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Dixon logged a weak Q4, with revenue up only 2% YoY amid sequential improvement in the mobile phone business (up 8.5% QoQ, led by better ASP) and 50% YoY decline in the telecom business. EBITDA margin was stable QoQ at 3.9%. Following demand moderation in last 6M, demand-supply dynamics of the mobile phone industry are stabilizing. Dixon guided to flattish smartphone volumes in FY27 (~33mnpa units vs earlier guidance of 60-65mn), though revenue is expected to grow 12-15% (led by higher ASP due to rising component prices), with total revenue growth of 15% YoY at Rs560bn. Pressure on mobile EBITDAM from PLI lapsing (~0.6%) would be partially offset by better operational efficiency, with benefits from backward integration FY28 onward; Dixon expects 40-50bps margin expansion on ramp up of component manufacturing. IT Hardware revenue is expected to scale up 3x in FY27, on a strong orderbook across clients. Dixon is undertaking initiatives to diversify from its current business and add future growth levers like foray into the highmargin industrial EMS business (attractive M&A opportunities on the table; couple of these could fructify in FY27). Also, per the management, Vivo JV approval is around the corner. We cut FY27E/28E EPS by 27-29%, factoring in lower smartphone volume (nil volume from Vivo), along with pressure on mobile business EBITDAM due to lapse of PLI and delay in backward integration. We retain BUY (given robust cash flows, >25% return ratios, negative working capital cycle despite tougher macro conditions, and headwinds in FY26) and revise our DCF-based TP by ~18% to Rs12,500 from Rs15,200.

Stable revenue with sustained EBITDAM

Revenue grew 2% YoY amid QoQ improvement in the mobile phone business (up 8.5% QoQ) and ~50% YoY fall in the telecom business. EBITDA was up 6% YoY; EBITDA margin was stable QoQ at 3.9% amid slight improvement in gross margin (up by 20bps QoQ) offset by higher staff costs/other expenses. Adj PAT was up 47% YoY.

Earnings call KTAs

1) The mobile industry has seen demand moderation over the past 6M; supply-demand dynamics are now stabilizing. Dixon expects strong double-digit QoQ volume growth of ~12-15% in Q1FY27.

2) Ex Vivo, Dixon expects Smartphone volume to be largely flattish YoY in FY27 due to significant price hikes, while revenue is expected to grow 12-15% led by higher ASP.

3) Mobile margin is likely to be under pressure on lapse of PLI benefits. However, part of the hit is being offset by operational efficiencies, with support from ramp-up of camera modules and display manufacturing.

4) Ex Vivo, Dixon targets FY27 revenue of ~Rs560bn and expects to continue delivering ~15-17% growth even without Vivo. Dixon expects margin expansion of ~40–50bps, as component localization scales up.

5) The mgmt highlighted revenue is largely a function of BOM costs and conversion charges. Any rise in BOM costs due to higher memory prices inflates revenue, while EBITDA/unit is linked to manufacturing complexity, resulting in optical margin dilution despite stable unit economics.

6) In IT Products, Dixon expects 3x revenue growth in FY27 at Rs40bn, aided by increase in order book across customers.

7) In display manufacturing, first production line for automotive/IT displays is to undergo trials in Q3FY27 (production from Q4FY27); Mobile display trials/commercial production from Q4FY27.

8) In Industrial EMS, Dixon has onboarded senior leadership, identified 5 microverticals; strategies are being formulated, and meaningful progress is expected in FY27.

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