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Benefitting from healthy volumes and pricing improvement

Dixon Technologies’ (Dixon) 2QFY27 revenue and PAT came in better than our estimates, while margin was largely in line. The company is continuously gaining market share in mobile segment, with strong mobile volumes of 9.7m for the quarter, up 29% QoQ, despite a 16% YoY decline in overall smartphone market volumes in India. Along with this, we have also seen a strong scale-up in IT hardware and Telecom segments, which benefited from product portfolio expansion and higher realization. Weakness was seen on non-mobile segments. We factor in better realization across segments, along with a slight delay in backward integration on displays. We expect FY28 to see full benefit of backward integration and improved volumes from Vivo-JV, exports and new client addition. We raise our FY27/FY28 estimates by 7%/2% to bake in 1HFY27 performance and slightly lower minority interest. We reiterate our BUY rating with a two-year forward DCF-based TP of INR15,900 (vs. INR15,400 earlier).

Beat on revenue and PAT, while margin was in line with our estimate

In 2QFY27, Dixon’s revenue and adj. PAT came in above our estimates, while EBITDA was broadly in line with our estimates. Consolidated revenue grew 47% YoY to INR218b (6% above our estimate). Beat on estimate was due to betterthan-expected execution across segments. Absolute EBITDA increased 6% YoY to INR6b, while margins contracted 110bp YoY to 2.7% vs. our estimate of 2.8%. Adj. PAT increased 19% YoY to INR3b (16% above our estimates). For 1HFY27, revenue/EBITDA/PAT grew 35%/2%/8% YoY, while margin contracted 100bp YoY to 2.8%. For 1HFY27, the company reported operating cash outflow of INR2.8b (vs. an inflow of INR8.8b last year), mainly due to higher NWC requirements, led by a surge in inventory and receivables.

Smartphone volumes and realizations remained strong in 2QFY27

Mobile and EMS segment revenue grew by 50% YoY, led by growth in smartphone and IT hardware/Telecom segment. Smartphone volumes stood at 9.7m during 2QFY27, and up 29% QoQ. The company has been gaining market share as smartphone industry volumes have declined 16% YoY over the same period. Dixon has maintained its full-year smartphone volume guidance of 33- 34m, excluding Vivo JV, for FY27. Volume ramp-up from Vivo JV is slower than our expectations, and we expect contribution to start happening from 4QFY27. For FY28, we expect Dixon to grow volumes through 1) new domestic client addition, which can add up 6-8m incremental volumes, 2) higher exports from anchor client Motorola and Transcion from 3.5m in FY27 to nearly 5-6m in FY28, and 3) 18-20m from Vivo volume addition. We bake in 37.3m/55m smartphone volumes for FY27/28, including Vivo JV volumes. IT hardware and telecom segments are benefitting from volume growth, product portfolio expansion and higher realization. We raise our revenue estimates for Mobile and EMS segments to bake in better-than-expected realization and expect ~93% contribution in overall revenue from this segment.

IT hardware and Telecom ramp-up driven by volume, prices and product portfolio ramp-up

IT hardware/telecom businesses are scaling up, with 2Q revenue of INR21.6b/ INR18.4b. IT hardware revenue is targeted at INR60-65b in FY27 and INR150-200b over the next couple of years, supported by increasing customer traction, portfolio expansion, and the 60:40 Inventec JV, which is expected to commence operations in 4QFY27. Laptop and tablet volumes are expected to reach 1.3-1.4m units in FY27 and 1.8-2m units in FY28, with a longer-term target of 4m units. While IT hardware margins currently stand at 2-2.3%, the company is targeting 25-30% BOM localization through backward integration into displays, SSDs and mechanical components, which could support 80-200bp of margin improvement over time. In telecom, Dixon is moving toward higher-complexity products, including microwave backhaul radios, optical platforms, industrial radios and network terminals, with exports of microwave radios expected to commence in FY27. GemTech JV, with initial capex of INR500-600m, is expected to begin commercial production in FY28, while discussions for aggregation routers and opportunities in IPTV set-top boxes provide further avenues for portfolio expansion.

Other non-mobile segments witnessing weak demand

Non-mobile segments such as consumer electronics, refrigerator, lighting are facing challenging times in terms of weak demand and inflationary pressure. Company is introducing new products in each category to improve volumes. Home appliances segment has seen a good volume growth and Dixon already has a 33% market share in this segment. We revise our estimates for these segments to factor in 1HFY27 performance.

Backward integration initiatives to aid margin in future

EBITDA margin declined 110bp YoY as benefit from PLI1.0 got over from Mar’26 along with higher inflationary pressure across RM and freight costs. Higher realization across segments also impacted demand for non-mobile segments. Mobile and EMS segment margins were down 100bp YoY, while consumer electronics margin was down 50bp YoY and home appliances margin was down 350bp mainly on higher cost of chips. Backward integration for display facility for mobile will commence trial production from 4QFY27 and mass production from FY28. Qtech camera module expansion plan is on track. We factor in delay in backward integration initiatives on display modules and expect margin to start recovering from FY28 onwards as these initiatives yield results. We expect EBITDA margin of 2.9%/3.6%/4.4% for FY27/28/29.

Financial outlook and view

We raise our FY27/FY28 estimates by 7%/2% to bake in 1HFY27 performance and slightly lower minority interest. We, thus, expect a CAGR of 29%/36%/39% in revenue/EBITDA/PAT over FY26-FY29, with EBITDA margin of 2.9% for FY27, which is expected to increase to 3.6%/4.4% over FY28/29 as backward integration initiatives start factoring in. The stock is currently trading at 73.1x/43.0x/29.2x P/E on FY27/28/29E earnings. We reiterate our BUY rating with a two-year forward DCFbased TP of INR15,900 (vs INR15,400 earlier).

Key risks and concerns

The key risks to our estimates and recommendations would come from lower-thanexpected growth in the market opportunity, loss of relationships with key clients, increased competition, and limited bargaining power with clients.

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