, the analyst is forecasting the company to benefit from the
growing domestic AC market and deliver a sharp rebound in sales growth to 59%/23% in the
subsequent two years. EBITDA margin would also increase from 8.1% in 2019 to 9.3% by
2022E and contribute to 230 bp CFROI expansion. Keeping 2022E assumptions flat till 2024E
would translate to a HOLT fair value of Rs2,702, in line with the DCF target price of Rs3,000
and OUTPERFORM rating.

8 December 2020
Figure 54: CS analyst’s estimates for Amber yield HOLT WP of Rs2,702
Note: Discount rate is normalised to 3Y median of 3.6%.

Source: Credit Suisse HOLT LensTM
Figure 59 below leverages CS analyst’s forecast sales, margins and asset turns from 2020E to
2022E for Dixon. Revenue is expected to grow at an average of 36%, as the company
leverages on multiple platforms of growth opportunities, supported by visible capacity addition
and new customer sign ups. EBITDA margin would remain stable at around 5%, resulting in
CFROI of c20% in the next three years. Normalising sales growth to long-term average of 30%
by 2024E would yield a HOLT fair value of Rs14,515, in line with the DCF-derived target price
of Rs14,000 and OUTPERFORM rating.

8 December 2020
Figure 55: CS analyst’s estimates for Dixon yield HOLT WP of Rs14,515
Discount rate is normalised to 5Y median of 2.58%.

Source: Credit Suisse HOLT LensTM

8 December 2020
Amber Enterprises AMBE.BO

Leveraging AC manufacturing leadership in
exports, components and non-AC Target price (12M, Rs)
3,000
Electronics Manufacturing Services Outperform
Initiate with OUTPERFORM: We initiate with an Outperform and a TP of Rs3,000 (29% Price (7 Dec 20, Rs) 2,291
potential upside) based on (1) strong extant platform in terms of customers, manufacturing Upside/downside (%) 30.9
and track record; (2) near-term growth visibility; (3) potential unfolding of large commercial, Mkt cap (Rs/US$ mn) 77,194 / 1,047
exports and components opportunity; (4) catalyst of PLI and PMP approval for ACs; and (5) Enterprise value (Rs mn) 75,688
still reasonable valuation for platform, growth outlook, return ratios and cash flows. Number of shares (mn) 33.69
Free float (%) 44.5
Unrivalled position in domestic AC manufacturing. Amber is contract manufacturing 52-wk price range (Rs) 2,459-1,009
~25% of the ACs sold in India, and almost all major brands are customers. About 60% of ADTO-6M (US$ mn) 7.2
revenues come from room ACs while 40% originate from components and mobile
applications. Amber has been very dynamic and has acquired companies in electronics and
Research Analysts
mobility applications (ACs for buses, railways, metros, etc.), helping expand the capability
basket and increase vertical integration. Amber has strong R&D with 150 people employed Lokesh Garg
in R&D across various domain areas (electronics, mobility applications and core ACs). 91 22 6777 3743
Opportunities: exports, components and non-AC. Amber has opportunity from
(1) growing domestic AC market (current low penetration and rising income levels); Gaurav Birmiwal
(2) government policy support (import ban on gas-charged ACs, phased manufacturing 91 22 6777 3873
programme and potential production- linked incentives); (3) increasing wallet share from
customers. Amber aims to leverage scale in the domestic market to target both component
and product exports markets in the US and Middle East. It has come up with commercial
ACs (market size 2/3rd proportion of room ACs) and it aims to build that business as well.
Reasonable valuation for platform/growth outlook. Amber has grown revenues/PAT
at a CAGR of ~40/60% during FY16-20. Despite the COVID-19 interruption, we expect
FY20-23E CAGR in revenues/PAT to be 15%/28% below EBITDA leverage. Amber trades
at P/E of 29/22x and EV/EBITDA of 17/13x on FY22/23E earnings. AC demand can
surprise based on lower upfront prices, efficient power usage, stable power supply and
tariffs, rising incomes and changing societal norms. Key risks relate to (1) contract labour;
(2) already high market share in AC manufacturing; (3) most leading brands have their own
manufacturing and outsourcing preferences may shift; (4) strong seasonality and weather
dependence; (5) slow ramp-up in export markets given overall stagnant global AC markets.
Financial and valuation metrics Share price performance

Year 3/20A 3/21E 3/22E 3/23E
Revenue (Rs mn) 39,627.9 30,971.0 49,229.4 60,601.8
EBITDA (Rs mn) 3,092.7 2,520.9 4,392.6 5,425.8
EBIT (Rs mn) 2,245.0 1,560.8 3,388.8 4,369.5
Net profit (Rs mn) 1,641.4 1,077.8 2,683.3 3,456.4
EPS (CS adj.) (Rs) 52.2 31.99 79.64 102.58
Chg. from prev. EPS (%) n.a n.a n.a n.a
Consensus EPS (Rs) n.a. 22.83 64.74 87.83
EPS growth (%) 73.2 (38.7) 149.0 28.8
P/E (x) 43.9 71.6 28.8 22.3
Dividend yield (%) 0.0 0.2 0.3 0.4 The price relative chart measures performance against the S&P
EV/EBITDA (x) 25.8 29.3 16.7 13.2 BSE SENSEX IDX which closed at 45,426.97 on 07/12/20.
P/B (x) 6.38 4.77 4.14 3.55 On 07/12/20 the spot exchange rate was Rs73.7/US$1
ROE (%) 15.5 7.8 15.4 17.1
Net debt/equity (%) 21.3 (20.5) (19.5) (26.5) Performance 1M 3M 12M
Absolute (%) (1.2) 21.9 118.6
Source: Company data, Refinitiv, Credit Suisse estimates Relative (%) (9.6) 3.5 106.3

8 December 2020
Amber Enterprises (AMBE.BO / AMBER IN) Analyst: Lokesh Garg

Price (07 Dec 2020): Rs2,291 Target Price: Rs3,000 Rating: Outperform
Income Statement (Rs mn) 03/20A 03/21E 03/22E 03/23E
Company Background
Sales revenue 39,628 30,971 49,229 60,602
Cost of goods sold 33,352 25,396 40,860 50,299 Amber Enterprises is engaged in the manufacture of various components
EBITDA 3,093 2,521 4,393 5,426
EBIT 2,245 1,561 3,389 4,370 of air conditioners and other home appliances.
Net interest expense/(inc.) 419 276 0 0
Recurring PBT 1,907 1,437 3,578 4,609 Blue/Grey Sky Scenario
Profit after tax 1,641 1,078 2,683 3,456
Reported net profit 1,641 1,078 2,683 3,456
Net profit (Credit Suisse) 1,641 1,078 2,683 3,456
Balance Sheet (Rs mn) 03/20A 03/21E 03/22E 03/23E
Cash & cash equivalents 1,203 3,314 3,631 5,756
Current receivables 8,542 6,788 10,790 13,283
Inventories 6,557 5,091 8,093 9,962
Other current assets 1,531 1,697 2,023 2,490
Current assets 17,833 16,890 24,537 31,491
Property, plant & equip. 9,836 9,375 9,122 8,815
Investments 0 0 0 0
Intangibles 1,223 1,223 1,223 1,223
Other non-current assets 118 118 118 118
Total assets 29,009 27,606 34,999 41,647
Current liabilities 11,195 8,613 13,615 16,731
Total liabilities 17,378 11,412 16,317 19,900
Total debt 3,675 0 0 0
Shareholders' equity 11,284 16,193 18,641 21,760
Minority interests 348 0 0 0
Total liabilities & equity 29,010 27,606 34,957 41,660
Cash Flow (Rs mn) 03/20A 03/21E 03/22E 03/23E
EBIT 2,245 1,561 3,389 4,370
Net interest 0 0 0 0
Tax paid 0 0 0 0
Working capital 0 0 0 0 Our Blue Sky Scenario (Rs) 4,500
Other cash & non-cash items 848 960 1,004 1,056
Operating cash flow 3,093 2,521 4,393 5,426 We arrive at a blue sky scenario valuation of Rs4,500, on faster-than-
Capex (1,568) (500) (750) (750) expected ramp-up in exports and domestic market opportunities,
Free cash flow to the firm 1,525 2,021 3,643 4,676 increasing earnings by 20% and at a 40x multiple.
Investing cash flow (1,568) (500) (750) (750)
Equity raised 0 4,000 0 0
Dividends paid (121) (168) (236) (337) Our Grey Sky Scenario (Rs) 1,500
Financing cash flow (121) 3,832 (236) (337)
Total cash flow 1,404 5,852 3,407 4,339
We arrive at a grey sky scenario value of Rs1,500, on increasing market
Adjustments 0 0 0 0 competition or slower-than-expected growth in the industry impacting
Net change in cash 1,404 5,852 3,407 4,339 earnings by 33% and a lower 25x multiple.
Per share 03/20A 03/21E 03/22E 03/23E
Shares (wtd avg.) (mn) 31 34 34 34
EPS (Credit Suisse) (Rs) 52.20 31.99 79.64 102.58
Share price performance
DPS (Rs) 0.00 5.00 7.00 10.00
Operating CFPS (Rs) 98.35 74.82 130.37 161.03
Earnings 03/20A 03/21E 03/22E 03/23E
Growth (%)
Sales revenue 44.0 (21.8) 59.0 23.1
EBIT 49.1 (30.5) 117.1 28.9
EPS 73.2 (38.7) 149.0 28.8
Margins (%)
EBITDA 7.8 8.1 8.9 9.0
EBIT 5.7 5.0 6.9 7.2
Valuation (x) 03/20A 03/21E 03/22E 03/23E
P/E 43.9 71.6 28.8 22.3
P/B 6.38 4.77 4.14 3.55
Dividend yield (%) 0.0 0.2 0.3 0.4 The price relative chart measures performance against the S&P BSE SENSEX IDX which closed
EV/sales 2.0 2.4 1.5 1.2 at 45,426.97 on 07-Dec-2020
EV/EBITDA 25.8 29.3 16.7 13.2 On 07-Dec-2020 the spot exchange rate was Rs73.7/US$1
EV/EBIT 35.5 47.3 21.7 16.3
ROE analysis (%) 03/20A 03/21E 03/22E 03/23E
ROE 15.5 7.8 15.4 17.1
ROIC 14.8 8.7 18.2 21.1
Credit ratios 03/20A 03/21E 03/22E 03/23E
Net debt/equity (%) 21.3 (20.5) (19.5) (26.5)
Net debt/EBITDA (x) 0.80 (1.31) (0.83) (1.06)

8 December 2020
Unrivalled position in domestic AC manufacturing

Amber manufactures about 25% of ACs sold in India, and almost all major brands in the country Amber manufactures about 25% of ACs sold in
India and almost all major brands in the
are its customers. About 60% of revenues come from room AC manufacturing, while 40% of
country are its customers. Opportunity from
revenues originate from components and mobile applications. Amber has 15 plants in six (1) growing AC penetration levels;
clusters, and aims to set up a new plant in southern India. It has been dynamic and has (2) supportive government policy;
acquired companies in electronics (printed circuit boards for inverter ACs and other consumer (3) increasing OEM/ODM share.
durable applications) and mobility applications (ACs for buses, railways, metros, etc.). This has
helped expand the company’s capability basket and vertical integration. Amber has opportunity
from: (1) a growing AC market given current low penetration and rising income levels; (2)
government policy support in the form of an import ban on gas-charged complete ACs, phased
manufacturing programme and potential production linked incentives; (3) increasing wallet share
from customers based on more outsourcing and supplying more components in case they
choose to manufacture themselves. Amber has strong R&D with 150 people employed in R&D
across various domain areas (electronics, mobility applications and core ACs).
Opportunities: exports, components and non-AC

Amber aims to leverage scale in the domestic market to target export markets in the US and Amber is aiming to build exports in the US,
Middle East markets; increasing backward
Middle East, and is going through reliability testing by prospective customers for both
integration. It has a strong roster of customers,
components as well as complete ACs. This is bolstered by ongoing diversification of supply both domestic and international players.
chains away from dependence on China. Components exports may start in FY22E while AC
exports may start a year later as reliability testing for complete product can take longer. Amber
also aims to scale up component exports in areas such as motors (BLDC motors), heat
exchangers, plastic moulding, metal sheet, and printed circuit board assemblies. The
components business can scale up in both AC as well as other non-AC consumer durables such
as washing machines, and refrigerators. This would help diversify away from strong dependence
on room ACs currently. Amber has a very strong list of customers including several MNCs like
LG, Panasonic, Hitachi and Daikin, even for high-reliability components such as PCB for
durable applications and motors. In commercial ACs also, all the major rail OEMs such as
Siemens, Alstom and Hyundai-Rotem are customers. This customer list can help scale up the
export business as these MNCs can source components from Amber for their global factory
also, given their comfort with quality standards.
Reasonable valuation for platform and growth outlook

Amber has grown revenues/PAT at a CAGR of ~40/60%respectively during FY16-20. Despite Amber has grown revenues/PAT at a CAGR of
~40/60%respectively during FY16-20. Despite
the COVID-19 interruption, we expect FY20-23E CAGR in revenues /PAT to be 15/28%. PAT
COVID-19 interruption, we expect FY20-23E
CAGR is ahead of revenues based on margins, lower interest cost and depreciation. Amber CAGR in revenues/PAT to be 15/28%.
trades at P/E of 29/22x and EV/EBITDA of 17/13x on FY22/23E earnings. This valuation is
reasonable for its strong extant platform, growth outlook, return ratios and cash flows. FY23E
estimates do capture domestic market growth and marginal market share gains but do not
capture growth legs from exports and commercial ACs, etc. Incremental upside can come from
positive surprise in AC demand based on lower upfront prices, efficient power usage, stable
power supply and tariffs, rising incomes and changing societal norms.
Contract manufacturing risks faces margin and customer risks. Amber has relatively lower
customer risk, as almost all major brands are customers. We build flat margins in room AC
manufacturing and overall improvement is driven by margin improvement in component and
mobility subsidiaries. Key risks relate to: (1) large contractual labour; (2) already high market
share in AC manufacturing; (3) most of the leading brands have their own manufacturing also
and preference for outsourcing may shift; (4) vicissitudes of domestic AC business in terms of
strong seasonality, weather dependence, rating changes driven price increases holding back
demand; and (5) difficulty of ramping up in export markets given overall stagnant global AC
markets.

8 December 2020
Unrivalled position in domestic AC manufacturing

Amber manufactures about 25% of ACs sold in India and almost all major brands in the country Amber manufactures about 25% of ACs sold in
India and almost all major brands in the
are its customers. About 60% of revenues come from room AC manufacturing while 40% of
country are its customers.
revenues originate from components and mobile applications. Amber has 15 plants and aims to
set up a new plant in Southern India. Amber has been dynamic and has acquired companies in
electronics (printed circuit boards for inverter ACs and other consumer durable applications) and
mobility applications (ACs for buses, railways and metros etc.). This has helped expand the
company’s capability basket and vertical integration. Amber has opportunity from: (1) a growing
AC market given current low penetration and rising income levels; (2) government policy support
in the form of an import ban on gas-charged complete ACs, phased manufacturing programme
and potential production linked incentives; (3) increasing wallet share from customers based on
more outsourcing and supplying more components in case they choose to manufacture
themselves. Amber has strong R&D with 150 people employed in R&D across various domain
areas (electronics, mobility applications and core ACs).
Figure 56: Amber has reflected strong execution and has grown through both organic and inorganic routes (electronics capability)
Source: Company data
The strength across backward integrated activities is visible across categories too, with a strong
customer base in them, covering most of the large players in the market, both domestic and
international.

8 December 2020
Figure 57: Marquee customers incl. MNCs across categories to help exports also
Product Key customers
Air conditioners Blue Star, Daikin, LG, Panasonic, Toshiba, Voltas and Cruise Appliances.
Motors Whirlpool, Hitachi, Daikin, Carrier, Voltas, Panasonic, Blue Star, East West (US) and
Samco (KSA)
PCBs IFB, LG, Hitachi, Hyundai, Blue Star, Bajaj, Panasonic and LS Automotive
Commercial HVAC Indian Railways, BEML, Siemens, DMRC, CAF, Hyundai-Rotem and Alstom
Strong presence in North India. It did a Rs4 bn QIP earlier, with the objective of setting up
greenfield units in the west (Pune) and south to serve the market from a unit in the region (link).
Figure 58: Plant locations—AC assembly at Rajpura, Pune, Dehradun and Jhajjar; others for components (incl inorganic)
Entity Plant locations Owned Key products manufactured
Amber Rajpura Owned Sheet metal components and AC assembly
Amber Dehradun—U 1 Leased AC assembly, heat exchangers and injection moulding component
Amber Dehradun—U 2 Leased Sheet metal components and heat exchangers
Amber Dehradun—U 3 Leased AC assembly and system tubing
Amber UP—U 1 Leased Inner case liners and plastic sheets
Amber UP—U 2 Leased Sheet metal components
Amber Pune—U 1 Leased Sheet metal components
Amber Pune—U 2 Leased AC assembly
Amber Jhajjar—U 1 Owned AC assembly, heat exchangers, and injection moulding components
Amber Jhajjar—U 2 Leased AC assembly, heat exchangers, sheet metal components and system tubing
Ever Pune—U 1 Owned PCBAs
PICL Faridabad—U 1 Owned Electrical motors and/or its components
PICL Faridabad–U 2 Leased Electrical motors and/or its components
Sidwal Faridabad—U 1 Owned HVAC solutions for mobility applications such as railways, metro, defence and bus segments
IL JIN UP—U 1 Leased PCBAs
Large underpenetrated domestic market; unrivalled presence

The total size of the air conditioning market is expected to grow to 12 mn units by 2024,
registering >10% growth.
Figure 59: Total AC market in India to reach 8 mn units Figure 60: AC market to grow to Rs210 bn; Commercial AC too
Source: Credit Suisse estimates Source: Credit Suisse estimates

8 December 2020
Penetration is low and can scale up quickly, driving upside

Figure 61: Penetration is low compared to global levels Figure 62: Strong growth of ~16% expected
Source: Company data Source: Company data
Figure 63: 50% of India’s market is made of inverter ACs Figure 64: Voltas has ~27% market share, with players like LG,
Haier gaining
Window AC
16
Inverter AC
50
Split AC
34
Figure 65: OEM, ODMs make up one-third of the market, Figure 66: Amber is manufacturing 24% of all ACs sold in India
import substitution opportunity
7.0
OEM/ODM RAC market (mn) 6.1
6.0
4.8
5.0
3.8
4.0
3.0
3.0 2.5 2.3
2.1
1.6 1.8
2.0
1.0 1.2
1.0
0.0
Source: Company data, Credit Suisse Source: Company data, Credit Suisse

8 December 2020
Figure 67: Amber has dominant 70% of OEM market share Figure 68: Amber manufactures 24% of all ACs sold in India
Source: Company data, Credit Suisse Source: Company data, Credit Suisse
In FY20, 35% of the AC market is catered to by OEM/ODMs (from 28% in FY15). By FY25,
45% of the market is likely to be catered to by the segment. Growing competition in the market
has forced companies to focus on marketing and promotion, and outsource manufacturing. This
also aids in following an asset-light strategy.
The slowdown in the AC market growth is also seen from imports data, which has seen de-
growth over FY18-20, though driven primarily by import restrictions.
Figure 69: India AC imports (‘000 units) Figure 70: India imports of AC stagnated at ~$700mn
Source: DGFT, Credit Suisse estimates Source: DGFT, Credit Suisse estimates
Most of India’s imports come from China and Thailand.

8 December 2020
Figure 71: India imports most of its AC requirements from China, Thailand
Source: Trademap, Credit Suisse
PMP for ACs is in the works

News reports (link) suggest that a Phased Manufacturing Programme for air conditioners is in
the works, and is likely to raise the Basic Customs Duty (BCD) for various components as well
as finished products to promote domestic manufacturing.
Figure 72: Proposed PMP details on air conditioners to aid indigenisation

Proposed BCD
Current BCD
(in year 5)
Finished air-conditioners 20% 30%
Compressor 12.5% 20%
PCB controller, motor, cross flow fan, evaporator, metal, plastic parts 10% 20%
Source: News reports, Credit Suisse estimates
The government has announced a PLI for air conditioners and LED totalling Rs62.4 bn.
Considering the already-strong domestic presence of all players, we believe that the PLI will
focus on exports of air conditioners and components.
Import restrictions on gas-filled ACs already implemented

Around 70% of India’s AC requirements are made locally. Of the 30% that are imported, a
large chunk is slated to shift to India driven by the Government of India’s ban on import of ACs
with refrigerants.
According to Amber, the 30% adds up to ~Rs40 bn, and 70-75% of this is imported with
refrigerants (~Rs30 bn), which opens up a potential opportunity for domestic players.
While the restriction has been imposed on gas-charged imports, Amber’s pan-India presence
will aid it in capturing a share of incremental AC manufacturing in India.

8 December 2020
Figure 73: Cost break-up of an AC—logistics of gas charging make imports unviable
Price % of cost
Compressor 4,400 23
Blower motor 1,900 10
Condenser motor 1,900 10
PCB Circuit 2,200 11
R. capacitor 400 2
S. capacitor 200 1
Relay 300 2
Capillary & filter 200 1
Thermostat switch 500 3
Sensors 500 3
Air filter 500 3
Lower motor 600 3
Gas charging 1,300 7
Outdoor unit 4,500 23
Cost price of all components 19,400 100
Competition from brands; almost all have large

manufacturing already; Amber resilient
Almost all brands in India have fairly large domestic manufacturing facilities. Thus Amber’s
business has shown resilience in the face of manufacturing capabilities of brands themselves.
Most large domestic players have significant domestic manufacturing capability to meet their
requirements. Here we summarise the manufacturing capabilities of market participants as well
as some of the new capacities and expansion in components like compressors being set up.
Figure 74: India AC players have large domestic capacity though value add may differ across players
Company Capacity # plants Comments
(mn units)
Voltas 2.0 4 Waghodia (Gujarat), Pantnagar (Uttarakhand) and Sanand (Gujarat); a plant in Tirupati (1 mn units).
LG 1.5 2 Manufacturing plants in Greater Noida and Pune, and expects to increase production further.
Blue Star 1.0 5 Expanding in Himachal; new plant in Sri City, Andhra.
JC—Hitachi 0.9 1 Plant at Kadi (Gujarat), manufacturing a wide range of products, from room air conditioners to commercial air
conditioners.
Daikin India 2.0 3 Plan to open third unit in 2021; current 1.5 mn RAC, 50,000 VRV units, 0.1 mn cassette units, 20,000 ductable units
and 1,000 chillers.
Samsung 0.6 1 Manufacturing line in Samsung's Noida facility.
Amber 2.8 15 Manufactures heat exchangers, metal & plastic parts, PCBA and electrical motors for a wide range of customers.
Haier 1.0 1 Plant at Noida; making other consumer durables like refrigerators, washing machines, air conditioners and LED panels.
Carrier Midea 1.5 1
Godrej 0.8 1 Capacity of 200,000 ACs, the company is looking to double and quadruple the capacity to 400,000 units and 800,000
units per annum in 2020 and 2021.
Panasonic 0.4 1 Sold 0.35 mn units in FY19, with 50-60% plant utilisation
Havells 0.9 1 Ghilot (Raj.) plant acquired from Lloyd, plant can be expanded from 0.6 mn to 0.9 mn.
Compressors
Carrier Midea 4.5 The upcoming plant will produce 500,000 refrigerators, washing machines, water purifiers, water heaters, apart from
1.5 mn ACs, 250,000 commercial ACs, 4.5 mn compressors per year.
Highly Group 3.0 Plant in Sanand (Gujarat); compressor manufacturing capacity was doubled from 1 mn to 2 mn in 2017; planning to
increase it by a further 1 mn; the capacity will be 30% of expected country demand.
Ingersoll Rand Plant at Chennai.

8 December 2020
Large components opportunity, including

non-AC
Amber has a wide range of capabilities in making an ACs, heat exchangers, motors PCB
Assembly, and plastic and metal parts.
Figure 75: Amber has lot of depth in manufacturing of most components as well
Amber is also aiming to scale up its component business in areas such as motors (BLDC
motors), heat exchangers, plastic moulding, metal sheet, and printed circuit board assemblies.
The components business can scale up in both AC as well as other non-AC consumer durables
such as washing machines and refrigerators. This would help diversify away from strong
dependence on room ACs currently.

8 December 2020
Several critical components done in subsidiaries

Figure 76: Component subsidiaries are inorganic acquisitions
Revenue EBITDA
Product Entity Key Customers Plant locations
(FY20) (FY20)
Rajpura, UP,
Blue Star, Daikin, LG, Panasonic,
Air conditioners Standalone Dehradun, Pune, 23,194 2,135
Toshiba, Voltas and Cruise Appliances.
Jhajjar
Whirlpool, Hitachi, Daikin, Carrier,
Motor PICL Voltas, Panasonic, Blue Star, East Faridabad 1,203 104
West (US) and Samco (KSA)
PCBs IL IJN IFB, LG, Hitach, Hyundai, Blue Star, UP 3,247 168
PCBs Ever Bajaj, Panasonic and LS Automotive Pune 2,228 101
Indian Railways, BEML, Siemens,
Mobility
Sidwal DMRC, CAF, Hyundai-Rotem and Faridabad 2,390 540
applications
Alstom
Source: Company data, Credit Suisse
PICL: induction motors manufacturer

PICL is one of the largest induction motors manufacturers. It manufactures a wide range of
single-phase induction motors for residential and commercial ACs, coolers, washing machines,
and other appliances. The company has 200+ lines of motors including Nema frame, RAC
ODU/IDU motors, and BLDC motors. The company has the capacity to manufacture 4 mn
motors per annum and has seven manufacturing lines. The key customers in the segment are
Whirlpool, Hitachi, Daikin, Carrier, Voltas, Panasonic, Blue Star, East West (US), and Samco
(KSA).
IL JIN Electronics: PCB manufacturer with appliance and

auto applications
IL JIN is engaged in the business of manufacturing, assembling, dealing, importing and
exporting of electronic assembled printed circuit boards for home appliances and automobile
products. The company has two decades of experience with strong R&D capabilities. It has the
capacity to make 10.5 mn PCBs, with ten SMT lines, seven AI lines, and nine ML lines. The
key customers in the segment are IFB, LG, Hitach, Hyundai, Blue Star, Bajaj, Panasonic, and
LS Automotive.
Ever Electronics: PCBA for ACs and other consumer durable

products
Ever is engaged in the business of assembly of electronics printed circuit boards for ACs and
other consumer durables, home appliances, and automobiles.
Sidwal Refrigeration: Mobility applications

Sidwal is engaged in the business of manufacturing and sale of heating, ventilation, and AC
equipment for railways, metros, defence, bus, telecom, commercial refrigeration and related
components for private and government customers.
The key customers for the segment are Indian Railways, BEML, Siemens, DMRC, CAF,
Hyundai-Rotem and Alstom.

8 December 2020
Exports: Stagnant global market—components can

scale faster
Amber is aiming to leverage scale in the domestic market to target the export markets in the US
and Middle East and is going through reliability testing by prospective customers for both
components as well as complete ACs. This is bolstered by ongoing diversification of supply
chains away from China dependence. Components exports can start in FY22, while AC exports
can start a year after that, as reliability testing for the complete product can take longer.
On the exports front, Amber is likely to face challenges because of slow growth. Gaining a
foothold is difficult in a stagnant overall market. Global demand has stagnated in the last few
years and is at ~110 mn units.
Figure 77: Global AC demand has stagnated at ~110 mn Figure 78: …with the bulk of demand coming from China
units...
120000 Other Asian Oceania
Global demand for ACs ('000s)
Countries 1%
100000 11%
80000 Japan China

10% 40%
60000
India
40000 5%
Africa
3%
20000
Latin America
0 6%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
North America Middle East
14% Europe 4%
6%
Source: JRAIA, Credit Suisse Source: JRAIA, Credit Suisse estimates
China is the largest consumer, accounting for ~40% of global demand. North America, where
Amber has highlighted its recent efforts to gain traction, has 14% of share, ~3x India’s current
size, at 5% of global demand.
Only India and Africa have exhibited strong growth rates over the last decade—from FY09 to
18. However if we break down the growth further, we see that many regions like the Middle
East and Latin America have de-grown over FY15-18, with marginal growth in North America
(0.8%) and China (1.4%). Europe’s growth trajectory has remained stable, growing at 2.8% in
the short term and 3.7% CAGR over FY09-18. India’s growth also relatively slowed, growing
2.9% over FY15-18.

8 December 2020
Figure 79: AC Growth has faltered over the years Figure 80: North America (one of the target markets) has large
commercial segment
50000
Commercial RAC
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
Source: JRAIA, Credit Suisse Source: JRAIA, Credit Suisse estimates
Apart from design differences highlighted by Amber in the North American market, it also has a
large commercial AC market. Other regions have a large RAC segment.
MNC customers in India may aid exports build-up

Given its leading manufacturing presence in India, Amber is dealing with almost all MNCs
present in India. This can help its export ambitions, as these MNCs could be comfortable
sourcing components and final products from Amber for their global markets as well.

8 December 2020
Reasonable valuation for platform and

growth outlook
Amber has grown revenues and PAT at a CAGR of ~40% and 60% respectively during FY16-
20. Despite COVID-19 interruption, we expect FY20-23E CAGR in revenues and PAT to be
10% and 20% respectively. Amber trades at P/E of 29x and 22x and EV/EBITDA of 17x and
13x on FY22E and FY23E earnings, respectively. This valuation is reasonable given its strong
extant platform, growth outlook, return ratios and cash flows.
Figure 81: Summary of revenue source—components form 35% of the revenues

FY18 FY19 FY20 FY21e FY22e FY23e
Standalone (RAC) 15,404 17,410 24,250 19,149 30,836 37,748
Standalone (components) 3,826 4,474 5,777 4,044 7,279 9,463
Standalone revenues 19,231 21,884 30,027 23,194 38,115 47,211
PICL 1,432 1,370 1,850 1,203 2,405 3,127
IL IJN 3,340 3,346 3,247 3,247 4,059 5,074
Ever 2,249 2,722 2,971 2,228 2,674 3,075
Sidwal - 1,585 2,390 2,390 2,988 3,585
Total consol revenues 20,943 26,922 39,033 30,971 48,357 59,744
We expect revenues to grow to Rs60 bn, with margins improving by 100 bp. PAT is expected
to improve to 5.7% in FY23 from 4.1% in FY20, driven by lower interest costs and higher asset
turns, leading to lower increase in depreciation expense.
Figure 82: Financial summary—margins to improve to 9% from 8%, with PAT improving to 5.7%
FY18 FY19 FY20 FY21e FY22e FY23e
Revenue 21,281 27,520 39,628 30,971 48,357 59,744
RM cost (17,905) (23,471) (33,352) (25,396) (40,136) (49,587)
Employee costs (468) (588) (1,063) (1,007) (1,209) (1,434)
Other expenses (1,073) (1,333) (2,121) (2,047) (2,692) (3,367)
EBITDA 1,835 2,129 3,093 2,521 4,320 5,355
Other income 87 99 82 152 189 239
Interest (538) (246) (419) (276) - -
Depreciation (490) (623) (848) (960) (1,004) (1,056)
PBT 894 1,359 1,907 1,437 3,505 4,538
Tax (271) (412) (266) (359) (876) (1,134)
PAT 623 948 1,641 1,078 2,629 3,403
EPS 20 30 50 32 78 101
Revenue growth (%) 29.4 29.3 44.0 (21.8) 56.1 23.5
EBITDA (%) 8.6 7.7 7.8 8.1 8.9 9.0
PAT (%) 2.9 3.4 4.1 3.5 5.4 5.7
Financials—27% EPS CAGR, with RoE up to 17%

We build revenues to grow 15% revenue CAGR, with RoE improving to 17% driven by
operating leverage. We build flat margins in the room AC manufacturing business and thus
overall margin expansion is based on scale-up of components and the higher-margin Sidwal
(mobility applications) business.

8 December 2020
Figure 83: 15% revenue CAGR, with 9% EBITDA margins Figure 84: 17% RoE, aided by margin expansion
We build Rs103/share EPS in FY23E, posting a 27% earnings CAGR, while book value grows
to Rs650 in FY23E.
Figure 85: EPS to grow at 29% CAGR Figure 86: With book value rising to Rs650 by FY23e
Amber’s FCF has been weak due to investment in acquiring subsidiaries as well as working
capital investment (at 50 days in FY20). We build strong FCF generation driven by nominal
investments—both on working capital and investments.
Figure 87: FCF generation has been weak on investments in Figure 88: Amber has added capability by acquiring companies
subsidiaries in succession
2,500
FCF (Rs mn)
2,000
1,500
1,000
500
-
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21e FY22e FY23e
(500)
(1,000)
(1,500)
(2,000)

8 December 2020
Promoters own 44%; fairly large PE presence as well

Amber’s ownership is well distributed, with promoters owning 44% and institutions owning 26%
of the company.
Figure 89: Promoters own 44% of Amber, with 26% owned by public institutions
Others
9%
Promoters
PE (As cent) 44%
21%
Other Institutions
6%
FPIs
13% Mutua l Funds
7%
Source: BSE, Credit Suisse
Growth, margins, acquisitions reflect proactive management

Mr Jasbir Singh is the chairman and CEO. He holds a bachelor’s degree in engineering
(industrial production) from Karnataka University and is a Master in Business Administration
from the University of Hull, UK. He has successfully established over seven factories in the past
ten years and established relationships with various large brands.
Recently, he has received the “Man of Appliances” award from CEAMA Consumer Electronics
Appliances Manufacturers Association.
Mr Daljit Singh is the MD. He holds bachelor’s degree in electronic engineering from Nagpur
University and a master’s degree in information technology from the Rochester Institute of
Technology. He is serving the Board of Amber Enterprises India Limited (“Amber”) since 1
January 2008 and was appointed as Managing Director of the company with effect from 25
August 2017. He has 12 years’ experience in finance services and ten years of experience in
the RAC manufacturing sector.
He was also associated with Morgan Stanley in New York as an analyst in the infrastructure
track of their information technology analyst training programme.
Mr Sudhir Goyal is the CFO. He holds a bachelor’s degree in commerce (Hons.) from
University of Delhi. He is an associate member of the Institute of Chartered Accountants of
India. He has been associated with Amber since 23 October 2012 and has over 13 years of
experience in the manufacturing industry. Earlier, he was associated with Hythro Power
Corporation Limited, Altima Systems Private Limited, ETA Ascon group of companies,
Jamshedpur Mineral Wood Manufacturing Co. (P) Limited.
Mr Sanjay Arora is the director of operations. He holds a diploma in electrical engineering
with specialisation in electronics & television technology from YMCA Institute of Engineering,
Faridabad. He has been associated with Amber since 23 July 2012 and has 34 years of
experience in the manufacturing industry. Prior to joining Amber, he was associated with Onida
Savak Limited, Monica Electronics Private Limited, Kortek Electronics (India) Limited and LG
Electronics India Private Limited.

8 December 2020
Trades at 23x FY23E P/E; multiple has expanded

Although it has limited trading history, Amber currently trades higher than its average multiples.
It is currently trading at 29x FY22E P/E and 22x FY23E earnings compared to its 28x average.
On an EV/EBITDA basis, the stock trades at 17.0x FY22E EV/EBITDA and 13.4x on FY23E
vs 13x average.
We have calculated the valuation for Dixon using DCF—with 15% revenue growth till FY32E,
10% between FY33E and FY38E. We build stable margins at 7.5%.
Our target price assumes 5% terminal growth in earnings.
Figure 90: DCF—12% WACC; 5% implied terminal growth rate

WACC used 12.0%
Terminal growth rate 5.0%
Key growth and margin assumptions -

Revenue growth % EBIT %
FY24-32 15% 7.5%
FY33-38 10% 7.5%
NPV Calc NPV % of NPV

Sum of free cash flow 50,175 50
Terminal value 49,295 50
Enterprise value 99,470
Add Investments 0
Net debt 2,473
Net present value-equity 101,942
Shares o/s 33.7
NPV /share(Rs) 3,026
Amber is trading above its historical averages, at 23x FY23E P/E, 13.4x EV/EBITDA and 3.6x
P/B.
Figure 91: Amber trades at 38x fwd P/E vs 25x average Figure 92: Amber trades at 21x fwd EV/EBITDA

8 December 2020
Labour, volatile AC category, margins and concentration are

key risks
Key risks relate to:
(1) Contract labour: Large contractual labour management and avoiding any industrial
disputes, etc., which can affect production.
(2) Margins: Amber makes strong margins of 8-9% in the AC manufacturing business,
supported by vertical integration. However these margins are higher than typical contract
manufacturer margins and may come under pressure over a period of time. Although we
believe that contract manufacturing in ACs has higher value-add than electronic
manufacturing services, as in the case of Dixon, proportionate value add is lower.
(3) High market share already: Amber already has high market share in AC manufacturing
and that exposes it to risk of loss of market share as other OEMs set up operations.
(4) Competition from brands own manufacturing: Most of the leading brands have their
own manufacturing also and preference for outsourcing may shift.
(5) Seasonal weather dependent AC business: Vicissitudes of the domestic AC business
in terms of strong seasonality, weather dependence, rating changes-driven price increases
holding back demand.
(6) Customer concentration risk: Amber counts a number of marquee brands as its
customers, some of whom could constitute a material portion of segment revenues. Any
shift in vendors or decision to go in for in-house production by setting up own facilities
could impact performance.
(7) Slow exports ramp-up relative to expectations: Ramp-up in export markets given
overall stagnant global AC markets.
(8) Other critical components are getting indigenised affecting Amber’s leadership
status: Foreign players are setting up domestic capacity in components like compressors
to cater to the local demand. Ramping up presence by forward integrating into Amber’s
activities will increase competition and impact revenues and margins.
(9) Government policy stance: Amber is benefitting from government policy. But a change
in government stance based on changes in political leadership and relaxation of imports
restriction could affect the company’s prospects.
(10) Changing technology and consumer preferences: Consumer durables businesses, by
their very nature, are subject to technological risks stemming from new products,
production methodologies that might reduce competitive advantage of players like Amber.
(11) Investments in backward-integration may be dilutive: Amber is trying to backward-
integrate into making both AC and non-AC components, which translates to higher margins
but also exposes the company to technological risks as well as risk of investment not
fructifying, which may impact performance.

8 December 2020
Dixon Technologies DIXO.BO

Positioned to partake a larger share from many
growing pies Target price (12M, Rs)
14,000
Electronics Manufacturing Services Outperform[V]
Initiate with OUTPERFORM rating despite recent outperformance. We initiate with Price (7 Dec 20, Rs) 11,531
OUTPERFORM (TP of Rs14,000) despite the recent outperformance (205% over last year), Upside/downside (%) 21.4
based on: (1) strong near-term growth momentum (34% earnings CAGR); (2) still- Mkt cap (Rs/US$ mn) 135,030 / 1,832
reasonable valuation on FY23E basis for strong RoEs and cash flows; (3) FY23E estimates Enterprise value (Rs mn) 134,366
not capturing upside from exports and new categories; (4) incremental PLI approvals (e.g. Number of shares (mn) 11.71
computers etc.); and (4) multiple visible opportunities and more unfolding as size enables Free float (%) 46.3
larger investments. 52-wk price range (Rs) 11,916-3,169
Leading diversified EMS player. Dixon is the leading EMS player with dominating ADTO-6M (US$ mn) 8.5
(capacity share) presence in multiple product categories such as TVs, washing machines, [V] = Stock Considered Volatile (see Disclosure Appendix)
LED bulbs, mobile phones, set top boxes, etc. Dixon is one of the approved PLI participants
for mobiles and sees Rs300 bn of mobile manufacturing opportunity in mobiles, based on Research Analysts
the scheme.
Lokesh Garg
Multiple dimensions of opportunities; conducive time. Multiple dimensions of
91 22 6777 3743
opportunities for business growth can unfold from its current platform: (1) adding more
product categories (e.g. set-top boxes, medical devices and even refrigerators) or adjacent
categories (monitor from TVs); (2) gaining market share (more brands, more outsourcing Gaurav Birmiwal
share); (3) deepening vertical integration by adding capabilities in plastics, components and 91 22 6777 3873
PCB assembly etc.; (4) emerge as an ODM manufacturer in more categories (TV and gaurav.birmiwal@credit-suisse.com
mobiles); and (5) leveraging scale in the domestic market to target export markets (LEDs).
Manifold growth likely; execution is the key risk. We expect Dixon’s
revenues/EBITDA/PAT to grow at a CAGR of 26%/25%/34% during FY20-23, driven by
visible capacity addition, new customer sign-ups, margin accretion, and visible opportunities
such as production linked incentives for mobiles. Dixon trades at 48/34 times FY22/FY23E
earnings. Earnings estimates are likely to have a large dispersion given its growth outlook.
Our target price implies DCF-based revenue CAGR of 13% over FY30-38 at 5% margins
(75 bp higher than current levels) and terminal growth of 5%. We prefer it over Amber given
its diversified category presence. Key risks to execution are related to: (1) large contract
workforce, (2) dependence on government policy, (3) low promoter holding and recent
secondary sale, (4) management bandwidth, (5) relatively small balance sheet, and (6)
competition from other contract manufacturers (existing relationship with global brands).

Year 3/20A 3/21E 3/22E 3/23E
Revenue (Rs mn) 44,001.2 53,549.5 78,448.8 109,809
EBITDA (Rs mn) 2,230.6 2,606.8 4,084.9 5,515.8
EBIT (Rs mn) 1,865.4 2,163.5 3,551.6 4,892.5
Net profit (Rs mn) 1,205.0 1,624.4 2,760.0 3,915.2
EPS (CS adj.) (Rs) 104.15 140.4 238.54 338.39
Chg. from prev. EPS (%) n.a n.a n.a n.a
EPS growth (%) 86.2 34.8 69.9 41.9
P/E (x) 110.7 82.1 48.3 34.1
ROE (%) 26.2 26.3 33.5 34.3
Net debt/equity (%) (2.4) (13.1) (22.5) (33.0) Performance 1M 3M 12M
Absolute (%) 15.0 20.1 234.2
Source: Company data, Refinitiv, Credit Suisse estimates Relative (%) 6.6 1.7 221.9

8 December 2020
Dixon Technologies (DIXO.BO / DIXON IN) Analyst: Lokesh Garg

Price (07 Dec 2020): Rs11,531 Target Price: Rs14,000 Rating: Outperform
Company Background
Sales revenue 44,001 53,549 78,449 109,809
Cost of goods sold 38,602 48,730 67,466 94,436 Dixon is engaged in manufacturing products in the consumer durables,
EBITDA 2,231 2,607 4,085 5,516
EBIT 1,865 2,164 3,552 4,893 lighting and mobile phones markets in India.
Net interest expense/(inc.) 350 124 74 24
Recurring PBT 1,568 2,166 3,680 5,220 Blue/Grey Sky Scenario
Profit after tax 1,205 1,624 2,760 3,915
Inventories 4,978 5,868 8,597 12,034
Current assets 12,733 15,464 22,938 33,089
Investments 0 0 0 0
Intangibles 82 82 82 82
Total assets 16,970 20,600 28,974 40,025
Total debt 870 620 370 118
EBIT 1,865 2,164 3,552 4,893
Tax paid 0 0 0 0
Working capital 0 0 0 0 Our Blue Sky Scenario (Rs) 18,000
Other cash & non-cash items 365 443 533 623
Operating cash flow 2,231 2,607 4,085 5,516 We arrive at a blue sky scenario value of Rs18,000, on faster-than-
Capex (1,099) (1,343) (1,433) (1,523) expected ramp-up in domestic market opportunities, increasing earnings
Free cash flow to the firm 1,132 1,264 2,652 3,993 by 10% and at 60x multiples.
Investing cash flow (1,099) (1,343) (1,433) (1,523)
Equity raised 0 0 0 0
Dividends paid (83) (116) (139) (174) Our Grey Sky Scenario (Rs) 7,000
Financing cash flow (83) (116) (139) (174)
Total cash flow 1,049 1,148 2,513 3,819
We arrive at a grey sky scenario value of Rs7,000, on increasing market
Adjustments 0 0 0 0 competition or slower-than-expected growth in the industry impacting
Net change in cash 1,049 1,148 2,513 3,819 earning prospects, lowering to 20x multiples.
Per share 03/20A 03/21E 03/22E 03/23E
Shares (wtd avg.) (mn) 12 12 12 12
Share price performance
DPS (Rs) 6.00 10.00 12.00 15.00
Earnings 03/20A 03/21E 03/22E 03/23E
Growth (%)
Sales revenue 47.4 21.7 46.5 40.0
EBIT 64.8 16.0 64.2 37.8
EPS 86.2 34.8 69.9 41.9
Margins (%)
EBITDA 5.1 4.9 5.2 5.0
EBIT 4.2 4.0 4.5 4.5
Valuation (x) 03/20A 03/21E 03/22E 03/23E
P/E 110.7 82.1 48.3 34.1
P/B 24.65 19.27 13.98 10.04
Dividend yield (%) 0.1 0.1 0.1 0.1 The price relative chart measures performance against the S&P BSE SENSEX IDX which closed
EV/sales 3.1 2.5 1.7 1.2 at 45,426.97 on 07-Dec-2020
EV/EBITDA 60.5 51.5 32.5 23.7 On 07-Dec-2020 the spot exchange rate was Rs73.7/US$1
EV/EBIT 72.3 62.0 37.4 26.7
ROE 26.2 26.3 33.5 34.3
ROIC 28.4 28.7 39.7 45.1
Net debt/equity (%) (2.4) (13.1) (22.5) (33.0)
Net debt/EBITDA (x) (0.06) (0.35) (0.53) (0.80)

8 December 2020
Leading EMS player with a diversified presence

Dixon is a leading EMS player with a dominant presence in multiple product categories such as Dixon is a leading EMS player with a dominant
presence in multiple product categories such
TVs, washing machines, LED bulbs, mobile phones, set-top boxes, etc. Dixon has a dominant
as TVs, washing machines, LED bulbs, mobile
presence across categories in terms of the number of brands that rely on its services as well as phones, set-top boxes, etc.
the proportion of Indian demand that it can serve with its current and planned capacities. Dixon
is contract manufacturer for products such as TVs and mobile phones with narrow EBITDA
spreads. However, it has emerged as an ODM player in categories such as washing machines
and LED bulbs with strong EBITDA margins. Dixon has multiple dimensions of opportunities
beyond the traditional play of growth in market size in its categories given the current low
penetration levels in India.
Multiple dimensions of opportunities; conducive time

Dixon has established itself as leading electronic manufacturing services player in India with Dixon has established itself as a leading EMS
player in India with presence across multiple
presence across multiple product categories. Multiple dimensions of opportunities of business
product categories. It has multiple dimensions
growth can unfold from its current platform. (1) Adding more product categories (Dixon has of opportunities: (1) adding more product, (2)
recently added set-top boxes and medical devices as new product categories and is aiming at gaining market share, (3) deepening vertical
refrigerators) or expanding in to adjacent categories, such as monitors for computing devices integration, (4) emerging as an ODM
manufacturer in more categories, and (5)
from TVs. (2) Gaining market share in current categories by leveraging a larger number of brand
leveraging scale to target export.
customers, higher share of their outsourcing and evolving with the market into higher value-
added products such as smart LED bulbs. (3) Deepening vertical integration in current
categories from the current level of basic assembly to adding capabilities in plastic processing,
components, PCBs, etc. (4) Emerge as an ODM manufacturer in more categories such as TVs
and smartphones, besides washing machines and LED lights. (5) Leveraging scale in the
domestic market to target export markets as well. Dixon is aiming to make progress across all
these dimensions and that drives tremendous potential and excitement. The government policy
and geo political situation is conducive to make progress across these dimensions. Government
is promoting domestic manufacturing with all means such as production linked incentives,
imports restriction such as licences and bans, scaling duties depending on value add with a
defined phased manufacturing programme, domestic reforms/improvements in fundamental
areas like taxation, bankruptcy, labour, and infrastructure.
Manifold growth likely; execution on this large canvas

is the key risk
We expect Dixon revenues/EBITDA/PAT to grow at CAGR of 26%/25%/34% during FY20- We expect Dixon’s revenues/EBITDA and PAT
to grow at a CAGR of 26/25/34% during FY20-
23E driven by visible capacity addition, new customer sign ups, margin accretion and
23E driven by visible capacity addition, new
opportunities such as production linked incentives for mobiles. Dixon trades at 48/34 times customer sign ups, margin accretion and
FY22/FY23E earnings. Earnings estimates have a large dispersion given growth outlook. Key opportunities such as production linked
risks relate to execution on this large canvas of opportunities related to: (1) management of incentives for mobiles.
large workforce, (2) dependence on government policy support and incentives, (3) low promoter
holding with instances of recent sale in secondary market, (4) management bandwidth to
leverage so many simultaneous opportunities/expectations, and (5) relatively small balance
sheet that can limit the pace of investments.

8 December 2020
Leading EMS player with a diversified

presence
Dixon is the leading EMS player, with a dominant presence in multiple product categories such Dixon is leading EMS player with dominating
presence in multiple product categories such
as TVs, washing machines, LED bulbs, mobile phones, set-top boxes, etc. It has a dominant
as TVs, washing machines, LED bulbs, mobile
presence across categories in terms of the number of brands that rely on its services as well as phones, set-top boxes, etc.
the proportion of Indian demand that it can serve with its current and planned capacities. Dixon
is a contract manufacturer of products such as TVs and mobile phones, with narrow EBITDA
spreads. However, it has emerged as an ODM player in categories such as washing machines
and LED bulbs, with strong EBITDA margins. Dixon has multiple dimensions of opportunities
beyond the traditional play of growth in market size in its categories given current low
penetration levels in India.
Dixon has built up significant market share in the segments that it operates in despite entering
them in the last decade, with Mobile phone and security systems more recently.
Figure 93: Dixon entered security systems, mobile & washing machines in the last
decade
Figure 94: Half the revenues come in from TVs Figure 95: 45% of EBITDA comes in from lighting
Security Systems Reverse Logistics
2.2 bn 0.2 bn
5% 0%
Mobile Phones
5.4 bn
13%
Home Appliances
Consumer
4.0 bn
Electronics
9%
19.7 bn
46%
Lighting Products
11.4 bn
27%
Dixon caters to a wide variety of customers with strong market presence across segments,
thereby alleviating the concentration risks to an extent.

8 December 2020
Figure 96: Strong diverse customer base

Product Key customers
Televisions Xiaomi, Samsung, OnePlus, Panasonic, VU, TCL, Lloyd, Flipkart, Philips, Nokia, Hisense
and Toshiba
Lighting Signify, Panasonic Life solutions, Wipro, Bajaj, Syska, Orient, Havells, Polycab, Luminous
Washing Machines Samsung, Godrej, Panasonic, Lloyd, Flipkart, Haier, Voltas-Beko, Reliance
Mobile Phones Samsung, LG, Gionee, and Karbonn and is in talks with other majors to tie up under PLI
Security Devices Aditya Infotech
Dixon has a strong portfolio across products, with 100% of washing machines made with its
own designs (ODM), and increasing size and scope of ODM operations in lighting too.
Consumer electronics (TVs) have limited value-add in India, due to large capex needed for
backward integration. Dixon is primarily an OEM.
Figure 97: Focus on increasing ODM share in portfolio; better margins

100%
FY2016 FY2017 FY2018 87%
90%
FY2019 FY2020
80%
71%
70%
60%
50% 45%
40% 40%
40%
30%
20% 12%
9%
10% 4% 6% 6%
0%
Consumer Electroniics Lighting Home Appliances
Dixon has a large pan-India presence.
Figure 98: Dixon has recently expanded to the south by opening its Tirupati plant

8 December 2020
Multiple dimensions of opportunities;

conducive time
Dixon has established itself as a leading electronic manufacturing services player in India with Dixon has established itself as leading EMS
player in India with presence across multiple
presence across multiple product categories. Multiple dimensions of opportunities of business
product categories. Multiple dimensions of
growth can unfold from its current platform. (1) Adding more product categories (Dixon has opportunities i.e. (1) adding more product, (2)
recently added set-top boxes and medical devices as new product categories and is aiming at gaining market share, (3) deepening vertical
refrigerators) or expanding in to adjacent categories such as monitors for computing devices integration, (4) emerging as an ODM
manufacturer in more categories, (5)
from TVs. (2) Gaining market share in current categories by leveraging a larger number of brand
leveraging scale to target exports.
customers, higher share of their outsourcing and evolving with the market into higher value-
added products such as smart LED bulbs. (3) Deepening vertical integration in current
categories from current level of basic assembly to adding capabilities in plastic processing,
components, PCBs, etc. (4) Emerge as an ODM manufacturer in more categories such as TVs
and smartphones besides washing machines and LED lights. (5) Leveraging scale in domestic
market to target export markets as well. Dixon is aiming to make progress across all these
dimensions and that is driving tremendous potential and excitement. Government policy and the
geo political situation is conducive to make progress across these dimensions.
Consumer electronics, televisions, large segment; low value-

add
The market for TVs is estimated to be 14 mn units in 2019 and 21 mn units by 2023,
registering a growth of 10% p.a. The market in absolute terms is expected to grow from Rs220
bn (2019) to Rs322 bn (2023).
The growth is driven by penetration of smart TVs driven by: (1) rising internet penetration, (2)
rising content consumption and cheaper availability; (3) falling prices; (4) the increasing number
of TVs in homes; and (5) the replacement cycle of CRT and plasma TVs.
Dixon is the market leader in LED TV manufacturing, with capacity recently expanded to 4.4 mn
TVs p.a. (from 3.6 mn), with the inauguration of its facility in Tirupati in Andhra Pradesh, where
Liquid Crystal Module (LCM) line is present, and has deepened backward integration and
installed the second line of Surface Mount Tech (SMT) for PCB to 1.8 mn units (from 1 mn
earlier). With this expansion, Dixon is ~40% of India’s LED TV market.
Recently the Government of India has shifted imports of completed LED televisions from the
prohibited category to licensed category, necessitating a licence for imports, which brands were
using for importing larger size, high value TVs. To cater to this new opportunity, Dixon will be
further expanding capacity from 4.4 mn to 5.5 mn in this fiscal. As per news reports, 65% of
Samsung TVs sold are made locally. Xiaomi and TCL make 85% and 70%, respectively. Sony
said it locally produces ~99% of its TVs while for LG, 96-97% of its units sold are locally made
(link).
Dixon counts brands like Xiaomi, Samsung, OnePlus, Panasonic, VU, TCL, Lloyd, Flipkart,
Philips, Nokia, Hisense, and Toshiba as its customers.
Figure 99: TV industry is size is ~13 mn units… Figure 100: …with Dixon having ~40% industry capacity
15
Industry size (mn units)
10
0
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020

8 December 2020
With restrictions on imports of complete TVs, Dixon has signed on many new customers. Hence,
we are building higher capacity with strong utilisation levels.
Figure 101: Capacity to ramp up to meet new opportunities Figure 102: Seasonality in sales; with 2Q being key
12,000 4
Consumer Electronics Revenue (Rs Mn) EBIT (%)
4
10,000
3
8,000
3
6,000 2
2
4,000
1
2,000
1
- 0
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20
The segment is seasonal, with large parts of sales happening in 2Q, during the festival season.
Due to higher volumes expected to come though, we build revenues growing to Rs40 bn, with
stable margins.
Figure 103: Revenue double on capacity customer addition Figure 104: Stable margin; value add can deliver upside
50,000
Revenues (Rs Mn)
40,000
30,000
20,000
10,000
-
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021e FY2022e FY2023e
Open cell is key and limits value add

Dixon provides solutions like auto insertion, SMT, LCM module assembly, backward-integration
into LED panel assembly, with clean room, PCB assembly, Backward Light Unit and plastic
moulding. It also provides warehousing facilities at multiple locations.
Unlike mobile, which has several components of a diverse nature, open-cell is a key component
of TV manufacturing and drives the bulk of the value of TVs. India does not have any
manufacturing facility for the same. Imports of open cell reduce the potential for value add in
TVs for players like Dixon. This is probably the reason why, despite scale, Dixon’s margins in
this segment have not scaled up beyond 2-3%.
Lighting: ODM model and scale may help go beyond

domestic market
The Indian LED lighting industry was estimated to be Rs188 bn in 2019 and is expected to
touch Rs300 bn by 2023, at a CAGR of 12.5%.
Dixon designs and manufactures 2,000 variants of LED lighting solutions, ranging from 0.5W
to 50W, including main electronic board designing, mechanical, light source and packaging
designing, and has capacity for making LED bulbs, battens and downlighters. It is planning to
expand the product line to outdoor lighting—street and flood lights.
With a capacity of 240 mn LED bulbs per annum, Dixon manufactures 45% of the lights for the
Indian market and counts most of the Indian players as its customers. It has recently started

8 December 2020
exporting the same to countries like Malaysia, Indonesia and Mexico. Dixon plans to increase its
market share to 25% of the Indian market.
The major customers in this segment are Signify, Panasonic Life solutions, Wipro, Bajaj, Syska,
Orient, Havells, Polycab, Luminous.
The higher share of ODM business results in the strong margin profile. In the last quarter, the
share of ODM business was >90%.
It is also working on increasing the automation levels that will contribute to improvement in
segment margins.
Figure 105: LED lighting market size is >US$2 bn; Dixon aims to reach 25% market
share
3
LED products market size (USD bn)
0
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
With the lighting market is transitioning to LED bulbs, Dixon’s addressable market is growing.
Dixon has ~45% of market capacity.
Figure 106: India lighting market is transitioning towards LED Figure 107: India lighting products market (Rs mn)
from older CFL (mn)
1800 140000
Lamps - GLS FTL CFL LED Retrofit Lamps TLED LED Street Lights Total Conventional Lighting (Rs Mn) Total LED Lighting (Rs Mn)
1600
120000
1400
100000
1200
1000 80000
800 60000
600
40000
400
20000
200
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: ELCOMA, Credit Suisse estimates Source: ELCOMA, Credit Suisse estimates

8 December 2020
Figure 108: Lighting revenues to grow to Rs15 bn Figure 109: EBITDA margins resilient on ODM designs
20,000
Revenues (Rs Mn)
15,000
10,000
5,000
-
Home Appliances: Washing machines/automatic to drive the

near-term; ODM model and scale to buoy prospects
The Indian washing machine market was estimated at 7mn units in F19-20, valued at Rs104 b
and expected to reach10 mn units (Rs146 bn) by FY23—a 12% CAGR. Volume in FY19-20
grew at 7% to 0.8 mn units (~11.5% of the Indian market) from 0.75 mn units in FY19.
The washing machine market is mainly driven by (i) growing working population, (ii) increase in
the number of nuclear families, (iii) rising manpower costs (domestic help) and (iv) the rising
trend of working women.
The home appliances segment of the company presently comprises of semi-automatic washing
machines which accounts for 65% of the total industry volumes. Dixon has the largest capacity
in India at 1.2 mn p.a. which is almost 28% of the Indian market requirement. It is expanding to
start manufacturing fully automatic washing machines as well.
The company has 140 models from 6.0 kg to 10 kg and the home appliances segment is
completely based on an Original Design Manufacturing (ODM) model, translating to higher
margins.
Fully automatic top loading washing machine expansion is on track in Tirupati campus, with trials
in end of 3Q21. It will start with ~45 variants of top loading washing machine in the fully
automatic category and an annual capacity of 0.6 mn.
In this category only 30% of the Bill of Material is imported, and the company is also working to
localise some of the imported components. It has recently signed a contract with a global MNC
and expects imports to come down to 30%.
The major customers in this segment are Samsung, Godrej, Panasonic, Lloyd, Flipkart, Haier,
Voltas- Beko, Reliance etc
Figure 110: Washing machine market size (Rs bn) Figure 111: 10 mn units market in 2019
200
Semi Automatic WM Automatic WM
150
100
50
0
2014 2019 2024F

8 December 2020
Figure 112: Washing machine market share—LG, Samsung half of market
LG, 26.1%
Others, 34.7%
Samsung,
IFB, 7.6% 20.1%
Whirlpool,
11.5%
Figure 113: India washing machine imports (nos) Figure 114: Washing machine capacity to be increased with
automatic washing machine foray
4.0 100
Capacity-Semi WM Capacity-Auto WM Utilization (%)
80
3.0
60
2.0
40
1.0
20
- -
FY2019 FY2020 FY2021e FY2022e FY2023e
Source: DGFT, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 115: Washing machines revenues to improve to Rs15 bn Figure 116: EBITDA margin to be stable at ~12%
20,000
Revenues (Rs Mn)
15,000
10,000
5,000
-
Mobile Phones: PLI scheme to be the key driver

India’s mobile phones market was valued at Rs1,600 bn FY20 as per Dixon and estimated to
touch Rs2,000 bn, till FY23 at a CAGR of 6%. As many as 268 manufacturing units for mobile
handsets & their sub-assemblies/components have been set up in India during the last three
years.

8 December 2020
India is the world’s second-largest smartphone market with annual volumes of around 150-160
mn units and is growing faster than the overall global smartphone market.
India has been incentivising domestic assembly and manufacturers by imposing duties on
imported mobiles through differential duty structure (from FY16), which has been extended to
the component level via its Phased Manufacturing Programme (PMP). The PLI scheme with an
outlay of Rs410 bn is expected to exponentially grow India’s share in the global market with
suppliers to Apple actively setting up capacities to make in India.
Figure 117: India turned a net exporter of mobile phones

250
India - mobile phones trade
200 mn units
150
100
50
-
(50)
(100)
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Imports Exports Net Imports
Source: Ministry of Commerce, Credit Suisse
One of Dixon’s applications (of two) under the PLI scheme has been accepted under the
domestic manufacturers space (less than Rs15,000 category).
Figure 118: Indian handset market is ~300 mn units, with 15-20% value add, aiming
to be increased by PLI
400
Handsets market (mn units)
300
200
290
100 225
175
110
60
0
FY2015 FY2016 FY2017 FY2018 FY2019
Dixon currently manufactures feature phones, smart phones, PCBA for mobiles with a
backward integration framework and an annual capacity of 32 mn mobiles p.a. Mobile division
capacity was modified to be able to manufacture set-top boxes too.
Key customers are Samsung, LG, Gionee, and Karbonn and Dixon is in talks with other majors
to tie up upcoming investments under the PLI scheme.

8 December 2020
Figure 119: Revenue ramp-up likely on PLI scheme Figure 120: EBITDA margin improvement to be muted
Security and reverse logistics divisions

Dixon makes security systems for Aditya Infotech one of India’s major players, in a JV with it,
making CCTVs and DVRs. Aditya Infotech Ltd is one of the leading industry players with a
market share of approx. 24%.
The reverse logistics business of the company involves repair & refurbishment of set-top boxes,
LED TV panels and mobile phones. It is one of the few companies to have panel repairing and
LED TV refurbishment facilities. This business is more strategic in nature, more to enhance the
stickiness with customers and provide them end-to-end solutions.
Figure 121: Security systems revenues Figure 122: Reverse logistics revenues
800 6
Security Systems Revenue (Rs Mn) EBITDA (%)
700 4
600
2
500
0
400
-2
300
-4
200
100 -6
- -8
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20
Set-top boxes and medical electronics division

This is a new segment. Set-top boxes capacity will be fungible with mobile phones to an extent,
and the company is in talks with leading players to start manufacturing the same.
Dixon has also forayed into the medical electronics vertical. An MOU has already been signed
with Molbio for manufacturing of PCR Analyzer machines. These will be manufactured at its
Tirupati plant.

8 December 2020
Manifold growth likely; execution is key risk

We expect Dixon’s revenues/EBITDA and PAT to grow at a CAGR of 26/25/34% during We expect Dixon’s revenues/EBITDA and PAT
to grow at a CAGR of 26/25/34% during FY20-
FY20-23E driven by visible capacity addition, new customer sign-ups, margin accretion and
23E driven by visible capacity addition, new
opportunities such as production-linked incentives for mobiles. Dixon trades at 48/34 times customer sign ups, margin accretion and
FY22/FY23E earnings. Earnings estimates have a large dispersion given the growth outlook. opportunities such as production linked
Key risks to execution on this large canvas of opportunities relate to: (1) management of large incentives for mobiles.
workforce, (2) dependence on government policy support and incentives, (3) low promoter
holding with instances of recent sale in secondary market, (4) management bandwidth to
leverage so many simultaneous opportunities/expectations and (5) relatively small balance sheet
that can limit the pace of investments.
Financials: 25% revenue CAGR, margins at 5%

We expect revenues to grow to Rs110 bn, with EBITDA margins stable at 5% and Rs5.5 bn
EBITDA.
Figure 123: Revenues expected to grow at 25% CAGR Figure 124: EBITDA margin stable at 5%
Dixon is expected to have ~Rs340 EPS in FY23, a 34% CAGR in EPS over FY20 to FY23E.
Figure 125: EPS CAGR of 35% driven by better asset turns Figure 126: At Rs1,150 BV, the stock trades at 10x P/B

8 December 2020
Figure 127: Strong return ratios driven by strong asset turns
Cash flow generation has been muted, expected to improve significantly going forward, coupled
with improvement in working capital days. We build in Rs 1.3 -1.5 bn investment in fixed assets
annually going forward
Figure 128: Strong CFO generation expected to continue Figure 129: Rs1 bn capex (FY20); Rs1.5 bn forward capex/year
5,000
CFO (Rs mn)
4,000
3,000
2,000
1,000
-
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021
FY2022
FY2023
(1,000)
While FCF generation has been weak due to consumption of cash in working capital. FCF
generation is expected to be strong going forward with strong CFO while capex investments are
lower.
Figure 130: FCF generation of Rs5.3 bn in FY21-23E Figure 131: Working capital days already low at ~10 days
3,000
FCF (Rs mn)
2,500
2,000
1,500
1,000
500
-
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
(500)
(1,000)
We build 25% CAGR in revenues over FY20 to FY23E, with stable 5.0-5.2% EBITDA margins.
We build PAT improving to 3.6% in FY23 from 2.7% in FY20, driven by lower interest costs
and improved asset turns resulting in depreciation rising lower than revenue increase.

8 December 2020
Figure 132: Dixon—summary financials; 35% revenue CAGR; 48% PAT CAGR
FY2018 FY2019 FY2020 FY2021E FY202E FY2023E
Revenue 28,416 29,844 44,001 53,549 78,449 109,809
RM cost (24,870) (26,093) (38,602) (48,730) (67,466) (94,436)
Employee costs (728) (839) (1,180) (1,606) (2,353) (3,294)
Other expenses (1,692) (1,564) (1,989) (606) (4,544) (6,563)
EBITDA 1,127 1,349 2,231 2,607 4,085 5,516
Other income 42 56 52 126 202 351
Interest (135) (250) (350) (124) (74) (24)
Depreciation (152) (217) (365) (443) (533) (623)
PBT 882 938 1,568 2,166 3,680 5,220
Tax (273) (305) (363) (541) (920) (1,305)
PAT 609 634 1,205 1,624 2,760 3,915
EPS 54 56 104 140 239 338
Revenue growth (%) 15.7 5.0 47.4 21.7 46.5 40.0
EBITDA (%) 4.0 4.5 5.1 4.9 5.2 5.0
PAT (%) 2.1 2.1 2.7 3.0 3.5 3.6
Figure 133: Segmental projections

Revenues FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
Consumer Electronics 10,059 11,166 20,952 27,570 33,578 40,947
Lighting Solutions 7,742 9,191 11,397 10,100 13,510 15,585
Home Appliances 2,503 3,739 3,963 4,900 11,050 14,900
Mobile Phones 6,698 3,556 5,369 8,350 15,535 26,785
Security Surveillance Systems 5 1,121 2,164 1,770 2,500 2,588
Reverse Logistics 734 324 156 124 168 227
Others (Medical Devices, STBs) - - - 2,875 6,250 6,875
EBITDA margins (Rs mn)
Consumer Electronics 233 211 504 775 1,037 1,262
Lighting Solutions 472 660 977 960 1,351 1,559
Home Appliances 308 369 461 564 1,381 1,863
Mobile Phones 65 74 191 290 461 686
Security Surveillance Systems (9) 12 72 35 88 91
Reverse Logistics 58 7 26 12 17 23
Others (Medical Devices, STBs) - - - 86 188 206
EBITDA (%)
Consumer Electronics 2.3 1.9 2.4 2.8 3.1 3.1
Lighting Solutions 6.1 7.2 8.6 9.5 10.0 10.0
Home Appliances 12.3 9.9 11.6 11.5 12.5 12.5
Mobile Phones 1.0 2.1 3.6 3.5 3.0 2.6
Security Surveillance Systems 1.1 3.3 2.0 3.5 3.5
Reverse Logistics 7.8 2.3 16.9 10.0 10.0 10.0
Others (Medical Devices, STBs) 3.0 3.0 3.0
Shareholding: Promoter and aligned members sold about

13% stake including IPO
Promoters own 36% of the company as of September 2020 disclosures. In all, institutions own
40% of the company with the rest (~25%) held by others.

8 December 2020
Figure 134: Promoters own 37% of the company, with Figure 135: Promoters have sold ~0.3mn shares post IPO
institutions owning 40%
200,000 350,000
Cumulative Sale (RHS) Sale by promoters (# shares, LHS)
300,000
150,000 250,000
200,000
100,000
150,000
50,000 100,000
50,000
- -
Source: BSE, Credit Suisse Source: BSE, Credit Suisse estimates
While mutual fund holdings have come down, FII holding has gone up in the same period.
Figure 136: Institutional holding (as a % of total shares o/s) remains strong
25 MF FII Retail HNI
20
15
10
0
Jul-18
Jul-19
Jul-20
Nov-17
May-18
Nov-18
May-19
Nov-19
Jan-20
May-20
Sep-20
Sep-17
Jan-18
Mar-18
Sep-18
Jan-19
Mar-19
Sep-19
Mar-20
Source: BSE, Credit Suisse estimates
Promoter selling has been happening over the last year, and they have cumulatively sold
~0.3mn shares (Rs1.57 bn).
The IPO in 2017 raised Rs6 bn, and was made up of fresh issue of Rs0.6 bn shares and OFS
of 3,053,675 shares (Rs5.4 bn), from:
- 634,368 shares by Sunil Vachani (Rs1.12 bn)
- 1,446,201 and 495,313 shares by India Business Excellence Funds (Motilal PE) (Rs3.42
bn) and
- 477,793 shares by other KMP (Rs0.84 bn).

8 December 2020
Figure 137: Promoter holding at 36% Figure 138: Promoters have sold ~0.3mn shares
39.5 200,000 350,000
Promoter holding Cumulative Sale (RHS) Sale by promoters (# shares, LHS)
39.0 300,000
38.5 150,000 250,000
38.0
200,000
37.5 100,000
37.0 150,000
36.5 100,000
50,000
36.0
50,000
35.5
35.0 - -
34.5
Source: BSE, Credit Suisse Source: BSE, Credit Suisse estimates
Management profiles
Mr Sunil Vachani, Executive Chairman. He holds a degree of Associate of Applied Arts in
business administrations from the American College in London. He has over 28 years of
experience in the EMS industry. He is the promoter and has been associated with the company
since inception.
He has held positions like chairman of the Electronics and Computer Software Export
Promotion Council of India and Co-Chair of the CII ICTE Committee. He is currently the vice
president of CEAMA.
Mr Atul B Lall, Managing Director. He holds a master’s degree in management studies from
the Birla Institute of Technology and Science, Pilani. He has been associated with Dixon since
inception. He has nearly three decades of experience in the EMS industry.
Mr Lall has served as a member of the Technical Evaluation Committee for Electronic
Manufacturing Services under M-SIPS (Electronic Manufacturing Services EMS) constituted by
the DeitY and served as a representative of ELCINA on the Committee for Reliability of
Electronic and Electrical Components and Equipment (LITD. 02) of the BIS.
Mr Saurabh Gupta, Chief Financial Officer. Mr Gupta was last associated with the cinema
chain PVR as vice president till Aug-2017. He has also worked with reputed companies like
Gumberg India, Unitech and Mckinsey and has an experience of over 15 years in the field of
finance & strategy. He is an associate of the Institute of Chartered Accountants of India & an
MBA (Executive Program) from MDI, Gurgaon.
Divisional heads
Mr Abhijit Kotnis, President & Chief Operating Officer (LED TV). Mr Kotnis has over 28
years of rich and extensive experience across Manufacturing, Technology, Business
Development and sourcing fields. He was associated with the Videocon Group for close to three
decades in various roles and in his immediate past, he was working in the capacity of
CMO/CTO with the said Group.
Mr Vineet Kumar Mishra, President & Chief Operating Officer (Lighting). In the past, he
has worked with Samsung India Electronics Limited, Hotline Witties Electronics Limited and
Onida Savak Limited and has over two decades of experience in electronics engineering. He
joined the company on 5 February 2004.
Mr Rajeev Lonial, President & Chief Operating Officer (Washing Machine). In the past,
Mr Lonial has worked with Dipty Lal Judge Mal Private Limited, Noble Moulds Private Limited,
Evershine Moulding Private Limited, Ever Shine Plastic Industries, Essen Fabrication &
Engineering Co. Private Limited and Shree Krishna Keshav Lab Limited and is working for more
than 30 years in the field of plastics moulding. He joined DBMPL on 21 July 2010.

8 December 2020
Mr Pankaj Sharma, President & Chief Operating Officer (Mobile & Security Devices). In
the past, Mr Sharma has worked with Bigesto Foods Private Limited, Satkar Exports,
Bestavision Electronics Limited, Samsung Co. Limited, Jain Tube Company Limited and Shirllon
Co. Limited and has a collective experience of close to three decades in factory operations,
manufacturing, supply chain, global sourcing, and business development.
Multiple expansion on performance and policy support

Although it has a limited trading history, Dixon currently trades higher than its average multiples.
It is currently trading at 58x one-year forward P/E compared to its 37x average. On an
EV/EBITDA basis, the stock trades at 38x EV/EBITDA vs a 20x average. The multiples are
lower on a FY23E basis considering the sharp growth being built into the numbers at 34x
FY23E P/E, 23x EV/EBITDA and 10x P/B.
We have calculated the valuation for Dixon using DCF—with 25% revenue growth till FY26,
15% between FY27 and FY35 and 10% revenue growth until FY38. We build margins
improving to 5.5% (4.5% till FY30, 5% till FY35 and 5.5% thereafter).
Our target price of Rs14,000 assumes 5% terminal growth in earnings
Figure 139: DCF – 5% implied terminal growth rate; 12% WACC

WACC used 12.0%
Terminal growth rate 5.5%
Key growth and margin assumptions -

Revenue growth % EBIT %
FY24-25 25% 4.50%
FY26 20% 4.50%
FY27-30 15% 4.50%
FY30-35 15% 5.00%
FY36-38 10% 5.50%
NPV Calc NPV % of NPV

Sum of free cash flow 67,803 42
Terminal value 94,090 58
Enterprise value 161,892
Add Investments 0
Net debt 2150
Net present value-equity 164,042
Shares o/s 11.6
NPV /share(Rs) 14,178

8 December 2020
Figure 140: Dixon trades at 34x FY23E P/E Figure 141: Dixon trades at 23x FY23E EV/EBITDA
Source: Credit Suisse estimates Source: Credit Suisse estimates
Similarly, Dixon trades at 16x P/B multiple compared to its average of 7.5x multiple.
Key risks
(1) Low cost imports can continue to be hamper domestic pickup:
Cheap imports from China are a key source of risk for the business. The company has
benefitted from a localisation drive as well as measures taken to promote domestic
manufacturing. Relaxation of the same could affect the company’s prospects.
(2) Technological obsolescence risks:
EMS and consumer durables businesses by their very nature are subject to technological
risks stemming from new products, production methodologies that might reduce
competitive advantage of players like Dixon.
(3) Risk from backward integration, ODM investments:
Dixon is trying to backward integrate and foray into ODM businesses, which directly
translate to higher margins but also expose the company to technological risks as well as
the risk of investments not fructifying, which may impact performance.
(4) Increased competition risk:
In response to various initiatives like PLI, overseas vendors are setting up domestic
operations and will be competing with Dixon to capture the new opportunities.
Technological, scale advantages and drive to capture market share can impact the revenue
and margin expectations.
(5) Customer concentration risk:
Dixon counts a number of marquee brands as its customers, some of whom could
constitute a material portion of segment revenues. Any shift in vendors or decision to
produce in-house by setting up their own facilities could impact performance.
Dixon spends Rs50 bn, 0.1% of revenue (~4% of EBITDA) in R&D spends, with contract
labour forming a large part of its workforce.
.

8 December 2020
Figure 142: Contract labour is a large segment of workforce Figure 143: Limited R&D spend, 0.2% of Revenues
10,000
Permanent employees Contract
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
Jul-17 Mar-18 Mar-19 Mar-20
Dixon has almost no exports, with the same having picked up in FY17-18, to 2.5% of revenues,
which has since come down.
Figure 144: Exports had picked up in FY17-18, muted now Figure 145: Imports account for >50% of RM costs

8 December 2020
Voltas VOLT.BO
Stronger-than-expected AC growth and build-
up in durables franchise can drive upside Target price (12M, Rs)
870.00
Electrical Equipment Outperform
AC business performance ahead of expectations, projects more domestic. We like Price (7 Dec 20, Rs) 808.85
Voltas for its strong franchise in the AC market with a market share of 26.4% YTD till Upside/downside (%) 7.6
August 2020. Voltas performed better than the market in both FY20 (~30% YoY growth in Mkt cap (Rs/US$ mn) 267,636 / 3,631
room AC segment) as well as 1H FY21. Voltas also shared that it has scaled up the air Enterprise value (Rs mn) 246,062
cooler category well and had an 11% market share there, becoming the second brand in Number of shares (mn) 330.88
that category. Project business has had strong order inflow traction Fin Y20 in the domestic Free float (%) 69.7
52-wk price range (Rs) 820-437
market and the order book has reached a high of Rs69 bn (vs Rs50 bn at end-FY19) on the
ADTO-6M (US$ mn) 20.9
back of water sector orders. The international business was Rs23 bn of this backlog and
domestic backlog is Rs45 bn. Voltas now has only ~10% EBIT exposure to the Middle East.
Research Analysts
AC demand could surprise on the upside. AC demand could surprise based on: (1)
lower upfront prices of ACs as prices have not risen despite invertor ACs becoming Lokesh Garg
mainstream products, (2) efficiency of power usage has gone up (rating changes) reducing 91 22 6777 3743
electricity bills from using an AC, (3) power supply has become more stable across India and lokesh.garg@credit-suisse.com
tariff increases have been modest, (4) incomes are rising and societal norms now accept AC Gaurav Birmiwal
as a necessary comfort product, and (5) current penetration levels are very low. 91 22 6777 3873
Voltas-Beko—10% market share target by FY2024-25. Voltas Beko JV is scaling up
well with market share in the range of 2% in refrigerators and washing machines already
and gaining traction incrementally. Sanand factory has started well with an initial capacity of
1 mn refrigerators (2.5 mn by FY25) & washing machines. Voltas has ramped up to 35,000
refrigerators/month by Oct-2020 despite COVID-19, in tune with 2-3% market share.
Outperformed recently: valuation still below peers. Voltas has outperformed and thus
expectations have got raised. Despite valuations being high in the historical context, we
retain our OUTPERFORM based on (1) strong performance in the room AC business on
market share, margins, (2) successful product/brand extensions as in coolers, (3) likely
upside from its consumer durables foray with Voltas-Beko, (4) strong structural growth in
room AC and other consumer durables, and (5) valuations are not high relative to peers.
Key risk is loss of market share (large gap vs peers) and margins (in high 13% range) in
the context of a relatively crowded shelf in ACs.

Year 3/20A 3/21E 3/22E 3/23E
Revenue (Rs mn) 76,580.8 67,148.0 88,747.1 99,645.9
EBITDA (Rs mn) 6,866.6 4,764.7 8,690.6 10,393.2
EBIT (Rs mn) 6,547.0 4,428.9 8,335.6 10,021.1
Net profit (Rs mn) 5,722.4 4,976.1 8,160.1 9,620.7
EPS (CS adj.) (Rs) 17.3 15.04 24.67 29.08
Chg. from prev. EPS (%) n.a. 0.0 0.0 0.0
EPS growth (%) 8.9 (13.0) 64.0 17.9
P/E (x) 46.8 53.8 32.8 27.8
ROE (%) 13.6 11.2 16.6 17.4
Absolute (%) 7.4 26.9 17.3

8 December 2020
Voltas (VOLT.BO / VOLT IN) Analyst: Lokesh Garg

Price (07 Dec 2020): Rs808.85 Target Price: Rs870.00 Rating: Outperform
Company Background
Sales revenue 76,581 67,148 88,747 99,646
Cost of goods sold 55,549 49,943 63,917 71,456 Voltas offers engineering solutions in areas such as heating, ventilation,
EBITDA 6,867 4,765 8,691 10,393
EBIT 6,547 4,429 8,336 10,021 air conditioning, refrigeration, electro-mechanical projects, materials
Net interest expense/(inc.) 125 84 80 75 handling and water management. Voltas is among the leading companies
Recurring PBT 8,642 6,557 10,661 12,562 in domestic AC products in India.
Profit after tax 6,409 4,863 7,906 9,316
Net profit (Credit Suisse) 5,722 4,976 8,160 9,621 Blue/Grey Sky Scenario
Inventories 14,689 10,118 13,373 15,015
Current assets 53,332 48,050 62,376 73,327
Investments 23,811 23,811 23,811 23,811
Total assets 81,556 76,438 90,909 101,988
Total debt 2,179 2,179 2,179 2,179
EBIT 6,547 4,429 8,336 10,021
Net interest 211 174 174 174
Tax paid (2,233) (1,694) (2,754) (3,245)
Working capital (1,103) 1,170 721 (1,493)
Other cash & non-cash items 320 336 355 372
Operating cash flow 3,742 4,415 6,831 5,829 Our Blue Sky Scenario (Rs) 1,000
Capex (898) (496) (500) (500)
Free cash flow to the firm 2,844 3,919 6,331 5,329 Blue sky scenario takes into account the possibility that competition and
Investing cash flow (374) (496) (500) (500) commodity prices have no impact on the AC market overall and within
Equity raised (1,928) 0 0 0
that Voltas continues to retain its position of strength in terms of market
Dividends paid (1,303) (1,244) (2,040) (2,405)
Financing cash flow (4,670) (1,667) (2,622) (3,061) share (24-25%) and margins (13-14%). In such a scenario market
Total cash flow (1,302) 2,252 3,709 2,269 multiple can expand to about 35x for the stock.
Adjustments 0 0 0 0
Net change in cash (1,302) 2,252 3,709 2,269 Our Grey Sky Scenario (Rs) 600.00
Per share 03/20A 03/21E 03/22E 03/23E
Shares (wtd avg.) (mn) 331 331 331 331 Impact of competition and higher prices on the AC market is sharp and
persistent apart from Voltas losing its position of strength in the market. In
DPS (Rs) 3.94 3.76 6.17 7.27
Operating CFPS (Rs) 11.31 13.35 20.65 17.62 such a scenario apart from earnings even the multiple would derate.
Earnings 03/20A 03/21E 03/22E 03/23E
Growth (%) Share price performance
Sales revenue 7.5 (12.3) 32.2 12.3
EBIT 11.4 (32.4) 88.2 20.2
EPS 8.9 (13.0) 64.0 17.9
Margins (%)
EBITDA 9.0 7.1 9.8 10.4
EBIT 8.5 6.6 9.4 10.1
Valuation (x) 03/20A 03/21E 03/22E 03/23E
P/E 46.8 53.8 32.8 27.8
P/B 6.25 5.78 5.15 4.56
Dividend yield (%) 0.5 0.5 0.8 0.9
EV/sales 3.3 3.6 2.7 2.3
EV/EBITDA 36.3 51.3 27.4 22.5
EV/EBIT 38.1 55.2 28.6 23.3
ROE 13.6 11.2 16.6 17.4 The price relative chart measures performance against the S&P BSE SENSEX IDX which closed
ROIC 20.0 13.6 26.4 30.8 at 45,426.97 on 07-Dec-2020
On 07-Dec-2020 the spot exchange rate was Rs73.7/US$1
Net debt/equity (%) (42.8) (49.3) (55.7) (57.7)
Net debt/EBITDA (x) (2.69) (4.82) (3.35) (3.28)

8 December 2020
Havells India Ltd HVEL.BO

A diversified play on electrical products, with
manufacturing as a key strength Target price (12M, Rs)
775.00
Multi Industry Neutral
Diversified play on home electrical products, in-house manufacturing has been a Price (7 Dec 20, Rs) 825.00
key strength. Havells is a diversified play on home electrical products spanning switchgears, Upside/downside (%) -6.1
ceiling fans, water heaters, small appliances, cables, wires, lighting and white goods (air Mkt cap (Rs/US$ mn) 516,426 / 7,007
conditioners, refrigerators, washing machines). The company has positioned itself in high Enterprise value (Rs mn) 504,482
quality products at premium prices in most segments. One major differentiation to peers has Number of shares (mn) 625.97
been Havells’ strategy to manufacture over 90% of its products in-house for over a decade. Free float (%) 38.3
52-wk price range (Rs) 844-459
This has helped build credibility with the channel partners on quality.
Strong recovery post-COVID especially in B2C products. Havells gets ~80% of its
revenues from B2C categories, where there has been a strong recovery post COVID.
Research Analysts
Consumer spending on improving their homes through better electrical products has seen a
surge post COVID. There is also pent-up demand from the large postponement of Arnab Mitra
purchases which happened in 4Q FY20 and 1Q FY21 at the peak of the pandemic. We 91 22 6777 3806
expect strong double digit growth to sustain in 2H FY21. The recovery in the B2B arnab.mitra@credit-suisse.com
segments is slower, but even here there is an improving trend. Pratik Rangnekar
Lloyd has undergone many changes including own manufacturing, better poised 91 22 6777 3899
pratik.rangnekar@credit-suisse.com
for the future. Havells had acquired Lloyd a few years back to enter the white goods space.
The first two years were very tough and Havells had to do a lot of restructuring in the
business. Many distributors were changed, IT systems were put in place and the modern
trade channel was initiated. Havells also put up its own air conditioner manufacturing
capacity in FY20, which lowers costs given the high import duties, and also gives high
flexibility in supplies, especially during the summer season. Lloyd has also now made an
entry into refrigerators and washing machines, which, while small now, makes Lloyd a full
range player in white goods.
Valuations are stretched. Havells trades at 50x FY22 earnings, which is stretched versus
its own history and peers in electrical consumer products. While we remain positive on the
long-term prospects of the company, we maintain our NEUTRAL rating on stretched
valuations and await a better entry price.

Year 3/20A 3/21E 3/22E 3/23E
Revenue (Rs mn) 94,292.0 94,022.6 112,540 124,707
EBITDA (Rs mn) 10,274.1 13,700.1 16,028.7 18,246.7
EBIT (Rs mn) 8,095.0 11,226.8 13,267.9 15,198.4
Net profit (Rs mn) 7,330.6 8,792.8 10,555.8 12,227.3
EPS (CS adj.) (Rs) 11.73 14.07 16.89 19.56
EPS growth (%) (1.3) 19.9 20.1 15.8
P/E (x) 70.4 58.7 48.9 42.2
ROE (%) 17.2 19.4 21.0 21.7
Absolute (%) 0.8 29.4 24.8

8 December 2020
Havells India Ltd (HVEL.BO / ) Analyst: Arnab Mitra

Price (07 Dec 2020): Rs825.00 Target Price: Rs775.00 Rating: Neutral
Company Background
Sales revenue 94,292 94,023 112,540 124,707
Cost of goods sold 58,351 58,190 69,569 76,674 Havells is a leading player in consumer products (electric heaters,
EBITDA 10,274 13,700 16,029 18,247
EBIT 8,095 11,227 13,268 15,198 appliances, fans, lighting) and domestic electrical hardware, such as
Net interest expense/(inc.) 197 592 444 333 switchgears.
Recurring PBT 9,018 11,755 14,112 16,347
Profit after tax 7,331 8,793 10,556 12,227
Blue/Grey Sky Scenario
Inventories 18,719 18,665 22,341 24,757
Current assets 34,241 37,568 45,114 53,092
Investments 604 604 604 604
Intangibles 0 0 0 0
Other non-current assets 2,139 2,139 2,139 2,139
Total assets 70,479 76,332 86,117 96,047
Total debt 1,314 1,314 1,314 1,314
EBIT 8,095 11,227 13,268 15,198
Net interest 923 528 844 1,148
Tax paid (1,687) (2,962) (3,556) (4,119)
Working capital (160) 1,149 (63) 615
Other cash & non-cash items 922 1,945 1,917 1,900 Our Blue Sky Scenario (Rs) 933.00
Operating cash flow 8,093 11,887 12,409 14,742
Capex (5,205) (5,000) (5,000) (5,000) Our blue sky price of Rs 933 assumes faster than expect growth with
Free cash flow to the firm 2,888 6,887 7,409 9,742 steady margin gains due to strong macro recovery.
Investing cash flow (3,327) (3,880) (3,712) (3,519)
Dividends paid (3,016) (4,232) (5,081) (5,886) Our Grey Sky Scenario (Rs) 622.00
Financing cash flow (2,854) (4,824) (5,525) (6,218)
Total cash flow 1,913 3,183 3,172 5,005
Our grey sky price of Rs 622 assumes sluggish consumer sentiment
Adjustments 0 0 0 0 persists in India for longer than expected.
Net change in cash 1,913 3,183 3,172 5,005
Per share 03/20A 03/21E 03/22E 03/23E Share price performance
Shares (wtd avg.) (mn) 625 625 625 625
DPS (Rs) 4.00 5.79 6.95 8.05
Earnings 03/20A 03/21E 03/22E 03/23E
Growth (%)
Sales revenue (6.0) (0.3) 19.7 10.8
EBIT (18.6) 38.7 18.2 14.6
EPS (1.3) 19.9 20.1 15.8
Margins (%)
EBITDA 10.9 14.6 14.2 14.6
EBIT 8.6 11.9 11.8 12.2
Valuation (x) 03/20A 03/21E 03/22E 03/23E
P/E 70.4 58.7 48.9 42.2
P/B 11.98 10.83 9.72 8.68 The price relative chart measures performance against the S&P BSE SENSEX IDX which closed
Dividend yield (%) 0.5 0.7 0.8 1.0 at 45,426.97 on 07-Dec-2020
EV/sales 5.4 5.4 4.4 4.0 On 07-Dec-2020 the spot exchange rate was Rs73.7/US$1
EV/EBITDA 49.3 36.8 31.2 27.1
EV/EBIT 62.6 44.8 37.7 32.6
ROE 17.2 19.4 21.0 21.7
ROIC 20.6 24.7 27.7 30.2
Net debt/equity (%) (22.7) (27.2) (30.3) (35.5)
Net debt/EBITDA (x) (0.95) (0.94) (1.01) (1.16)

8 December 2020
ABB India ABB.BO

Multiple tailwinds of automation, Make in India
and even cycle Target price (12M, Rs)
1,350
Industrial Machinery Outperform
Play on automation, make in India and cyclical improvement. We reiterate our Previous target price (12M, Rs) 1,150
positive view on ABB (TP: Rs1,250; 16% upside) as a play on (1) durable and accelerating Price (7 Dec 20, Rs) 1,154
automation theme, (2) beneficiary of increased manufacturing investments in India driven by Upside/downside (%) 17.0
Make in India, (3) no lasting damage from COVID-19 and signs of cyclical improvement. Mkt cap (Rs/US$ mn) 244,489 / 3,317
ABB can have incremental opportunity of Rs4-8 bn p.a. over CY21-CY23E from Enterprise value (Rs mn) 229,245
investments driven by PLI incentives worth Rs1.9 tn based on incremental investments Number of shares (mn) 211.91
Free float (%) 24.7
(Rs600-800 bn), addressable opportunity (Rs100-180 bn) and market share (10-15%).
52-wk price range (Rs) 1,377-726
3Q CY20 results highlight and industrial investment and margin recovery. ABB ADTO-6M (US$ mn) 2.6
delivered strong results in 3Q CY20, with strong margins, ordering and execution in the key
electrification and motion segments. Industrial automation segment margins were pulled Research Analysts
down by project specific issues. Similarly, the broader, short cycle industrial index was down
just 10% YoY the pre-COVID decline of 8% in Dec-2019. Continuing monthly sequential Lokesh Garg
recovery suggests the cycle is well beyond FY20 levels of activity already. 91 22 6777 3743
Best positioned to leverage automation/efficiency spends. ABB is a leading vendor
(Global #1 or #2) in two broad categories: (1) automation (both process and discrete) space Gaurav Birmiwal
91 22 6777 3873
and (2) low voltage electricity distribution, control and safety products. It has a very large
product basket, diversified industry and infrastructure (including buildings) presence, a very
wide and varied (channel, EPCs, OEMs, direct) distribution platform, large manufacturing
and services footprint and technology edge. Exports (motors and switchgear equipment) and
services (automation related as well as provision of services for global business such as
customisation, etc.) could be additional drivers of growth.
Valuation premium for strong growth outlook, quality and a very wide moat. We
revise estimates by 16/4/6% for CY20/21/22E on slightly higher revenue and margins
assumptions and revise TP to Rs1,350 based on 44x CY22E EPS. High valuations (38x
Dec-2022E for ABB), a usual concern, is contextualised by: (1) high valuations for
automation/industrial software capability globally as well, (2) ABB global itself trades at 23x
P/E, (3) stronger growth and long-term durability versus general industrial peers. Key risks
are keeping pace with the technology curve, royalty and transfer pricing.

Year 12/19A 12/20E 12/21E 12/22E
Revenue (Rs mn) 73,150.6 60,900.5 74,775.7 86,659.3
EBITDA (Rs mn) 5,311.5 3,020.2 6,506.4 8,303.6
EBIT (Rs mn) 4,407.5 2,272.0 5,680.8 7,408.7
Net profit (Rs mn) 3,719.3 2,499.8 5,095.8 6,495.3
EPS (CS adj.) (Rs) 17.55 11.8 24.05 30.65
EPS growth (%) 46.3 (32.8) 103.9 27.5
P/E (x) 65.7 97.8 48.0 37.6
ROE (%) 9.9 7.0 13.3 15.3
Absolute (%) 23.1 28.0 (11.3)
Source: Company data, Refinitiv, Credit Suisse estimates Relative (%) 14.6 9.6 (23.6)

8 December 2020
ABB India (ABB.BO / ABB IN) Analyst: Lokesh Garg

Price (07 Dec 2020): Rs1,154 Target Price: (from Rs1,150) Rs1,350 Rating: Outperform
Company Background
Sales revenue 73,151 60,901 74,776 86,659
Cost of goods sold 52,097 44,808 53,602 62,208 ABB India, a part of the ABB group, is a leading provider of products and
EBITDA 5,312 3,020 6,506 8,304
EBIT 4,408 2,272 5,681 7,409 solutions for transmission and distribution (T&D) and industrial
Net interest expense/(inc.) 214 224 235 247 automation.
Recurring PBT 5,137 3,333 6,794 8,660
Profit after tax 3,719 2,500 5,096 6,495
Blue/Grey Sky Scenario
Inventories 8,617 6,660 7,856 9,016
Current assets 65,173 59,121 69,417 79,576
Investments 1 1 1 1
Other non-current assets 1,698 1,698 1,698 1,698
Total assets 74,289 68,989 79,959 90,723
Total debt 106 0 0 0
EBIT 4,408 2,272 5,681 7,409
Tax paid 0 0 0 0
Working capital 0 0 0 0
Other cash & non-cash items 904 748 826 895 Our Blue Sky Scenario (Rs) 1,600
Operating cash flow 5,312 3,020 6,506 8,304
Capex 0 (1,500) (1,500) (1,500) At our blue sky scenario value of Rs1,600, we value the company at 52x
Free cash flow to the firm 5,312 1,520 5,006 6,804 P/E, and 7.6x P/B on a CY22E basis, assuming stronger ramp-up (10%
Investing cash flow 1 (1,500) (1,500) (1,500) higher earnings) as well as stronger growth ramp-up visibility.
Dividends paid (784) (954) (1,271) (1,695)
Financing cash flow (733) (1,060) (1,271) (1,695) Our Grey Sky Scenario (Rs) (from 700.00) 900.00
Total cash flow 4,579 460 3,735 5,108
Adjustments 0 0 0 0 We value the company at Rs900 in our grey sky scenario, valuing the
Net change in cash 4,579 460 3,735 5,108 company at 30x P/E, and 4.3x P/B on a CY22E basis, assuming slower
Per share 12/19A 12/20E 12/21E 12/22E ramp-up in earnings, at 10% below our base case.
Shares (wtd avg.) (mn) 212 212 212 212
DPS (Rs) 3.70 4.50 6.00 8.00 Share price performance
Earnings 12/19A 12/20E 12/21E 12/22E
Growth (%)
Sales revenue 9.3 (16.7) 22.8 15.9
EBIT 20.7 (48.5) 150.0 30.4
EPS 46.3 (32.8) 103.9 27.5
Margins (%)
EBITDA 7.3 5.0 8.7 9.6
EBIT 6.0 3.7 7.6 8.5
Valuation (x) 12/19A 12/20E 12/21E 12/22E
P/E 65.7 97.8 48.0 37.6
P/B 6.95 6.69 6.09 5.48
Dividend yield (%) 0.3 0.4 0.5 0.7
EV/sales 3.1 3.8 3.0 2.6 The price relative chart measures performance against the S&P BSE SENSEX IDX which closed
EV/EBITDA 43.0 75.9 34.8 27.0 at 45,426.97 on 07-Dec-2020
EV/EBIT 51.9 100.9 39.9 30.3 On 07-Dec-2020 the spot exchange rate was Rs73.7/US$1
ROE 9.9 7.0 13.3 15.3
ROIC 14.3 8.4 19.6 23.9
Net debt/equity (%) (45.1) (41.6) (45.1) (45.3)
Net debt/EBITDA (x) (2.99) (5.03) (2.78) (2.43)

8 December 2020
Siemens Ltd SIEM.BO

Leader in automation and software; Neutral for
risks in gas and power business Target price (12M, Rs)
1,450
Industrial Machinery Neutral
Play on automation, Make in India and cyclical improvement. Siemens, along with Price (7 Dec 20, Rs) 1,536
ABB, is a play on: (1) durable and accelerating automation theme, (2) beneficiary of Upside/downside (%) -5.6
increased manufacturing investments in India driven by Make in India, (3) no lasting damage Mkt cap (Rs/US$ mn) 547,108 / 7,423
from COVID-19 and signs of cyclical improvement. Siemens can have incremental Enterprise value (Rs mn) 492,650
opportunity of Rs4-8 bn p.a. over three years CY21-CY23E originating from manufacturing Number of shares (mn) 356.12
investments driven by PLI incentives worth Rs1.9 tn based on incremental investments Free float (%) 25.0
52-wk price range (Rs) 1,624-985
(Rs600-800 bn), addressable opportunity (Rs100-180 bn) and market share (10-15%).
Strong Sep quarter results highlight industrial investment and margin recovery.
Siemens reported YoY growth in order booking (+9%), just 9% YoY drop in revenues,
Research Analysts
strong margins with EBITDA up YoY. Gas and power led recovery. Core smart infrastructure
(buildings and distribution) and digital industries (automation) also reflected strong revenue Lokesh Garg
and margins. Similarly, broader, short cycle industrial index was down just 10% YoY vs pre- 91 22 6777 3743
COVID decline of 8% in Dec-2019. Continuing monthly sequential recovery suggests the lokesh.garg@credit-suisse.com
cycle is well beyond FY20 levels of activity already. Gaurav Birmiwal
Broader portfolio than ABB given presence in rail, grids and industrial turbines. 91 22 6777 3873
Siemens has a wider portfolio than even ABB i.e. more than (1) automation (process and
discrete) and (2) low voltage electricity distribution, control and safety. Siemens also has
presence in industrial turbines, mobility (rail) and buildings automation. Siemens is the No.1
player in discrete automation and industrial software and has taken a strong lead in cloud,
data analytics and artificial intelligence platform, Mindsphere. Reflecting its ability to put
capital and grow in India, Siemens India has recently bought out the low voltage switchgear
business of C&S Electric which can be leveraged for scaling up exports as well. Siemens
can also have additional growth legs in exports and services.
Valuation premium for strong growth outlook, quality and a very wide moat. We
rate Siemens as NEUTRAL given lower upside based on our SOTP approach as we
attribute a lower multiple to its gas and power business and other income, given its lower
growth outlook as well as holding structure. Key risks are keeping pace with the technology
curve, royalty and transfer pricing.

Year 9/20A 9/21E 9/22E
Revenue (Rs mn) 98,694.0 143,820 164,057
EBITDA (Rs mn) 9,903.0 16,968.9 19,684.2
EBIT (Rs mn) 7,399.0 14,633.1 17,178.6
Net profit (Rs mn) 7,574.0 13,575.7 15,535.1
EPS (CS adj.) (Rs) 21.27 38.12 43.62
Chg. from prev. EPS (%) n.a. 0.0 0.0
Consensus EPS (Rs) n.a. 29.87 35.58
EPS growth (%) (30.3) 79.2 14.4
P/E (x) 72.2 40.3 35.2
Dividend yield (%) 0.5 0.6 0.7 The price relative chart measures performance against the S&P
EV/EBITDA (x) 49.6 29.3 24.9 BSE SENSEX IDX which closed at 45,426.97 on 07/12/20.
P/B (x) 5.77 5.23 4.74 On 07/12/20 the spot exchange rate was Rs73.7/US$1
ROE (%) 8.2 13.6 14.1
Net debt/equity (%) (58.6) (47.6) (49.5) Performance 1M 3M 12M
Absolute (%) 15.4 27.4 4.1
Source: Company data, Refinitiv, Credit Suisse estimates Relative (%) 6.9 9.0 (8.2)

8 December 2020
Siemens Ltd (SIEM.BO / SIEM IN) Analyst: Lokesh Garg

Price (07 Dec 2020): Rs1,536 Target Price: Rs1,450 Rating: Neutral
Income Statement (Rs mn) 09/20A 09/21E 09/22E
Company Background
Sales revenue 98,694 143,820 164,057
Cost of goods sold 63,207 96,359 109,918 Siemens Limited is engaged in manufacturing of electric motors,
EBITDA 9,903 16,969 19,684
EBIT 7,399 14,633 17,179 generators, transformers and electricity distribution, and control
Net interest expense/(inc.) 292 292 292 apparatus; general purpose machinery, and electrical signaling, safety or
Recurring PBT 10,206 18,101 20,714 traffic-control equipment.
Profit after tax 7,574 13,576 15,535
Reported net profit 7,574 13,576 15,535
Net profit (Credit Suisse) 7,574 13,576 15,535 Blue/Grey Sky Scenario
Balance Sheet (Rs mn) 09/20A 09/21E 09/22E
Cash & cash equivalents 55,517 49,833 57,227
Current receivables 32,063 41,373 47,194
Inventories 11,064 11,509 13,128
Other current assets 42,450 39,800 44,926
Current assets 141,094 142,514 162,475
Property, plant & equip. 11,650 13,489 13,483
Investments 551 551 551
Intangibles 0 14,001 14,001
Other non-current assets 3,361 3,064 3,064
Total assets 156,656 173,620 193,575
Current liabilities 61,916 68,944 78,039
Total liabilities 61,916 68,944 78,039
Total debt 0 0 0
Shareholders' equity 94,740 104,676 115,537
Minority interests 0 0 0
Total liabilities & equity 156,656 173,620 193,575
Cash Flow (Rs mn) 09/20A 09/21E 09/22E
EBIT 7,399 14,633 17,179
Net interest 292 292 292
Tax paid (2,703) (4,525) (5,178)
Working capital 2,415 (76) (3,472)
Other cash & non-cash items 2,504 2,336 2,506
Operating cash flow 9,907 12,659 11,326 Our Blue Sky Scenario (Rs) 1,700
Capex (2,548) (17,879) (2,500)
Free cash flow to the firm 7,359 (4,584) 8,826 In our blue sky scenario of Rs1,700, we value the company at 43x
Investing cash flow (2,548) (17,879) (2,500) FY22E earnings coupled with 10% better-than-expected earnings in the
Equity raised (1,179) 0 0
year due to an improved cycle pick-up.
Dividends paid (2,091) (4,276) (4,674)
Financing cash flow (3,270) (4,276) (4,674)
Total cash flow 4,089 (9,496) 4,151 Our Grey Sky Scenario (Rs) 1,000
Adjustments 0 0 0
Net change in cash 4,089 (9,496) 4,151 In our grey sky scenario of Rs1,000, we value the company at 20x
Per share 09/20A 09/21E 09/22E FY22E earnings coupled with 10% lower-than-expected earnings in the
Shares (wtd avg.) (mn) 356 356 356 year due to weak cycle pick-up.
EPS (Credit Suisse) (Rs) 21.27 38.12 43.62
DPS (Rs) 7.00 9.98 10.91
Operating CFPS (Rs) 27.82 35.55 31.80 Share price performance
Earnings 09/20A 09/21E 09/22E
Growth (%)
Sales revenue (27.9) 45.7 14.1
EBIT (41.2) 97.8 17.4
EPS (30.3) 79.2 14.4
Margins (%)
EBITDA 10.0 11.8 12.0
EBIT 7.5 10.2 10.5
Valuation (x) 09/20A 09/21E 09/22E
P/E 72.2 40.3 35.2
P/B 5.77 5.23 4.74
Dividend yield (%) 0.5 0.6 0.7
EV/sales 5.0 3.5 3.0
EV/EBITDA 49.6 29.3 24.9 The price relative chart measures performance against the S&P BSE SENSEX IDX which closed
EV/EBIT 66.4 34.0 28.5 at 45,426.97 on 07-Dec-2020
ROE analysis (%) 09/20A 09/21E 09/22E On 07-Dec-2020 the spot exchange rate was Rs73.7/US$1
ROE 8.2 13.6 14.1
ROIC 13.6 23.3 22.8
Credit ratios 09/20A 09/21E 09/22E
Net debt/equity (%) (58.6) (47.6) (49.5)
Net debt/EBITDA (x) (5.61) (2.94) (2.91)

8 December 2020
Fied b y you
Company profiles
Whirlpool of India
Whirlpool of India Limited (WIL), 75% owned by US-based Whirlpool Corporation, is among the
leading manufacturers and marketers of major home appliances in India. The company has a
large market share in home refrigerators, and has presence in washing machines, kitchen
appliances, purification devices and air conditioners as well. The company owns three state-of-
the-art manufacturing facilities at Faridabad, Pondicherry and Pune.
Figure 146: 62% of revenues from refrigerators, followed by 22% from washing
machines and 6% from air conditioners
Refrigerators Washing Machines Airconditioners Other products, services

80
(Rs bn)
70
60
50
40
30
20
10
-
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Revenues are gross revenues before adjusting trade discounts.

Figure 147: Whirlpool key financials stats

FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Revenues 32,922 34,383 39,388 48,055 53,977 59,925
EBITDA 3,313 3,936 4,934 5,618 6,452 6,763
PAT 2,105 2,400 3,105 3,507 4,097 4,902
Net worth 9,158 11,657 14,831 17,963 21,454 25,635
Debt - - - - - -
Other liabilities 9,332 10,855 13,931 14,295 15,664 17,968
Total liabilities 18,489 22,512 28,761 32,258 37,118 43,603
Net fixed assets 3,957 3,967 4,215 4,725 5,465 7,476
NWC, other assets 9,176 9,983 13,957 17,715 19,659 19,504
Cash 5,357 8,563 10,590 9,819 11,993 16,623
Total assets 18,489 22,512 28,761 32,258 37,118 43,603
EBITDA margin 10.1 11.4 12.5 11.7 12.0 11.3
EPS (Rs) 17 19 24 28 32 39
RoE (%) 25 23 23 21 21 21
RoCE (%) 25 22 24 25 27 24
P/E (x) 44 37 50 55 47 47
P/B (x) 10 8 10 11 9 9
EV/EBITDA 27 20 29 32 28 32
PAT margin (%) 6.4 7.0 7.9 7.3 7.6 8.2

8 December 2020
IFB Industries
IFB Industries (IFBI) is an India-based company with +80% of revenues from home appliances
business (large share of washing machines followed by kitchen appliances). The company has
also expanded its presence to other consumer durables including air conditioners. In addition to
home appliances, IFB also an engineering division (fine blanking), which accounts for ~15% of
revenues, and has large auto OEMs as clients.
In terms of distribution presence, the company sells its products through multi-brand stores, IFB
exclusive stores, e-commerce and retailers. As of now, the company has over 440 IFB Points
across India, of which 131 are company owned company operated stores. This provides a direct
connect with the customers, and helps the company keep a tab on consumer sentiment and
preferences. Multi-brand stores account for ~60% of total sales of the appliances division, while
IFB exclusive stores (including IFB website) account for ~25% of sales.
IFB is one of the prominent players in the washing machines category and saw ~20% growth in
volume terms in FY18. Top loaders form about one-third of total volumes of washing machines.
In addition to the domestic market, the company has also started supplying to a Japanese major
(exports) under an OEM arrangement.
In addition to the retail segment, IFB also caters to industrial segments and offers dish washing
and laundry equipment to varied customer segments including defence establishments, large
institutions, hotels and restaurants.
Among kitchen appliances, IFB has ~20% market share in microwave ovens, and has been
using innovative marketing methods (like cooking class programmes under the brand name
‘Spice Secrets’) to build a direct connect and brand recall with customers. IFB conducts ~800
classes per month, thus meeting 18,000 customers every month.
IFB has expanded its presence in the consumer appliances space, and also offers chimneys,
hobs and built-in-ovens. Around 50% of the sales in this category are achieved through IFB
Points. Further, the company has also set up stores in Goa, Bengaluru and Kolkata to sell
modular kitchens. The company plans to add another 8-10 stores in FY19. These stores, along
with IFB Points, will promote the modular kitchen range to customers.
Figure 148: IFB—financial summary

FY2017 FY2018 FY2019 FY2020
Revenues 17,584 22,205 26,118 25,948
EBITDA 1,141 1,744 1,269 1,208
PAT 533 810 730 274
Net worth 4,753 5,519 6,205 6,466
Debt 339 228 207 3,481
Other liabilities 4,015 5,430 6,271 6,700
Net fixed assets 3,144 3,144 3,240 5,684
NWC, other assets 4,960 6,444 8,212 8,379
Cash 1,003 1,588 1,231 2,584
Total assets 9,107 11,177 12,683 16,647
EBITDA margin 6.5 7.9 4.9 4.7
EPS (Rs) 13 20 18 7
RoE (%) n.a. 16 13 4
RoCE (%) n.a. 16 14 5
PE (x) 49 57 54 39
PB (x) 6 8 6 2
EV/EBITDA 22 26 30 10
PAT margin (%) 3.0 3.6 2.8 1.1

8 December 2020
Valuation, Methodology and Risks

Target Price and Rating
Valuation Methodology and Risks: (12 months) for ABB India (ABB.BO)
Method: We value ABB using discounted cash flow methodology, and arrive at a TP of Rs1,350, with a 7% risk-free rate, beta of 1, a market
implied return rate of 12% and a terminal growth rate of 7%. At our TP, ABB trades at 44x CY22E EPS and 32x EV/EBITDA. We
rate ABB OUTPERFORM on account of it being a play on the durable and accelerating automation theme, coupled with clear corporate
structure with stronger focus on the automation business, lower cyclicality and wider moat.
Risk: Key risks to our OUTPERFORM rating and TP of Rs1,350 stem from (1) a prolonged slowdown and a delay in pick-up of investment
activity in India as well as (2) geo-political risks that delay or depress the pick-up in global economic activity, thus affecting export
prospects.
Valuation Methodology and Risks: (12 months) for Amber Enterprises (AMBE.BO)
Method: We value Amber using discounted cash flow methodology, and arrive at a TP of Rs3,000, with a 7% risk-free rate, beta of 1, a market
implied return rate of 12% and a terminal growth rate of 5%. At our TP, Amber trades at 30x FY23E EPS and 17.5x EV/EBITDA. We
rate Amber OUTPERFORM on account of it being one of the leading OEM players in the market with a strong diverse customer base
as well as successful bolt-on acquisitions to backward integrate as well as expand into the commercial HVAC segment, with optionality
from participating in upcoming PLI schemes.
Risk: Key risks to our OUTPERFORM rating and TP of Rs3,000 stem from: (1) large contractual labour, (2) already high market share in AC
manufacturing, and (3) most of the leading brands have their own manufacturing also and preference for outsourcing may shift.
Valuation Methodology and Risks: (12 months) for Dixon Technologies (DIXO.BO)
Method: We value Dixon using discounted cash flow methodology, and arrive at a TP of Rs14,000, with a 7% risk-free rate, beta of 1, a
market-implied return rate of 12% and a terminal growth rate of 5.5%. At our TP, Dixon trades at 41x FY23E EPS and 29x
EV/EBITDA. We rate Dixon OUTPERFORM on account of it being one of the leading EMS players in the market with presence across
multiple product categories, including some product lines like lighting and washing machines in the ODM segment.
Risk: Key risks to our OUTPERFORM rating and TP of Rs14,000 stem from: (1) a stronger-than-expected pick-up in competition both
domestic and international, from those are setting up capacities in India in light of participating in the PLI scheme and (2) risks from
imports from other countries, which might limit the value added in the country.
Valuation Methodology and Risks: (12 months) for Havells India Ltd (HVEL.BO)
Method: Our target price of Rs775 for Havells India Ltd is based on 42x Sep-2022E earnings which is the last one-year average. We have a
NEUTRAL rating on the stock as we think valuations and earnings expectations are very stretched and there is limited room for upside.
Risk: Upside risks to our NEUTRAL rating and Rs775 target price for Havells India Ltd include: (1) strong success in new launches and (2)
margin expansion in Lloyd. Downside risks to our rating include: (1) prolonged real estate/construction-related slowdown in India; and
(2) sharp input cost inflation.
Valuation Methodology and Risks: (12 months) for Siemens Ltd (SIEM.BO)
Method: We value Siemens on a sum-of-the-parts basis on Sep-22 year-end earnings and arrive at a target price of Rs1,450, attributing lower
multiple to portfolio companies, gas and power and other income. We rate Siemens NEUTRAL despite a wider portfolio than ABB with
strong presence in industrial turbines, mobility (rail) and buildings automation, due to lower upside on our SOTP valuation, lower growth
outlook and holding structure.
Risk: Key upside risks to our NEUTRAL rating and TP of Rs1,450 stem from: (1) stronger-than-expected pick-up in economic activity, (2)
partnership of Siemens Energy with a strong partner, lending clearer visibility to growth opportunities. Conversely, downside risks to our
numbers and thesis can stem from relationship with Siemens AG in terms of transfer pricing, royalty, exports and service opportunity,
ownership of businesses like gas and power and mobility so that appropriate value is realised in India.
Valuation Methodology and Risks: (12 months) for Voltas (VOLT.BO)
Method: Our target price of Rs.870 for Voltas is based on 33x Mar-2022E consolidated earnings, our multiple being supported by SOTP (sum-
of-the-parts) valuation of individual segments. Our target price and OUTPERFORM rating take into account: (1) the strong market

8 December 2020
position that the company enjoys in the room AC business; (2) low penetration levels in India, which makes Voltas a structural growth
story; (3) expectation of cyclical economic recovery vs past five years in projects business; and (4) Voltas' attempt to build a broader
consumer durable business.
Risk: Key downside risks to our target price of Rs.870 for Voltas include slower-than-expected recovery in commercial and infrastructure
construction activity in both India and the Middle East, a sharp drop in the AC business market share or profitability as well as delays in
fruition of broader consumer business. If these risks were to pan out, there could be downside risk to our OUTPERFORM rating.

8 December 2020
Companies Mentioned (Price as of 02-Dec-2020)

ABB India (ABB.BO, Rs1190.7, OUTPERFORM, TP Rs1350.0)
ABB Power (ABBW.BO, Rs1235.35)
AIA Engineering (AIAE.BO, Rs2103.3)
Adani Ports & SEZ (APSE.BO, Rs438.7)
Amber Enterprise (AMBE.NS, Rs2377.0)
Amber Enterprises (AMBE.BO, Rs2376.75, OUTPERFORM, TP Rs3000.0)
BEML Ltd (BEML.BO, Rs717.35)
BJEL (BJEL.BO, Rs582.05)
Bharat Electronics (BAJE.BO, Rs113.45)
Bharat Heavy Electricals Ltd (BHEL.BO, Rs33.8)
Blue Star Ltd (BLUS.BO, Rs776.8)
CUMI (CRBR.BO, Rs393.55)
Celestica (CLS.TO, C$9.93)
Compal Electronics (2324.TW, NT$19.35)
Container Corporation of India (CCRI.BO, Rs409.55)
Crompton Greaves Consumer Electrical Limited (CROP.BO, Rs329.95)
Cummins India (CUMM.BO, Rs575.6)
Dixon (DIXO.NS, Rs11399.45)
Dixon Technologies (DIXO.BO, Rs11387.0, OUTPERFORM[V], TP Rs14000.0)
EIL (ENGI.BO, Rs74.4)
Elgi Equipments (ELGE.NS, Rs135.05)
Finolex Cables (FNXC.BO, Rs336.6)
Flextronics International (FLEX.OQ, $16.81)
Ge T&D India (GETD.BO, Rs105.65)
Greaves Cotton (GRVL.NS, Rs84.55)
Grindwell Norton (GRNN.NS, Rs623.4)
Havells India Ltd (HVEL.BO, Rs835.95, NEUTRAL, TP Rs775.0)
Hon Hai Precision (2317.TW, NT$82.7)
Honeywell Auto (HONE.NS, Rs31494.1)
IFB Industries (IFBI.BO, Rs786.05)
Ingersol Rand IN (INGR.NS, Rs645.75)
Inox Wind (INWN.NS, Rs52.35)
Inventec Co Ltd (2356.TW, NT$23.55)
Jabil Circuit Inc. (JBL.N, $39.46)
Johnson Controls (JCHA.BO, Rs2213.7)
KEC International Ltd (KECL.BO, Rs371.7)
KOEL (KIRO.BO, Rs120.85)
KSB (KSBL.BO, Rs571.85)
Kalpataru Power (KAPT.BO, Rs319.6)
Kei Industries (KEIN.BO, Rs422.9)
Lakshmi Mach (LKMC.BO, Rs4313.05)
Larsen & Toubro (LART.BO, Rs1113.9)
OEL (ONTE.BO, Rs229.6)
Pegatron (4938.TW, NT$66.4)
Quanta Computer (2382.TW, NT$77.8)
SKF (SKFB.BO, Rs1568.15)
Sanmina-SCI Corp (SANM.OQ, $32.55)
Schaeffler (SCHE.BO, Rs3962.45)
Siemens Ltd (SIEM.BO, Rs1506.7, NEUTRAL, TP Rs1450.0)
Symphony (SYMP.BO, Rs823.45)
TTK Prestige (TTKL.BO, Rs5767.85)
Techno Electrc (TEEC.BO, Rs215.5)
Thermax (THMX.BO, Rs898.85)
Timken India (TIMK.BO, Rs1173.4)
Triveni (TRVT.BO, Rs79.25)
V Guard (VGUA.BO, Rs192.65)
VA Tech Wabag (VATE.BO, Rs206.95)
Voltamp (VOTL.BO, Rs1183.7)
Voltas (VOLT.BO, Rs802.2, OUTPERFORM, TP Rs870.0)
Whirlpool India (WHIR.BO, Rs2161.65)
Wistron (3231.TW, NT$31.45)
Disclosure Appendix
Analyst Certification
I, Lokesh Garg, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed
in this report.

8 December 2020
3-Year Price and Rating History for ABB India (ABB.BO)
ABB.BO Closing Price Target Price

Date (Rs) (Rs) Rating
14-Sep-20 907.10 1150.00 O*
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
3-Year Price and Rating History for Havells India Ltd (HVEL.BO)
HVEL.BO Closing Price Target Price

22-Jan-18 552.15 635.00 O
11-May-18 546.65 670.00
20-Jul-18 559.50 725.00
17-Oct-18 586.15 700.00
23-Jan-19 695.75 800.00
11-Apr-19 751.85 780.00 N
29-May-19 730.00 720.00
29-Jul-19 665.85 650.00
23-Sep-19 731.90 723.00
O U T PERFO RM
24-Oct-19 669.90 700.00 N EU T RA L
21-Jan-20 616.90 615.00

06-Apr-20 471.20 475.00
28-Jul-20 576.25 540.00
29-Oct-20 725.05 775.00
3-Year Price and Rating History for Siemens Ltd (SIEM.BO)
SIEM.BO Closing Price Target Price

14-Sep-20 1235.55 1350.00 N*
30-Nov-20 1513.90 1450.00
N EU T RA L

8 December 2020
3-Year Price and Rating History for Voltas (VOLT.BO)
VOLT.BO Closing Price Target Price

12-Feb-18 592.85 700.00 O
10-May-19 579.70 685.00
23-Sep-19 669.30 750.00
07-Nov-19 666.55 800.00
13-Apr-20 505.35 725.00
01-Jun-20 539.75 650.00
17-Aug-20 628.70 710.00
09-Nov-20 791.45 870.00
O U T PERFO RM
As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe
which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most att ractive, Neutrals the less attractive,
and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European (excluding Turkey) ratings are
based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the an alyst within the relevant sector, with
Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment oppor tunities. For Latin America,
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greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The
overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and
Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.
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Outperform/Buy* 52% (33% banking clients)
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Underperform/Sell* 11% (20% banking clients)
Restricted 1%
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8 December 2020
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See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): ABB.BO, SIEM.BO
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Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s):
ABB.BO, AMBE.BO, DIXO.BO, HVEL.BO, SIEM.BO, VOLT.BO
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India Consumer Durables Sector

Electronics Manufacturing Services | Initiation

Figure 1: Rs6 tn prize in electronics/durables; Amber, Dixon have manufacturing lead

Source: Company data, Credit Suisse estimates

Focus charts and tables

Source: Credit Suisse estimates Note: Priced as of 7-Dec-2020. O = Outperform, N = Neutral.

India Consumer Durables Sector 2

The Rs6 tn prize and its contestants

Amber/Dixon have a lead in leveraging this space

Rate Amber/Dixon as OP on opportunity basket

India Consumer Durables Sector 3

India Outsourced Manufacturing

India Outsourced Manufacturing

Priced as of 7-Dec-2020. O = Outperform, N = Neutral, U = Underperform

India Consumer Durables Sector 4

Figure 12: Consumer durables trade at high P/E of 40-50x

Priced as of 7 December 2020.

India Consumer Durables Sector 5

Manufacturing can emerge as a growth driver 8

Amber/Dixon have led to leverage this space 19

Rate Amber/Dixon as OP on opportunity basket 27

Large components opportunity, including non-AC 42

Reasonable valuation for platform and growth outlook 46

Leading EMS player with a diversified presence 54

Multiple dimensions of opportunities; conducive time 56

Manifold growth likely; execution is key risk 63

India Consumer Durables Sector 6

Havells India Ltd 73

India Consumer Durables Sector 7

Manufacturing can emerge as a growth driver

Duties, restrictions and incentives all afoot

Figure 13: Recent steps by the Indian government to boost manufacturing

Source: Company data, Credit Suisse estimates

Import restrictions and non-tariff barriers on finished goods

Phased manufacturing programme to promote indigenisation

Figure 15: Proposed PMP details on air conditioners to aid indigenisation

Source: Company data, Credit Suisse estimates Source: MEITY

India Consumer Durables Sector 9

PLI scheme can act as a catalyst in many sectors

Rs 2 tn of incentives can beget US$70 bn of GDP

Three schemes already notified: mobiles in action

India Consumer Durables Sector 10

Mobile PLI scheme targets are not tough in context of global

No specific indigenisation target; trickle down to take care

Vertical integration is required and there may be roadblocks

Incentive is quite large relative to capex and industry margins

Industry involvement has assured a rapid uptake

Scheme administration would be a test case given its

Mobiles is just one part; other electronics consumer durables

Watch out for WTO compliance

Electronics manufacturing: domestic production has grown

Source: MEITY, Credit Suisse

India Consumer Durables Sector 12

Figure 21: Mobile phone PLI allocation per year

Source: Company data, Credit Suisse estimates

India Consumer Durables Sector 13

Source: Company data, Credit Suisse estimates

Globally, Samsung and Apple are key and have

India Consumer Durables Sector 14

China and Vietnam are key exporters; a few key

India Consumer Durables Sector 15

India Consumer Durables Sector 16