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Long term growth outlook remains intact

Dixon witnessed strong revenue, PAT growth of 47%, 33%, respectively, in FY21 despite loss of sales in Q1. The strong growth came on the back of customer additions in consumer electronics and mobile & EMS segments in FY21. The company has outlined a capex of | 200 crore in FY22 for a brownfield expansion in TVs, washing machines, mobile phones and to start a new manufacturing unit for direct cool refrigerators. Dixon has also applied for PLI schemes in electronics/technology products, telecom products and LED lights & AC component manufacturing. The approval for all applications are expected within H2FY22. Entry into new product categories and customer additions into existing product categories (especially in washing machines, LED lights & mobile phones) would help drive revenue at a CAGR of 63% in FY21-23E. The company’s balance sheet remains strong with stringent working capital policy (with cash conversion cycle of seven days) with RoE, RoCE at ~22%, 24% in FY21, respectively.

Strong revenue growth led by TV, mobile business

In Q4FY21, consolidated revenue growth at ~146% YoY to | 2110 crore was led by 381% and ~200% revenue growth in mobile & EMS and consumer electronics (LED TV) segment, respectively. Revenue growth in security systems, home appliances and lighting divisions was higher at 100%, 63% and 50% YoY, respectively, largely on a favourable base and new customer additions. In the mobile division, the company has started supplying smart phones to Motorola and Nokia and is in talks with major US based telecom player for the supply of 5G phones. We believe new customer addition and entry into new product categories in mobile & EMS would help in 7x growth in revenue in FY21-23E.

EBITDA margin guidance of 4.2%-4.5% for FY22

EBITDA margin in Q4FY21 declined 273 bps YoY to 3.8%. This was largely due to lower operating leverage in the mobile & EMS segments, delay in passing on of higher raw material prices and one-time Esop expense (amounting to | 8 crore). The company has taken price hikes in Q1FY22 to offset higher input prices. Dixon has further guided FY22E EBITDA margin range of 4.2-4.5% (lower than FY20 EBITDA margin of 5.1%) on the back of a sharp rise in revenues of mobile & EMS and consumer electronics segments, which are characterised by relatively low margin.

Valuation & Outlook

We tweak our revenue, PAT estimate downward by 6%, ~13%, respectively, for FY22E considering the impact of lockdown in Q1FY22. However, a strong balance sheet, increased backward integration and increasing share of Dixon in domestic electronic manufacturing are expected to result in strong PAT CAGR of 87% in FY21-23E. We reiterate our BUY recommendation on the stock with a revised target price of | 4635 (earlier | 4270).

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