Local value addition may see rise in electronics mfg: Dixon
Founder and executive chairman says industry is seeking PLI scheme for parts manufacture
Domestic electronics manufacturing is likely to see a ramp-up of local value addition—in terms of components being made locally instead of only the final product being assembled here. This is being done by localizing non-semiconductor components, which account for roughly half of the bill of materials (BoM) cost of a mobile phone. This can lead to domestic component value of up to 30% of the cost of a device, said Sunil Vachani, founder and executive chairman of Noida-headquartered contract manufacturer, Dixon Technologies, in an interview with Mint.
To do this, the industry is seeking a production-linked incentive (PLI) scheme for component manufacturing, even as Vachani believes that contract manufacturers should start looking at how to expand their market share to export devices globally.
“It’s important to understand that even China’s domestic value addition in manufacturing is around 45%, because even China imports nearly all its semiconductors for mobile manufacturing. All this is work in progress, which will take time,” Vachani said.
On Monday, share prices of the contract manufacturer hit an alltime high of ₹7,045 apiece, driven by the company winning a mobile phone manufacturing contract, and also opening an appliances factory in Dehradun last week. The company’s share price has surged 2.6x in one year, as a Centre-backed push has seen India look for more localization in electronics production.
To do this, Vachani said the company is set to open a mobile phone manufacturing plant in Noida—a “megafactory” with “nearly 1 million sq. ft of space”. “The plant with the capacity to manufacture 25 million mobile phone units annually, is expected to reach full capacity by March next year,” Vachani said.
ON Monday, shares of Dixon Technologies hit an all-time high of ₹7,045 apiece
DIXON’S share price has surged 2.6x in one year, amid the Centre’s push for local manufacture
The company is also looking to capture a large chunk of India’s laptop manufacturing demand, which has risen from the introduction of the revised IT hardware PLI scheme. “A lot of chip firms are working with local companies to design laptops here, which will lead to interesting results in the next two to three years. Dixon has a partnership with Acer for laptop manufacturing, while Lenovo’s factory is being set up. Laptops represent a very large market in India—IT hardware imports are to the
VACHANI said Dixon is set to open a ~1 million sq. ft mobile making plant in Noida investments are going in, and the likes of the Tata group are investing in local manufacturing of mechanicals for the Apple ecosystem. Dixon, too, is making these. There are other components, too, such as camera modules, which we’re making locally. Adapters and batteries are also being assembled here. What now needs to happen is display manufacturing, and we at Dixon are looking at display assemblies very seriously.”
To do this, Vachani said, a PLI component scheme would be key. “Our inverted duty structure means a finished product comes with lower duties. We’re working with industry bodies CII and Elcina to try and get support from the Centre for a support package for electronics components—which will also help us raise investments,” he added.
Criticism for India’s electronics PLI has been around, with former Reserve Bank governor, Raghuram Rajan, stating that India’s domestic value addition has been limited. Union minister of state for IT, Rajeev Chandrasekhar, said India’s domestic value addition is not too far from China’s in an interview with Mint in December. The Centre has also expressed interest in incentivizing component supply chains for electronics and semiconductors in the long run—but Chandrasekhar has also warned that the industry should not be over-reliant on incentives to scale-up manufacturing. This leaves Dixon and Elcina’s demands in a mixed bag of reactions from the Centre.
Brokerages have maintained a mixed view of Dixon Technologies, and the overall electronics manufacturing sector itself. On Tuesday, Jefferies downgraded Dixon Technologies, saying the firm’s stock was overvalued after its valuation surged by more than 2x in margin over the past year.
THE company is also looking to capture a large chunk of India’s demand for laptop manufacturing
tune of $10 billion. This gives us a very large import substitution opportunity here,” Vachani said.
Further value addition, however, will eventually come from the component manufacturing supply chain. “For smartphones, if you look at mechanicals,