Hold Dixon technologies Ltd For Target Rs. 4,500 - Emkay Global
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
Positives priced in; downgrade to Hold
* Despite Covid-related disruptions, TV revenues performed well in Q1, with an 11% qoq rise. Revenue and margin for Lighting and Washing machine categories were adversely impacted. EBITDA beat was driven by lower other opex/ employee expense.
* Gross margin contracted by 273bps qoq, which can be attributable to lower cost absorption and commodity headwinds in ODM-focused business segments, where entire impact of commodity inflation was not passed-on to the customers.
* With strong order book visibility across business segments, management was confident about revenue recovery from Q2, along with a rebound in margins. To avoid any production delays, it has accumulated inventory for select components.
* We cut FY22E revenue/EBITDA by 7%/12% due to the Q1 revenue loss. We believe that after multi-fold stock price returns and a 61% EPS CAGR over FY21-24E, current valuations limit upside. Downgrade to Hold with a TP of Rs4,500 (45x Sep’23E EPS).
In-line revenues; EBITDA surprises positively:
Revenues rose significantly to Rs18.7bn, with all the segments registering growth on a yoy basis. EBITDA grew 184% yoy. Employee expenses and other opex were below our estimates by 30% and 32%, respectively. EBITDA margins contracted 70bps yoy to 2.6% due to unfavorable product mix and negative operating leverage. PAT of Rs182mn was supported by better-than-expected operating margins and a lower ETR. Consumer Electronics revenues grew 263% yoy, beating our estimates by 11%. Lighting revenues saw 98% growth yoy. The performance of the Mobile and EMS division was below expectation.
Outlook: The capacity expansion across key product segments, driven by a strong order book, provides healthy revenue visibility. Management continues to target ~Rs40bn of revenues under Mobile PLI, despite the change in the base year for incentive calculation by the government. Diversification, increasing scale and management’s focus on deploying global best practices should benefit Dixon in the long term. With the majority of revenues coming from MNC brands, the company has already showcased its capabilities in product quality and execution. This, we believe, will help continue to attract new clients. Our estimates do not factor in significant revenue accretion from Lighting exports as Dixon is yet to announce any major customer wins. After multi-fold stock price returns in the last 12 months and a 61% FY21-24E EPS CAGR, valuations stand at 45x Sep’23E EPS, which we believe prices in lots of positives and provides limited upside. We are downgrading the stock to Hold from Buy but our target price remains unchanged.
Key risks: adverse currency and continued commodity price inflation; customer losses and execution challenges; weak end consumer demand; and rise in competitive intensity in the contract manufacturing space.
To Read Complete Report & Disclaimer Click Here
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
Above views are of the author and not of the website kindly read disclaimer
