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Dixon reported a robust quarter, beating Street/our estimates. While sales growth for 4QFY23 stood at 4% YoY, EBITDAM of 5.1% (vs 4% YoY) was the key positive, leading to EBITDA/PAT growth of 32%/28% YoY. Improvement in margin was supported by sales mix, operating leverage and strategic price hikes. On full-year basis, EBITDAM of 4.2% was up from 3.5% YoY, albeit below the 4.4% in FY21. While Management did not guide for any specific sales for FY24, it gave assurance that the group will be aggressive, along with its growth rates clocking much ahead of the industry’s. Mobile is expected to be the largest product in the portfolio, with addition of new clients; a large part of FY24 growth hinges on growth in this segment. We roll forward our valuation to Mar24E with new TP of Rs3,403, based on 35x (unchanged) P/E; retain HOLD.

Mobile, Home appliances, CE segments deliver in Q4

Revenue (consol.) for the quarter was up 28% QoQ to Rs31bn, beating our estimate by 7%. Mobile & EMS revenue grew 61% QoQ, as the company saw ramp up in orders from Jio and Airtel, along with aggressive demand in the IT hardware and Mobile component verticals. Home appliances saw 15% QoQ growth on the back of a healthy order book in the semi-automatic WM product. Consumer electronics grew 14% QoQ, with margins expanding 60bps on increased contribution of ODM sales. Despite muted performance in the Lighting segment, Company’s strategy of calibrated pricing action, better sourcing and migration of LED tech yielded results as margins expanded 60bps QoQ. EBITDA (consol.) was up 41% QoQ to Rs1.6bn, also higher than Street estimates, by 14%, mainly buoyed by the positive operating leverage as employee expenses & other operating expenses as a % of sales contracted by 50bps & 70bps, respectively. PAT was up 55% QoQ to Rs0.8bn, owing to the strong operating performance.

Valuation and outlook

While addition of new customers in the mobile segment is imminent, we believe slowdown in some key segments will hamper the overall growth of brands, which will see additional impact from Dixon being a B2B supplier. Robust margin performance in Q4 is likely to sustain, as Dixon’s share in ODM manufacturing continues to grow. Building-in the slight cuts in revenue, and offset by the existing margin trajectory, FY24E-25E EPS is largely intact (+2.6% in FY24E, while staying flat in FY25E). We maintain HOLD on the stock, with roll forward Mar-24E TP of Rs3,403/share, based on FY25E 35x PER (unchanged). Sales ramp-up remains the key monitorable going forward, in our view. Risks include slowdown leading to less requirement by brands.

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