Upstart is up 824% as founder bets on making phones in India

Photographer: Ruhani Kaur / Bloomberg

Nearly three decades ago, Sunil Vachani borrowed $ 35,000 to make 14-inch television sets in a rented shed outside New Delhi. It was an unconventional choice as India, while well known for its software and services, was long behind in manufacturing.

Today, Vachani’s startup has grown into a sprawling electronics empire. To be Dixon Technologies has a market value of more than $ 2.5 billion and the capacity to produce approximately 50 million smartphones this year. It’s an early indicator of the country’s opportunities – and challenges – in building an advanced manufacturing sector, a top priority for Prime Minister Narendra Modi.

While Vachani, 52, struggled in his early days, shares of his company were up 824% from an IPO in 2017 through Friday’s close. Revenues and profits have skyrocketed due to domestic demand for smartphones, 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 bringing about a change of mindset that allows global manufacturing to take place in India.”

The founder and his siblings are now in the league of billionaire families in India. Vachani, who owns a third-party stake worth about $ 900 million, has just bought one of the more extravagant houses in the country – a $ 20 million mansion in New Delhi’s Tony Lutyens neighborhood.

Shares of Dixon rose a whopping 3.9% on Monday.

India has been plagued for decades with rickety infrastructure, heavy taxes and crushing bureaucracy. The Modi government has sought to change the dynamics through a range of policies and incentives, with the aim of creating jobs and economic growth. In addition to high tariffs on products such as imported smartphones, the country launched a cash incentive program last October to encourage local producers.

That has helped build new factories for homegrown device manufacturers such as Dixon and global contract manufacturers such as Foxconn Technology Group and Wistron Corp. The effort has taken on a new urgency with growing tensions between the US and China and the coronavirus pandemic, which disrupted supply and underscored the risks of concentrating production in one place for phone makers such as Apple inc.

According to the Indian Cellular Association, India is still lagging far behind China, producing around 330 million smartphones annually, compared to 1.5 billion in its larger Asian neighbor. Still, Dixon is an example of how fast India is changing: it has ramped up production capacity from about 2 million smartphones a month last year to about 4 million units after the government’s stimulus program kicked off, and next year there are more planned.

“All international companies are looking for an alternative to the world’s largest manufacturing hub, China,” Vachani told Bloomberg Television on Monday.

“India is well qualified to be the world’s alternative to China’s supply chain,” said PN Sudarshan, partner at Deloitte India. “Once component manufacturers are on the move, lively production clusters will emerge.”

Vachani comes from an entrepreneurial family. His father and siblings started a company that produced electronics and appliances under the Weston brand. They made the country’s first color televisions and VCRs and operated a series of side-by-side video game salons. The Vachanis are Sindhis, a small community in India with a reputation for business acumen.

After studying business administration in London, in 1993 Sunil chose to go his own way instead of joining the family business, a decision that quickly led to difficulties. He ran out of working capital and discovered that without collateral, banks wouldn’t lend him. He eventually got bank financing backed by an export contract.