Upstart rises 824% as the founder bets on the manufacture of phones in India

Photographer: Ruhani Kaur / Bloomberg

Almost three decades ago, Sunil Vachani lent $ 35,000 so he could start making 14-inch televisions in a rental 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. His 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 domestic device manufacturers, such as Dixon, and global third-party manufacturers, such as Foxconn Technology Group and Wistron Corp. The effort took on a new urgency with the growing tensions between the US and China and the coronavirus pandemic, which interrupted supply and highlighted the risks of concentrating production in one place for phone manufacturers 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.