IGI Logo

Sluggish demand impacts performance: growth momentum set to resume; upgrade to Neutral

Result Synopsis

Revenue growth has been below expectation as consumer electronics, Lighting and Mobiles phones key verticals for the company has seen steep decline. Television has been impacted on both the counts, volumes de?growth as well as realizations on lower open cell prices. Lighting and mobile phones have seen lower demand. Considering sluggish demand environment management has revised its revenue guidance downwards. Dixon has fared better on margin front despite lower volumes as it has undertaken value engineering and cost reduction activities. Considering managements guidance and subdued demand environment we have made downward revision to our estimates. We however upgrade the stock to Neutral as stock has already corrected sharply and Strong growth momentum is expected to resume as 1) Order book across the categories continues to remain healthy; 2) New capacities have started commercial production; 3) Revenues from new product categories like wearables and refrigerators will drive incremental growth; 4) New JV in, Wearables and Telecom products will add further growth levers. 5) Lighting exports has started in Q3 with order from UAE and has got additional orders. We roll froward our valuation multiple and now value the company at 40x vs 50x earlier as there could be downside risk if the demand environment remains sluggish for extended period

Despite near term uncertainties, Dixon is expected to deliver strong revenue growth in medium term given its strong order book, customer addition and capacities in place. We now build?in FY22?25E Revenue/EBITDA/PAT CAGR of 31%/39%/55%, we have reduced our revenue estimates, while we increase our margin estimates on improved efficiency and arrive at a PT of Rs3,506 valuing the company at 40x. We however upgrade the stock to Neutral from reduce as stock has seen sharp correction.

Result Highlights

* Quarter summary – Dixon delivered lower than expected growth as company has registered decline in its key category of Television (?38.7%), Lighting (?38.9%) and Mobile Phones (?2.6%).

* Margin – EBITDA margin is higher on lower commodity price and company has taken calibrated price increase, engaged in value engineering and increased efficiencies across product categories.

* Guidance – The company has revised its guidance downwards and now has guided revenue for FY23 in range of Rs122?127bn vs earlier revised guidance of Rs150bn. Company is confident of sustenance of higher margins.

* New Client additions  ?Company has added clients across the product categories with TCL and Onida in semi?automatic WM, Lloyd, TCL and Croma in fully automatic. Dixon is close to acquire new large customer in mobile phones.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer