Buy Dixon Technologies Ltd For Target Rs.4,582 - Anand Rathi Share and Stock Brokers
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Well placed amid demand headwinds; maintaining a Buy
To factor in slower near- to medium-term demand, we lower Dixon Technologies’ revenue and PAT 12% and 28% respectively over FY22- FY24. However, we maintain a Buy rating as the company continues to add customers and enter new product categories. It thus consolidates its position as consumer-durables demand-aggregator for its home market. The impact of the deteriorating macro environment on export potential needs to be watched.
Tepid start to FY23. Q1 FY23 revenue rose 53% y/y on the lower base. Q/q though, it declined 3% to Rs28.6bn. The EBITDA margin contracted 50bps on the 10bp lower gross margin. Staff and other manufacturing expenses rose respectively 2% and 6% q/q. PAT fell 28% q/q as depreciation charges rose 26% q/q and interest cost was 4% higher q/q to Rs144m.
FY23 capex: Rs3.1bn-3.2bn; Talks on to manufacture semi-conductors. The FY23 capex is expected to be Rs3.1bn-3.2bn: (a) Rs180m for the JV with Bharti to manufacture telecoms products, (b) Rs200m a year for the next five years to comply with lighting PLI scheme norms, (c) Rs500m for PLI pertaining to air-conditioners and (d) new plant with Rexamm to manufacture printed circuit boards.
Lower estimates, maintaining a Buy with a lower TP. Post-Q1 FY23, we lower Dixon’s FY24e revenue and PAT 12% and 29% respectively to factor in slowing demand and higher costs, which are gradually being passed on to customers. The cut in PAT estimates is more than that in revenue considering one-time investments, as the company plans to make a foray into refrigerators.
At the CMP of Rs3,752, the stock trades at 74x and 46x its FY23e and FY24e EPS of Rs50.8 and Rs81.8 respectively. We retain our Buy rating on it, with a target price of Rs4,582 (56x FY24e EPS of Rs81.8), the earlier TP being Rs5,936. The PE has been sliding continuously from Sep’21 and the mean PEx is 61x. Risks: Significant delays in receiving PLI from the government could impact its cash-flows.
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