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Mobile & EMS segment continues strong performance at Dixon, ICICI Securities

Dixon guided for 25-30% revenue growth for next 4-5 years, for which it is focused on (1) adding new customers (both in domestic and export markets), (2) penetrating deeper in its customers’ portfolio to manufacture new products and (3) strategically investing in capacity expansions for existing products. Mobile and EMS segment continues to be the star performer with YoY growth of 326.6%. Improvement in EBITDA margin enthuses us, and the company guided for the margins to further improve from Q3FY23, when the complete impact of commodity costs correction will factor-in. We model Dixon to report revenue and PAT CAGRs of 41% and 59.9% over FY22-FY24E with improving return ratios. While we remain structurally positive on Dixon due to its competitive advantages and growth opportunity, we believe the stock price upside is capped at current valuations. Maintain HOLD with a revised DCF-based TP of Rs3,850 (47x FY24E EPS).


  • Q1FY23 performance: Dixon reported YoY revenue and EBITDA growth of 52.9% and 109.1%, respectively. PAT grew 150.6% YoY. We believe (1) strong growth in mobile segment YoY and (2) price hikes across products led to strong revenue growth. Gross and EBITDA margins expanded 170bps and 94bps YoY, respectively. PAT margin was up at 1.6% YoY in Q1FY23.
  • Segment-wise performance: Segment-wise, YoY revenue growth rates were as follows: Consumer Electronics -26.2%, Lighting 50.6%, Home Appliances 262.3%, Mobile & EMS 326.6% and Security Systems 74.5%. AC-PCBA (sub-segment of consumer electronics) reported revenue growth of 81.6% YoY. EBIT margin increased in all segments during the quarter. We stay believers of operating leverage leading to higher margins ahead in all segments.
  • Continuous thrust to drive volume growth: Dixon started production of monitors for Dell in Apr’22. It will also export lighting to new UAE customer. It is also focused on increasing the type of SKUs it produces for its earlier customers (added neckbands for Boat). We believe addition of large new customers and extending the portfolio being supplied to them will result in strong volume growth for Dixon.
  • Maintain HOLD: We model Dixon to report revenue and PAT CAGRs of 41% and 59.4%, respectively, over FY22-FY24E and RoE to be upwards of 25% over FY23-24. We remain positive on the company’s business model led by strong competitive advantage and growth opportunities. Maintain HOLD with a revised DCF-based target price of Rs3,850 (implied P/E of 47x FY24E EPS; earlier TP Rs3,950). Key risks: Higher than expected input material inflation.

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