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Standing tall

We recently interacted with Dixon Technologies (Dixon) management to understand company’s growth potential. Our bias continues to remain positive on Dixon owing to its market leadership positioning, JVs with other players that ensure long term sustainability of volumes, backward integration and ability to scale up other segments such as telecom, IT hardware, refrigerator etc. We understand that competition is catching up but Dixon has first mover advantage in terms of 19% volume market share in smartphone market in FY25 moving up to 40% by FY27-end, ability to address 30- 35% BoM in next 1-2 years for mobile manufacturing and ability to benefit from export opportunities from key clients in future where competition lags behind Dixon. We revise our estimates to factor in slightly better volumes for mobile and EMS along with higher minority interest for the JVs and also add the value of stake in Aditya Infotech. We maintain BUY with a DCF based TP of INR22,300 (earlier INR22,100).

Expanding market share in a largely flattish smartphone market

As per industry reports, Indian smartphone shipments stood broadly around 151-153m units in CY24 and 70m units in 1HCY25. Shipments have seen a growth of 7.3% YoY in 2QCY25. Within this market, Vivo remained the market leader followed by Samsung, Oppo, Xiaomi, Realme, Apple and Motorola. Over last three years, Vivo, Oppo, Motorola, Apple were able to increase their market share. Dixon is already working with most of these brands on existing contracts such as Motorola, Realme, Xiaomi and waiting for approvals for JV with Vivo and hence has benefited from the growth in these brands despite overall market growth being sluggish. Along with this, company has also been able to improve upon the wallet share from existing relationships. Company expanded its market share from nearly 2% in FY23 to 19% in FY25 in smartphone EMS and we expect this to move up further to 40% by FY27.

Recent JVs and acquisition pave way for long-term volume sustainability

We try to assess the volumes beyond FY26 for Dixon, which can provide long term sustainability to overall mobile segment revenues. Complicated process of approval for Chinese players to expand in India is prompting Chinese players to tie up with domestic companies and capitalise on domestic growth potential.

* JV with Vivo: Dixon expects the approval for the 51:49 JV with Vivo within few months which will ensure a good volume support of nearly 20m to come in the JV. Vivo is currently the market leader and had done volumes of nearly 32-33m last year. Nearly 60% of these volumes are expected to be done under the JV where Dixon will benefit. With continued market leadership of Vivo, we expect these volumes to grow in future too.

* JV with Longcheer: Dixon has also received approval for a 74:26 JV with Longcheer. Longcheer is handling 25m volumes in India and for Xiaomi and Oppo put together, a larger share can flow to Dixon over medium to long term.

* Transsion (Ismartu) integration: For FY26, Ismartu integration in financials will be for the full year and beyond FY26/27, company would target to capture some share of export volumes as Transsion globally has been handling 110m volumes for the full year.

* Other: Along with these, the company’s 60:40 JV with Inventec for IT devices and JV with Signify on lighting business will ensure incremental revenues for Dixon in terms of tapping new products and new markets.

Acquisitions and JVs ensure backward integration too

Company has been working on backward integration across segments. Its display facility with HKC will commence trial production from 1QFY27. Along with this, its recent binding term sheet with Q-tech India for acquiring a 51% stake will enable company’s foray into camera modules. It is also waiting for approval for a 74:26 JV with Chongqing Yuhai Precision Manufacturing for precision components. These initiatives pave way for margin improvement for future. Shift of customers to Dixon’s display or camera or precision components will be driven by duty arbitrage as well as from component PLI scheme.

Backward integration to offset the phasing out of PLI benefits

PLI benefits currently add nearly 50-60bps to mobile segment margins and hence margins can be negatively impacted with PLI scheme getting over by Mar,26. Dixon is already pursuing backward integration on displays along with HKC and will be acquiring 51% stake in Q-Tech India for camera modules which will help it address another 20%-22% of BoM of a smartphone. It is also pursuing JV with Chinese player for precision components. Company’s long term goal is to address 30-35% of BoM of a smartphone via backward integration. With these backward integration initiatives, we expect Dixon to generate mid-teens EBITDA margin in display and 7-9% in camera modules. Gradually, the company will target increased volumes from inhouse customers for these components on account of duty arbitrage on components as well as component PLI, thereby providing a scope of margin improvement beyond mobile PLI.

Dixon has an edge over rising competition

Mobile EMS market is split between companies operating with Apple and android phone players. Apple value chain is dominated by players like Foxconn, Tata electronics, Luxshare and to an extent Jabil which makes accessories. Dixon dominates the Android value chain which has other players too catching up such as DBG technologies, Bhagvati products, Karbonn. Though we have seen the volumes moving up for other players, Dixon still stands ahead of other players in terms of

1) early mover advantage, giving it a much bigger scale than other players,

2) better margins and a much stronger balance sheet strength than other players,

3) backward integration, tie ups with HKC, Q-tech acquisition and component PLI to add further delta to margins,

4) JVs with bigger OEM and ODM players such as Vivo, Longcheer to provide long term sustainability of volumes. Other players are still much behind Dixon in these parameters.

Positioning of Dixon for exports amid US import tariff

Electronic exports are currently exempted from US tariff under Section 232 and hence Dixon is not impacted by this. Among its clients, Motorola has a potential to ramp up exports to US from India. However, the tariff scenario is still evolving and will be difficult to determine how overall exports of electronics from India to US will pan out. We believe that it is not easy to shift supply chains to other countries just on account of relatively lower tariffs. Motorola has production facilities in India, China and Brazil and has gained market share in India over last two years. Hence, India is an important market for Motorola. Along with this, Dixon is also planning to increase the exports to other countries via its network of various JVs with ODM or mobile players.

What will drive export volumes to increase for Dixon beyond US Dixon’s next leg of growth is expected to come via JVs as well as higher export volumes. Presently India electronic manufacturing faces a cost disability versus other nations. Though India still has labour cost arbitrage versus China and Vietnam, however, a large part of component ecosystem is more developed in other nations versus India. With component PLI in place, Dixon is planning to target nearly 30-35% of BoM for mobile manufacturing. Along with this, company will keep pursuing the strategy of JVs, move more towards global benchmarks, will focus on attracting the best talent pool, focus on R&D and automation and in next 3-4 years, grow as a full integrated EMS player. This, coupled with scale by then, would enable it to compete with global players to get export volumes.

Other non-mobile segments

* IT hardware (part of mobile and EMS segment): Company is setting up a facility in Chennai for a JV with Inventec which will focus on servers, SSD module, memory module and camera too. This will be over and above the existing facility in Chennai for IT hardware.

* Telecom (part of mobile and EMS segment): Dixon has a JV with Airtel and had revenue of INR36b in FY25. It is looking for another JV in telecom space and plans to grow its revenues to INR45b-50b in FY26 and to USD1b over next 1-2 years.

* Refrigerator: Within one year of operations Dixon has captured ~10% of the Indian market in direct cool category and is now expanding its capacity to 2m units from current 1.2m at the existing facility in Greater Noida. The company is also now foraying into new products in cooling division like frost-free refrigerator, side-by-side mini bars, deep freezers and plans to take the capacity to 3m.

* Lighting: Dixon’s JV with Signify is set to become operational by Aug’25. It is targeting premiumization with a focus on high-value indoor and architectural lighting products. The company has received a pilot export order from a leading US retail chain for LED strip and rope lights, which is being executed in the current quarter and is expected to scale up meaningfully.

* Home appliances: The company is enhancing production capacity at its Tirupati and Tamil Nadu units, which are expected to be operational by Aug’25. It has already launched high-capacity semi-automatic washing machines in the 16kg and 18kg categories, with market availability expected by 3QFY26. The company is in the development phase for front-load washing machines, for which it has recruited a senior Korean R&D expert to lead the project.

Financial outlook

We revise our estimates to factor in higher mobile volumes and higher minority interest, and expect a CAGR of 36%/41%/46% in revenue/EBITDA/PAT over FY25-28. With commissioning of display facility by 1QFY27 and completion of Q-tech stake acquisition, we expect EBITDA margin of 3.8%/4.1%/4.4% for FY26/FY27/FY28. Along with this, we also incorporate higher minority interest for JVs that will be in place over the said period. This will result in a PAT CAGR of 46% over FY25- FY28E.

Valuation and view

The stock is currently trading at 60.8x/46.2x P/E on FY27/28E earnings. We also incorporate the value of stake in Aditya Infotech. We reiterate our BUY rating on the stock with a revised DCF-based TP of INR22,300 (earlier INR22,100). Reiterate BUY.

Key risks and concerns

The key risks to our estimates and recommendation would come from the lowerthan-expected growth in the market opportunity, loss of relationships with key clients, increased competition, limited bargaining power with clients and supply chain disruptions due to non-availability of rare-earth elements.

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