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Near‐term headwinds but multiple new opportunities opening up; maintain ADD

Result Highlights

* Quarter summary – Dixon Technologies delivered a mixed performance with in‐  line revenues and a miss on EBITDA. EBITDA miss was primarily on account of increase in commodity prices, change in business mix and Rs80mn additional ESOP charge.  

* Growth across segments – All segments except reverse logistics registered strong growth with Consumer electronics and Mobile phones registering growth of 2x and 3.8x respectively. Lighting products/Home Appliances/Security systems grew 49.8%/62.7%/99.8% respectively.

* Commodity inflation impact – Gross margins contracted sharply by 564bps as there has been one quarter delay in passing on increased prices in both OEM and ODM business.

* Working capital and capex – Dixon continues to efficiently manage its working capital requirement which continues to be in range of +3 to ‐3 days. It is expected to incur capex of Rs2000mn in FY22 as it is looking for opportunities in various PLI schemes apart from expanding capacities in its existing business.  

Valuation and view –

4Q saw strong growth across all business segments with all the verticals delivering strong revenue growth. Gross margins were impacted on rising commodity prices; however, it has been passed on to the customers in 1QFY22. Dixon continues its strong growth trajectory in its existing verticals with increased capacities and has firmed up further plans for new verticals like telecom products and refrigerators along with applying in new PLI schemes for LED lighting components, Laptops and hardware and AC components.

Dixon remains on a strong footing with its key segment like consumer electronics firing and commencement of mobile phone manufacturing under PLI scheme. Dixon is aiming to replicate its success story in electronics and mobile phones to other verticals as well and aiming to reach a globally competitive scale.

We believe growth for Dixon should not be a challenge as there is huge domestic market for the products they are into and many global MNC’s are also looking to de‐risk their production to India where the company is coming through as a strong partner. We build in FY21‐ 23E Revenue/EBITDA/PAT CAGR of 67%/66%/78% and arrive at PT of Rs4,335 valuing it at 50x FY23 EPS vs 40x earlier as company is entering new verticals and set to pursue benefits from 4 other PLI’s apart from Mobile PLI that it has already got. We continue with ADD rating as current valuations leave limited upside potential in the near term. 

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