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Long-term catalysts outweigh near-term challenges

Considering high memory prices, several smartphone players have started increasing prices to pass on higher costs. As expected earlier, this is likely to impact overall volumes of smartphone markets, particularly low and mid-range smartphones. This would result in Dixon’s volumes converging toward the second scenario as highlighted in our earlier report. We had aligned our estimates with these volumes at the time of previews. Despite the volume impact, we see positives in 1) government relaxing PN3 approval process, thereby hoping that Dixon-Vivo JV will be approved soon; 2) approval for 74:26 JV of Dixon with HKC for display modules; and 3) ECMS approval for Dixon’s display modules. In the next 2-3 quarters, Dixon will see the impact of lower volumes and margins amid the end of PLI benefits, after which backward integration benefits will boost margins. We reiterate BUY with a TP of INR14,700, implying 55x P/E multiple on Mar’28E EPS.

High memory prices making smartphones costlier

Memory prices have remained elevated in Mar’26, increasing more than 100% since Dec’25. As a result, android OEMs are increasing prices on existing models as well as new products. Nearly eight brands, including Samsung, Oppo, Xiaomi, Realme, Nothing and Vivo, have increased their prices by up to 40% for select models. The prices have been increased by an average of INR1,500 and are expected to rise further. Dixon manufactures smartphones for most of the lowto mid-price ranges, where volume pressure is being felt due to higher prices. We expect memory prices to remain high for a few more quarters.

Smartphone sales down 9% YoY

India’s smartphone sales declined 9% YoY in the first nine weeks of CY26, according to industry reports. The slowdown was primarily driven by supplyside pressures, particularly rising memory prices, coupled with typical seasonal softness at the start of the year. While volumes remained under pressure, value growth continued to hold steady, driven by sustained premiumization, and we expect value growth to sustain now with higher prices. We thus expect volumes of low- to mid-priced smartphones to remain impacted by higher memory prices in the current year

ECMS approval to support backward integration

Dixon has received PN3 approval from MEITY to form a 74:26 JV with HKC, wherein HKC will invest in Dixon Display Technologies (DDTPL). The JV will carry out the manufacturing and distribution of liquid crystal and thin film transistor liquid crystal modules for mobile phones, notebooks, automotive displays, TVs, monitors, etc. Following the PN3 approval, DDTPL also received ECMS approval in Tranche 4 for setting up a new plant for the manufacturing of display modules. Dixon had already received ECMS approvals for optical transceiver (SFP) and camera modules in Tranche 3 of the scheme. Further, with the government changing the guidelines on FDI policy requiring PN3 approval, we expect Dixon-Vivo JV approval to come in soon. After the approval, Dixon will need another 45-60 days to commence production. We factor in smartphone volume of 51.8m/56.3m units for FY27/28 for Dixon, assuming base volumes to decline in FY27 followed by new client addition and volumes from Vivo.

Benefits of backward integration to start kicking in from 2HFY27

With PLI benefits nearing the end and high memory prices impacting volumes, Dixon’s margins are expected to remain under pressure until 1HFY27. However, thereafter, the company’s initiatives for backward integration will kick-in and support margin expansion. These initiatives include 1) Q Tech’s (subsidiary of Dixon) expansion of camera modules manufacturing capacity, 2) commencement of display manufacturing with mass production expected to begin from 2QFY27, and 3) 74:26 JV with Chongqing Yuhai to enter the precision components manufacturing segment. We, thus, factor in overall EBITDA margins of 3.6%/4.3% for FY27/FY28 for Dixon.

Financial outlook

We factor in smartphone volumes of 51.8m/56.3m units for FY27/28, assuming Vivo approval to come through during 1QFY27. Along with the scale up expected in other segments, we expect a CAGR of 28%/32%/30% in revenue/EBITDA/PAT over FY25-28 with EBITDA margins of 3.6%/4.3% for FY27/FY28.

Valuation and view

The stock is currently trading at 65.0x/43.4x P/E on FY27E/FY28E EPS. We maintain our BUY rating on the stock with an unchanged DCF-based TP of INR14,700, implying 55x P/E multiple on Mar’28E EPS.

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