Buy Dixon Technologies Ltd for the Target Rs 16,700 by Emkay Global Financial Services Ltd
Dixon showcased resilient 1QFY27 results in the face of a complex macroeconomic environment with persistent inflationary pressure. Revenue was 8.4% above consensus’ estimate (+1% above Emkay’s) despite yoy decline in smartphone volumes, driven by cost pass-on to customers. EBITDAM at 3% was 37bps below consensus’/Emkay (3.4%) estimates , driven by PLI expiry (~-0.6%) and partially offset by improved operating performance. More importantly, Dixon guided for ~25% qoq growth in 2QFY27, with 9-9.2mn smartphones order-book visibility and reiterated 30-33mn units FY27 guidance (ex Vivo), led by market share gains. Further, Dixon gave broad contours on the new PLI scheme for mobile phones. We cut FY27E EPS to factor in the margin pressure, partly offset by mobile phone manufacturing PLI (modeled at 2.25% of incremental revenue) and raise FY28E EPS by ~12% to factor in better realizations and margin recovery, further aided by component PLI (0.3% of eligible smartphone revenues, in addition to mobile manufacturing PLI). We raise TP by ~10% to Rs16,700 from Rs15,200 and retain BUY on the stock.
Strong topline print; margin optically lower amid input cost pass-through
Dixon’s overall financial performance was resilient, with revenue up 21% yoy, led by broad-based growth across segments. EBITDA was down 4% yoy, largely owing to PLI expiry and impact of inflated denominator, partly offset by improved operating performance. The company has reiterated full-year guidance for 30-33mn units.
Earnings call KTAs
1) Mobile EMS revenue growth was strong, driven by higher input cost realization even as total shipment volumes saw a modest decline.
2) On track for 20-25% qoq volume growth in 2QFY27 (order book at 9-9.2mn units); reiterated total volume guidance of 30- 33mn units for FY27 (ex-Vivo).
3) Vivo JV expected to commence operations from 3QFY27 and new facility for an anchor customer in Noida from 3QFY27.
4) Camera module capacity expanding, from 70mn to 180-190mnpa over 15-18 months.
5) Display facility trials starting 3Q, with mass production by end-3Q/4Q.
6) Exports projected to add 15-20mn units, equating to Rs180-200bn within a couple of years, driven by PLI2 incentives that are expected to meaningfully contribute to margins within a couple of quarters.
7) Maintains telecom guidance at Rs60-70bn for FY27 and healthy growth in FY28.
8) IT/hardware: multifold growth in FY27 maintained (3x growth to Rs40bn guided in 4Q).
9) Per Management, PLI expected on a brand-by-brand basis.
10) Export PLI on components:
i) display,
ii) camera modules
iii) battery mechanical and charger – 0.3% each on the export value.
11) Inventory buildup to navigate supply-chain challenges.
12) Actively discussions on a prospective JV, to enter the high-growth enterprise server and data-center hardware ecosystem.
13) JV with Inventec (top global ODM); plans to start manufacturing general and data-center servers.
14) JV with Gemtec for optical transducers (SFPs) targets end-use in both telecom networks and data centers
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