Dixon Technologies: Steep reduction in revenue guidance, ICICI Securities

Dixon had earlier guided for FY23E revenues of Rs170bn and has now cut the guidance to ~Rs125bn. We note some of the issues such as reduction in prices of open cells for TV are likely to hurt in coming quarters too. Also slowdown in white goods and durables due to steep inflationary pressures is also likely to impact the production in near term. While the margins are likely to improve due to cost saving initiatives, higher share of ODM and correction in input prices, we believe slower revenue growth is likely to impact the earnings. We cut FY23-24 earnings estimates to factor in lower guidance and slowdown in sector.

At current valuations of (58x FY24E), we believe the risk: reward in not favorable to the investors and hence, we downgrade Dixon to REDUCE with a revised DCF-based TP of Rs3,000 (implied P/E of 36x FY25E EPS; earlier TP Rs4,120).

• Q3FY23 performance: Dixon reported YoY revenue decline of 21.8% but EBITDA and PAT grew 7.9% and 10.4%, respectively. Gross and EBITDA margins expanded 263bps and 127bps, respectively due to better revenue mix, higher share of ODM and correction in input prices.
• Segment-wise performance: Segment-wise, YoY revenue growth rates were as follows: Consumer Electronics -38.7%, Lighting -38.9%, Home Appliances +35.5%, Mobile & EMS -2.6% and Security Systems 5.1%. EBIT margin declined only in mobile and EMS and security system segments, YoY.
• Consumer Electronics business impact to continue: Consumer Electronics segment reported dismal performance with 38.7% revenue decline due to weak TV sales. The TV sales suffered due to (1) volume decline (largely due to lower demand and early Diwali), (2) fall in average selling price of TVs from ~Rs16k to ~Rs11.5k and (3) flat volumes of Xiaomi brand.
• Reduction in revenue guidance: Dixon had earlier guided for revenues of ~Rs170bn in FY23. However, it has now cut the guidance to ~125bn with slowdown in white goods and durables markets and slower-than-expected customer expansion in mobile and EMS segment. Consumer electronics is also expected to slow-down with correction in prices of open cells.
• Downgrade to REDUCE: We model Dixon to report revenue and PAT CAGRs of 27.8% and 37.5%, respectively, over FY22-FY25E and RoE to be 20%+ over FY23-25. With slowdown in white goods and durable market due to inflationary pressures and steep valuations, we downgrade Dixon to REDUCE with DCF-based revised target price of Rs3,000 (implied P/E of 36x FY25E EPS; earlier TP Rs4,120). Key risks: Faster than expected economic recovery is an upside risk to our estimates.

For report, https://www.communicationstoday.co.in/dixon-technologies-steep-reduction-in-revenue-guidance/

CT Bureau