Buy Dixon Technologies Labs Ltd for the Target Rs 16,100 by Motilal Oswal Financial Services Ltd
Finally the wait is over!
Dixon has received the long-pending PN3 approval for its 51:49 joint venture with Vivo. We expect this JV to enhance the company's manufacturing capabilities and strengthen its market share and positioning in the Android smartphone market in India. This also removes the long-pending overhang on the stock, as through this JV now, Dixon will get incremental volumes beginning in 3QFY27. Vivo currently has a market share of ~23% in smartphones, and Dixon anticipates that nearly 67% of its volumes will come to the JV. From hereon, the focus will be on demand revival and backward integration. Further announcements related to PLI 2.0 will also be positive for the company. We have already baked in volumes from this JV in our estimates. The Scenario 2, as highlighted in our report dated 4th Feb’26, is panning out currently. We roll forward our DCF-based TP to Sep’28 and retain BUY with a revised TP of INR16,100.
Vivo JV approval to aid volume growth
Dixon has received the long-pending PN3 approval for its 51:49 JV with Vivo. Nearly 67% of Vivo Mobile India's total production volume is expected to be manufactured through its JV with Dixon, translating into an annual capacity addition of 20m to 22m units. Dixon had earlier mentioned that it takes about 30-40 days for production to start coming after the approvals; hence, we expect volume and revenue contributions to begin in 3QFY27. We have baked in volumes of 13m/17m in FY27/FY28 from Vivo into our estimates.
Focus will now be on demand revival and backward integration
Demand for smartphones was impacted by a surge in memory prices, which still remain high; however, mobile OEMs had taken price hikes to pass on the higher costs. Sequentially, demand and volumes have started recovering and sustenance of demand and a reduction in memory prices will be keenly watched out for. The company is already doing a capex for backward integration for displays and camera modules. And we expect the benefits of this backward integration to start playing out from 2HFY27. We expect that by FY28, backward-integration initiatives will more than offset the margin contraction caused by the end of PLI 1.0 this year
PLI 2.0 could drive export volumes in medium to long term
The potential Mobile PLI 2.0 policy targets over 55% of local content by aligning with the INR400b electronics component manufacturing scheme (ECMS). The industry has submitted a roadmap to MeitY, targeting ~35% of global mobile production. The PLI 2.0 initiative aims to push annual mobile production to USD130b and exports to USD70b by FY31. It is expected to shift the focus from incentivizing final handset assembly to promoting higher domestic value addition through local component manufacturing. This could benefit DIXON, which is expanding its backward integration capabilities across key components, including camera modules and display modules, thereby increasing local content in smartphone manufacturing
Valuation and view
The stock is currently trading at 82.5x/52.6x P/E on FY27E/FY28E EPS. We roll forward our DCF-based TP to Sep’28 and retain BUY with a revised TP of INR16,100. Our TP also factors in Dixon’s 6.5% stake in Aditya Infotech.
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