Nearly three decades ago, Sunil Vachani borrowed $ 35,000 to be able to start making 14-inch TVs in a rented shed outside New Delhi. It was an unconventional option, as India, although known for software and services, had long been lagging behind in manufacturing.
Today, Vachani’s launch has become an empire of electronics. Its Dixon technologies have a market value of more than $ 2.5 billion and the capacity to produce about 50 million smartphones this year. It is one of the first indicators of the country’s opportunities and challenges to build a sophisticated manufacturing sector, a top priority for Prime Minister Narendra Modi.
While Vachani, 52, suffered problems during his early days, his company’s shares have risen 824% since the initial public offering in 2017. Sales and profits have grown with domestic demand for phones smart, along with India’s ambitious plans to develop its own local industry.
“This is just the beginning,” Vachani said in a telephone interview. “We are causing a change in mindset that global manufacturing can occur in India.”
The founder and his brothers are now in the league of India’s multimillion-dollar families. Vachani, which controls a third stake worth about $ 900 million, has just bought one of the country’s most extravagant houses – a $ 20 million mansion in the Lutyens district of New Delhi.
[Bloomberg]India has been plagued for decades by difficult infrastructure, heavy taxes and a crushing bureaucracy. The Modi administration has tried to change the dynamic through a series of policies and incentives, with the aim of creating jobs and growing economically. Along with strong tariffs on products such as imported smartphones, the country launched a cash incentive program last October to encourage local producers.
This has helped lead to the construction of new factories for self-produced device manufacturers such as Dixon and global contract manufacturers such as Foxconn Technology Group and Wistron Corp. which disrupted supply and underscored the risks of concentrating production in one place for phone manufacturers like Apple Inc.
India still lags far behind China, producing about 330 million smartphones a year compared to 1.5 billion of its largest Asian neighbor, according to the India Cellular Association. Still, Dixon is an example of how quickly India is changing: it has increased production capacity from about 2 million smartphones last month to about 4 million units after the government incentive program began, with others planned for next year.
“India is well qualified to be the global alternative to China’s supply chain,” said PN Sudarshan, a partner at Deloitte India. “Once component manufacturers move, vibrant manufacturing clusters will form.”
Vachani comes from an enterprising family. His father and siblings started a business that produced electronics and appliances under the Weston brand. They made the country’s first televisions and video recorders and operated a number of adjacent video game rooms. The Vachanis are Sindhis, a small community in India with a reputation for business vision.
After studying business in London, Sunil chose to pursue his own path in 1993 instead of joining the family business, a decision that quickly caused him difficulties. He ran out of working capital and found that the banks would not lend him no collateral. He finally landed bank financing backed by an export contract.
Sunil Vachani and his brothers are now in the league of multimillion-dollar families in India [File: Bloomberg]
So desperate for business was that he initially agreed to make his 14-inch color TVs to earn $ 1.50 each. He later manufactured Sega video game consoles, Philips video recorders and buttoned mobile phones for Bharti Airtel Ltd., the country’s leading mobile operator. Dixon’s fortune began to improve in the 2000s, when a regional political party gave the company a contract to make TVs for free distribution.
Vachani tried to convince the federal government to do more to build a domestic manufacturing sector, mostly without success. “All I heard from policymakers was that the future of India was in software,” he said.
Assembly of smartphones at a Dixon factory in Noida [File: Bloomberg]
Investors were also skeptical at first. During Dixon’s road show before its IPO, money managers argued that India simply could not compete with China. Vachani eventually raised about 6 billion rupees, or $ 82 million.
Now Dixon manufactures TVs for Xiaomi Corp., washing machines for LG Electronics Inc. and lighting products for Philips. It began producing mobile phones in 2016 for brands such as Panasonic Corp. and Samsung Electronics Co.
Phones are becoming a market of substantial growth. The number of smartphone users in India is expected to increase from 468 million in 2017 to 859 million in 2022. For Dixon, mobile could account for 44% of revenue next fiscal year, compared to 12% last year.
A few years ago, the government focused its attention on domestic manufacturing, with the aim of reducing a massive bill for electronics imports and creating much-needed employment. 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, ran into trouble last year when workers revolted over pay delays. Apple released the Taiwanese company on parole and said it would stop providing new orders.
Modi has refined its “Make in India” policy to include financial incentives and simplified infrastructure policies. The country has stated that it wants to create 100 million new manufacturing jobs by 2022. According to the Indian Cellular Association, it will be earmarked for an increase in phone exports from the current 7 billion to $ 110 billion on 2025.
A smartphone leaves the Dixon assembly line in Noida, India [File: Bloomberg]
Dixon is positioned to get a significant share of this manufacturing and exporting worldwide for big brands, Vachani said. Motorola, now owned by Chinese Lenovo Group Ltd., has hired Dixon to manufacture devices for the U.S. market. Finland’s HMD Global, which has a license for the Nokia brand, has recently signed a similar agreement. Next year, the company plans to produce about 75 million mobile phones and expand into categories such as tablets, laptops and laptops.
“This is the golden time for electronics manufacturing,” Vachani said. “Finally, India is the place to be.”