Dixon Technologies India: Weak revenue growth; better margins

Dixon’s Q1FY24 performance was largely driven by growth in mobile and EMS divisions. Other segments reported revenue decline / flat revenues in line with slowdown in the white goods and durable market in India. Company has added new clients in its mobile business (Itel and Xiaomi). While customer addition offers revenue visibility, ramp-up is expected to be gradual. The weakness in other segments is expected to continue due to sluggish consumer sentiment.

We reduce our FY25E EPS estimates by 18.4% to factor-in the Q1FY24 performance and weak market conditions. At current valuations of (58x FY25E EPS), risk/reward seems unfavourable to investors. Hence, we maintain REDUCE with a DCF-based target price of INR 3,600 (implied P/E of 58x FY25E EPS).

Q1FY24 result
Dixon reported YoY revenue, EBITDA and PAT growth of 14.6%, 31.8% and 41.2%, respectively. Gross and EBITDA margins expanded 55bps and 53bps respectively, YoY, due to correction in input prices and cost optimisation.

Segment-wise performance
Segment-wise, YoY revenue growth rates were as follows: consumer electronics -5.4%, lighting -4%, home appliances +1.3%, mobile & EMS +37.6%, and security systems -13.1%. EBIT margin expanded YoY in all segments except security systems.

Mobile segment gaining traction
Dixon added Itel as customer in its mobile segment for supply of feature phones. Management expects to start supply to Xiaomi from Sep’23 onward with an initial run-rate of 0.5mn units/month. Further, it aims to ramp up to 1mn units/month. Also, it expects more orders from Jio and Motorola. We believe there is strong revenue visibility for mobile and EMS segments.

Maintain REDUCE
We model Dixon to report revenue and PAT CAGRs of 22.2% and 28.3% respectively, over FY23-FY25E and RoE to exceed the cost of capital over FY24E-FY25. We maintain our REDUCE rating with a revised DCF-based target price of INR 3,600 (implied P/E of 58x FY25E EPS). Key risks: Faster than expected economic recovery, steep rise in commodity prices, and lower than expected competition.

For report, https://www.communicationstoday.co.in/wp-content/uploads/2023/07/DIXON_Q1FY24_results.pdf

CT Bureau