Display Industry Stocks could be Big. Two Companies Worth Adding to Your Watchlist

In December 2021, the Indian government gave a huge boost to semiconductor and display manufacturing. It allocated over Rs 760 bn to the sector in the PLI scheme.

The aim here is to increase semiconductor and display manufacturing to meet domestic demand. This demand is now met by imports.

Large corporates including Tata group and Vedanta group have already laid out plans to set up fab units.

The Vedanta group has planned investments of US$15 bn over the next 5-10 years to make displays and semiconductor chips in India.

Global companies too, have shown lot of interest. And why wouldn't they? After all, display fab units will be offered fiscal support of up to 50% of project cost.

When the PLI scheme was announced, we were quick to identify the huge opportunity here. We wrote to you about the stocks in the semiconductor space.

In this article, we will look at two display industry stocks which should be in your watchlist for 2022.

#1 Dixon Technologies

Dixon Technologies is one of the largest design-focused and solutions company in India. It's engaged in manufacturing consumer electronics.

The company's product portfolio includes most consumer electronics we use daily. LED TVs, washing machines, LED bulbs, and tube lights, mobile phones, CCTV - Dixon has its footprint in all of them.

It's the biggest manufacturer of LED TVs in India.

It produces TVs for global and domestic brands like Samsung, Panasonic, Xiaomi, TCL, OnePlus, and many more. The biggest part of the company's revenues (over 45%) is from the LED TV segment.

Dixon Technologies is a stock that should be on your watchlist.

Display manufacturing is very complex and technology-intensive. The problems are huge capital investment, high risk, and rapid changes in technology.

Despite being in a capital-intensive sector, Dixon has maintained a footprint, across verticals, with little debt on its books.

Financial Snapshot

(Rs m, Consolidated)	FY17	FY18	FY19	FY20	FY21
Net sales	24,570.3	28,416.3	29,844.5	44,001.2	64,481.7
Sales growth (%)	77%	16%	5%	47%	47%
Operating profit	926.4	1,168.7	1,417.8	2,327.3	2,934.5
Operating profit margin (%)	4%	4%	5%	5%	5%
Net profit	475.7	609.0	633.6	1,205.0	1,597.9
Net profit margin (%)	2%	2%	2%	3%	2%
Total Debt	467.3	446.3	1,412.4	866.7	1,560.9
Debt to Equity (x)	0.24	0.14	0.38	0.16	0.21

Data Source: Ace Equity

Over the years, the company has augmented its manufacturing capacity. It has also acquired a good control over costs.

Dixon is now among the largest and most cost-efficient electronics companies in India.

Its focus on new verticals has supported growth. Around two years back, it ventured into manufacturing of set-top boxes and medical electronics.

There's a growing demand for display screens in India for manufacturing LEDs, desktops, smart phones, etc. Students now need laptops to attend lectures from home in a post pandemic world.

Due to the increased demand, global manufacturers are tying up with local manufacturers like Dixon who have a good execution track record. Taiwanese PC maker, Acer, has partnered Dixon to make laptops in India. For this, a manufacturing unit was augmented last year so as to produce up to 500,000 laptops annually.

This just shows the government's 'Atmanirbhar Bharat' and 'Make in India' initiatives are taking off. The PLI is like an added boost.

Dixon's subsidiary Padget Technologies has already received permission from the government under PLI scheme for manufacturing mobile phones.

Domestic mobile phone production is set to grow in the next 5-6 years and Dixon will be one of the main beneficiaries.

In a recent interview, the company's MD said that Dixon has a capital expenditure (capex) of around Rs 4.5 bn for fiscal 2022.

He also said that the company's revenues are expected to see a sharp rise from Rs 64 bn to Rs 110-115 bn in fiscal 2022.

Since listing in September 2017, the stock is up a massive 645%.

Lately, Dixon's stock has come under pressure owing to the shortage in global supply chain of semiconductors, which is an important component of electronics products.

The fall can also be attributed to a weak set of results. Last month, Dixon posted 9% sequential growth in revenue while net profit declined 25%.

To know more, check out Dixon Technologies' latest quarterly results.

#2 PG Electroplast

Just like Dixon, PG Electroplast is into manufacturing LED TVs, mobile components, washing machines, air conditioners, and other consumer electronic appliances.

It specialises in plastic moulding components and has an established a market position. The group is one of the leading contract manufacturers/vendors for ACs, washing machines and other plastic moulded components for white goods.

It receives consistent orders from popular brands including Voltas, LG India, Whirlpool, Reliance Digital, Onida, Godrej, and Acer.

PG Electronics' Esteemed Clientele

While the company derives less than 10% of its revenues from the electronics segment, its sound financials make it worth putting on your watchlist.

In 1995, PG Electroplast started manufacturing complete TV sets at its facility in Noida. However, soon after the company entered this space, it faced immense competition by South Korean and Japanese TV brands in India. Even large brands like Onida and Videocon could not survive.

After a long halt, it has re-entered the television manufacturing business, backed by the government's support for domestic companies under 'Atmanirbhar Bharat'.

PG Electroplast is among 52 companies that have applied for the PLI scheme for white goods including components for ACs and LEDs.

In July-September 2021 quarter last year, the company started manufacturing/assembling of LED TV for two of its clients at the Greater Noida facility. It has tied-up with a Chinese company for tech know how and designing of LED TVs. The facility has an annual installed capacity of 500,000 units of televisions with screen sizes up to 70 inches.

The company's management is of the view that production will ramp up from January-March 2022 quarter onwards.

In 2021, the company saw a sharp spike in its net profit as all its verticals did well. 2021 was also the year in which PG recorded highest-ever revenue, operating profit, and net profit. This despite posting quarterly sales losses in the first two quarters due to the lockdown and its after effects.

Financial Snapshot

(Rs m, Standalone)	FY17	FY18	FY19	FY20	FY21
Net sales	3,663.5	3,994.2	5,083.5	6,394.2	7,032.1
Sales growth (%)	41%	9%	27%	26%	10%
Operating profit	238.4	298.7	338.7	423.8	523.9
Operating profit margin (%)	7%	7%	7%	7%	7%
Net profit	33.6	74.9	99.4	26.2	116.2
Net profit margin (%)	1%	2%	2%	0.4%	2%
Total Debt	1,117.0	1,285.4	1,299.2	1,882.3	1,860.5
Debt to Equity (x)	0.91	0.98	0.77	1.07	0.97

Data Source: Ace Equity

The only big concern is the company's debt which has increased over the years.

Those who had invested in the company a year ago would be sitting on heavy gains of 200%.

To know more about the company, check out the financial factsheet of PG Electroplast and its latest quarterly results.

In conclusion

The government's increased focus to be self-reliant has opened a huge opportunity for big as well as small players. Investments from companies seeking to benefit from the scheme may begin soon. The government is expecting investments worth Rs 1.7 tn.

Plans for notifying the scheme in a few weeks, fast tracking approvals, and handholding companies are already in motion as they set up manufacturing units in India.

The benefits of PLI scheme for semiconductor and display industry companies isn't limited to them. It also spans various electronic segments such as smartphones, LED TVs, laptops, air conditioners, etc.

All in all, it would be beneficial for the entire electronics space.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...