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Enhanced capacities and customer addition to drive growth; maintain ADD

Result Synopsis

Revenue growth has been below expectation on sluggish performance of consumer electronics which was marred by steep correction in open cell prices which constitute 65% BOM for television. Forex loss of Rs120mn impacted EBITDA margin. Excluding forex loss EBITDA margin stood at 3.9%. Q1 has seen continuing strong ramp?up in washing machines. Dixon has added capacities across the product categories as order book continues to remain strong. Dixon is expected to continue its strong growth momentuminmediumtermas 1) Order book continues to remain healthy; 2) New capacities have started commercial production across product categories; 3) Revenues from new product categories like wearables and refrigerators will drive incremental growth and; 4) New JV in, Wearables and Telecom products will add further growth levers. 5) Lighting exports has started in Q1 with order from UAE and soon will start exporting to US. Considering strong growth opportunities, we continue with our neutral stance as valuations continue to be rich and balance sheet has seen some deterioration as company is getting into new business verticals and expanding existing capacities. We continue to value company at 50x FY24 EPS.

.Despite near term uncertainties, Dixon is expected to deliver strong revenue growth in medium term given its strong order book, customer addition and capacities in place. We build?in FY22? 24E Revenue/EBITDA/PAT CAGR of 40%/53%/61%, we have maintained our revenue estimates and marginally increased our margin estimates on changing business mix and arrive at a PT of Rs4,165 valuing the company at 50x FY24 EPS and maintain our ADD rating.

Result Highlights

Quarter summary – Dixon delivered lower than expected growth as its key category of television saw decline on yoy basis on back of sharp contraction in open cell prices which is 65% OF BOM. Other segments have registered strong growth.

Margin – Gross margins contracted 170bps yoy. Dixon has been able to pass on increased commodity inflation in both its prescriptive and ODM business. EBITDA margin was lower on account of Rs120mn of forex loss.

Order Book – Dixon continues to have a healthy order book position across existing business verticals which will enable it to accelerate growth momentum going forward. New customer additions and commercialization of expanded capacities will further give fillip to the order book

Capacity expansion – Dixon continues to efficiently manage its working capital. It is expected to incur capex of Rs3.2bn in FY23 for opportunities in various PLI schemes apart from expanding capacities in its existing business.

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