(Bloomberg) – Nearly three decades ago, Sunil Vachani borrowed $ 35,000 to start making 14-inch television sets in a rented barn outside New Delhi. It was an unconventional choice as India, although known for software and services, lagged far behind in manufacturing.
Vachani’s startup today has grown into an expansive electronics empire. Its Dixon Technologies boasts a market value of more than $ 2.5 billion and the ability to manufacture approximately 50 million smartphones this year. This is an early indication of the country’s opportunities – and challenges – to build a sophisticated manufacturing sector, which is the first priority for Prime Minister Narendra Modi.
While Vachani, 52, struggled in his early days, his company’s shares rose 824% from an initial public offering in 2017 until the close on Friday. Sales and profits rose with local demand for smartphones, coupled with India’s ambitious plans to develop its own local industry.
“This is just a beginning,” Vachani said in a telephone interview. “We are bringing about a change of attitude that global manufacturing can take place in India.”
The founder and his siblings are now in the league of India’s billionaire families. Vachani, which owns a third share of about $ 900 million, has just bought one of the more lavish homes in the country – a $ 20 million mansion in the Tony Lutyens neighborhood of New Delhi.
Dixon’s shares rose 3.9% on Monday.
India has been plagued for decades with cumbersome infrastructure, heavy taxes and crushing bureaucracy. The Modi administration sought to change the dynamics through a series of policies and incentives, with the aim of creating jobs and economic growth. Along with a hefty tariff on products such as imported smartphones, the country launched a cash incentive program last October to encourage local producers.
This helped bring about the establishment of new factories from home companies such as Dixon and global contract manufacturers such as Foxconn Technology Group and Wistron Corp.. disrupting supply and the risks involved in concentrating production in one place for phone makers like Apple Inc.
India still lags behind China and, according to the Indian Cellular Association, makes about 330 million smartphones annually, compared to 1.5 billion in its larger Asian neighbor. Yet Dixon is an example of how fast India is changing: it has increased production capacity from about 2 million smartphones per month last year to about 4 million units after the government’s incentive program began, with more planned for next year.
“All global businesses are looking for an alternative to the world’s largest manufacturing center, China,” Vachani told Bloomberg Television on Monday.
“India is well qualified to be the world’s alternative to the China supply chain,” said PN Sudarshan, partner of Deloitte India. “Once component manufacturers move, live manufacturing groupings will emerge.”
Vachani comes from an entrepreneurial family. His father and siblings started a business that manufactured electronics and appliances under the Weston brand. They made the country’s first color televisions and video recorders and operated a series of video games on the side. The Vachanis are Sindhis, a small community in India with a reputation for business acumen.
After studying in London, Sunil decided to go his own way in 1993 rather than join the family business, a decision that quickly led to problems. He no longer had working capital and found that banks would not lend to him without collateral. Eventually he landed bank financing, backed by an export contract.
Early on, he was so desperate for business that he agreed to make his 14-inch color televisions for $ 1.50 profit. He later made Sega game consoles, Philips video recorders and push-button mobile phones for Bharti Airtel Ltd., the country’s leading mobile phone operator. Dixon’s prosperity began to improve in the 2000s, when a local political party awarded the company a contract to manufacture televisions for free distribution.
Vachani tried to persuade the federal government to do more to build a domestic manufacturing sector – mostly without success. “All I heard from policymakers was that India’s future was in software,” he said.
Investors were also skeptical early on. During Dixon’s road show before the fair, money managers argued that India simply could not compete with China. Vachani eventually raised about $ 6 billion, or $ 82 million.
Dixon now makes televisions for Xiaomi Corp., washing machines for LG Electronics Inc. and lighting products for Philips. It started manufacturing cell phones in 2016 for brands like Panasonic Corp. and Samsung Electronics Co.
Phones are becoming a significant growth market. The number of smartphone users in India is expected to rise from 468 million in 2017 to 859 million in 2022. For Dixon, mobile could account for 44% of revenue in the next financial year, compared to 12% last year.
The government finally turned its attention to domestic manufacturing a few years ago, which was aimed at destroying a massive electronic import bill and creating much-needed jobs. But progress was slow. According to McKinsey & Co. production in 2020 was 17.4% of gross domestic product, almost the same as the 15.3% in 2000.
Wistron, the first Apple supplier to manufacture iPhones in India, got into trouble last year when workers rioted over delays in payment. Apple has put the Taiwanese company to the test, saying it will no longer deliver 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, by 2025 this will be an increase in telephone exports from the current $ 7 billion to $ 110 billion.
Dixon is positioning itself to get a great deal of this by manufacturing and exporting major brands worldwide, Vachani said. Motorola, which is now part of China’s Lenovo Group Ltd. is, Dixon contracted to make devices for the US market. Finland’s HMD Global, which has a license for the Nokia brand, recently signed a similar agreement. By next year, the company plans to manufacture about 75 million cell phones and expand into categories such as tablets, laptops and portable items. “This is the golden moment for electronics manufacturing,” Vachani said. “Ultimately, India is the place to be.”
(Stock price updates in sixth paragraph. An earlier version of this story corrected Vachani’s title)
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