(Bloomberg) – Almost three decades ago, Sunil Vachani lent $ 35,000 so he could start making 14-inch televisions in a rented shed outside New Delhi. It was an unconventional choice, as India, although known for software and services, has long been left behind in manufacturing.
Today, Vachani’s startup has grown to become a booming electronics empire. Its Dixon Technologies has a market cap of more than $ 2.5 billion and the capacity to produce around 50 million smartphones this year. It is an early indicator of the country’s opportunities – and challenges – in building a sophisticated manufacturing sector, one of Prime Minister Narendra Modi’s top priorities.
Although Vachani, 52, struggled in his early days, his company’s stock rose 824% from an initial public offering in 2017 until the close of Friday. Sales and profits soared with domestic demand for smartphones, along with India’s ambitious plans to develop its own local industry.
“This is just the beginning,” said Vachani in a telephone interview. “We are promoting a change in mentality that global manufacturing can happen in India.”
The founder and his brothers are now in the league of India’s billionaire families. Vachani, who controls a one-third stake worth about $ 900 million, has just purchased one of the country’s most extravagant homes – a $ 20 million mansion in New Delhi’s Lutyens neighborhood.
Dixon’s shares were up 3.9% on Monday.
India has been plagued for decades with poor infrastructure, heavy taxes and overwhelming bureaucracy. The Modi government has tried to change the dynamics through a series of policies and incentives, with the aim of creating jobs and economic growth. Along with heavy tariffs on products such as imported smartphones, the country started a cash incentive program last October to encourage local producers.
This helped trigger the construction of new factories by local device manufacturers like Dixon and global contract manufacturers like Foxconn Technology Group and Wistron Corp. which interrupted supply and highlighted the risks of concentrating production in one place for phone makers like Apple Inc.
India is still far behind China, producing about 330 million smartphones a year, compared with 1.5 billion on its largest Asian neighbor, according to the Indian Cellular Association. However, Dixon is an example of how India is changing rapidly: it increased production capacity from around 2 million smartphones a month last year to about 4 million units after the government incentive program started, with more planned next year.
“All global companies are looking for an alternative to the largest manufacturing center in the world, China,” Vachani told Bloomberg Television on Monday.
“India is well qualified to be the global alternative to China’s supply chain,” said PN Sudarshan, a partner at Deloitte India. “As soon as component manufacturers change, vibrant manufacturing groups will form.”
Vachani comes from an entrepreneurial family. Her father and brothers started a business that produced electronics and appliances under the Weston brand. They made the country’s first color televisions and video recorders in the country – and operated a series of video game rooms on the sides. The Vachanis are Sindhis, a small community in India with a reputation for business acumen.
After studying business in London, Sunil chose to go his own way in 1993, instead of joining the family business, a decision that quickly created difficulties. He ran out of working capital and found that banks would not lend to him without collateral. He finally got a bank loan guaranteed by an export contract.
He was so desperate for business that he agreed to make his 14-inch color TVs for $ 1.50 in profit each. He later made Sega game consoles, Philips video recorders and button cell phones for Bharti Airtel Ltd., the country’s leading mobile operator. Dixon’s fortunes began to improve in the 2000s, when a regional political party gave the company a contract to manufacture televisions for free distribution.
Vachani tried to persuade the federal government to do more to build a domestic industrial sector – most without success. “All I heard from policy makers was that India’s future was in software,” he said.
Investors were also skeptical at first. During Dixon’s road show before his IPO, money managers argued that India simply could not compete with China. Vachani ended up raising about 6 billion rupees, or $ 82 million.
Dixon now manufactures TVs for Xiaomi Corp., washing machines for LG Electronics Inc. and lighting products for Philips. It started producing cell phones in 2016 for brands like Panasonic Corp. and Samsung Electronics Co.
Phones are becoming a substantial growth market. The number of smartphone users in India is projected to increase from 468 million in 2017 to 859 million in 2022. For Dixon, mobile may account for 44% of revenue in the next fiscal year, compared with 12% last year.
The government finally turned its attention to domestic manufacturing a few years ago, aiming to cut a huge electronics import bill and create much-needed jobs. But progress has been slow. Manufacturing accounted for 17.4% of gross domestic product in 2020, almost the same as 15.3% in 2000, according to McKinsey & Co.
Wistron, Apple’s first supplier to produce iPhones in India, had problems last year when workers protested late payments. Apple put the Taiwanese company on probation and said it would postpone the supply of new orders.
Modi refined his “Make in India” policy to include financial incentives and simplified infrastructure policies. The country has declared that it wants to create 100 million new jobs in the industry by 2022. Its goal is to increase phone exports from the current $ 7 billion to $ 110 billion by 2025, according to the Indian Cellular Association.
Dixon is positioning itself to take an important part of this, manufacturing and exporting globally to major brands, said Vachani. Motorola, now owned by China’s Lenovo Group Ltd., hired Dixon to manufacture devices for the United States market. Finnish HMD Global, which has a license for the Nokia brand, recently signed a similar agreement. Next year, the company plans to produce around 75 million cell phones and expand into categories such as tablets, laptops and wearables. “This is the golden moment for electronics manufacturing,” said Vachani. “Finally, India is the place to be.”
(Updates to the share price in the sixth paragraph. An earlier version of this story corrected Vachani’s title)
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