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Moving on track

Dixon Technologies’ (DIXON) recent tie-ups and MoU with HP and Asus for the production of PCs, notebooks, and laptops under IT hardware PLI 2.0 augur well for scaling up its IT hardware revenues from current levels. With these tie-ups, the company is now catering to 4 out of the top 5 players in laptops. These players form nearly 67% of the overall IT hardware market share in India. The company is also in discussion to enter the industrial EMS sector and manufacture electronic modules for the EV industry. As highlighted in our EMS thematic report (Report link), the company will continue to benefit from increasing market share in its key segments. We also expect the company to continue benefiting from the new segments, backward integration, and the ODM mix improvement with near-term scale-up in revenues to come from mobile and EMS (including IT hardware, telecom hardware, etc). We maintain our estimates and roll forward our TP to INR15,500 on Dec’26 estimates. Maintain BUY.

IT hardware tie-ups positive for scaling up IT hardware revenues

Dixon Technologies has recently signed two new MoUs with HP India and ASUS to manufacture notebooks, desktops, and all-in-one PCs under PLI 2.0. These MoUs are in line with the company’s previous guidance to target a larger market of IT hardware following the PLI 2.0 scheme. The company already has Acer and Lenovo as its anchor clients, with mass production for Lenovo expected to begin in 3QFY25. With these tie-ups, the company now caters to the top 4 out of 5 customers in the country. It is also expected to commence its new facility in 8-10 months. In line with this, the company had guided for a sharp scale-up in IT hardware revenues over FY25-FY27. In our estimates, we have factored in IT hardware revenues to scale up from INR1.4 b in FY24 to INR5b/25b/50b in FY25/26/27.

Upcoming new areas targeted by the company

DIXON is exploring opportunities in the EV sector, mainly focusing on manufacturing components such as electronic modules and PCB assembly. Further, the company is exploring opportunities to enter the industrial EMS sector and is in advanced discussions with major semiconductor brands to serve their requirements for PCB assembly.

Industry has made representations to the government for PLI on components

DIXON is already benefiting from PLI schemes in mobile, white goods – (AC and lighting), and IT hardware and is working toward reaching scale and achieving backward integration. The industry has also made representations to the government to incentivize component production in India in order to increase value addition. According to DIXON, the government is currently working on a package for components such as PCB, electro mechanicals, audio and camera modules, etc.

Mobile and EMS to remain high-growth segments for DIXON

DIXON is already working with Motorola, Xiaomi, Samsung, Realme, Nokia, and Itel and also plans to add more brands through its majority stake purchase in Ismartu, which operates three brands in India (Itel, Infinix, and Techno), and its partnership with Longcheer, which manufactures for Oppo, Vivo, Oneplus, and Realme. Out of the 150m mobile smartphones sold in India, the outsourcing opportunity is almost 85m-90m, and DIXON aims to capture 35-40% of this opportunity in a couple of years. We expect revenues from mobile phones to increase INR232b/INR296b in FY25/FY26 from INR92b in FY24 to be driven by sharp improvement in smartphone volumes. For IT hardware, DIXON is eligible for PLI 2.0 and we expect IT hardware revenues to grow to INR5b/INR25b in FY25/FY26 from INR1.4b in FY24.

Financial outlook

We maintain our estimates and expect a CAGR of 44%/46%/51% in revenue/EBITDA/PAT over FY24-FY27. The revenue growth would be mainly driven by EMS (including mobile and IT hardware), consumer electronics, and new emerging segments such as refrigerators, wearables and hearables, and telecom networking products. We expect an EBITDA margin of 3.9%/4.0%/4.1% for FY25- FY27, led by an increased backward integration and the improving share of highmargin segments. This will result in a PAT CAGR of 51% over FY24-FY27. Further, we expect the working capital to remain comfortable at (-1) and a capex of INR5b every year over FY25-FY27. With efficient capital allocation, we expect RoIC to remain strong at 46.4%/55.9%/63.5% for FY25/FY26/FY27 vs. 30% in FY24.

Valuation and recommendation

The stock is currently trading at 85.9x/65.4x P/E on FY26/27E earnings. We roll forward our valuation to Dec’26 and reiterate a BUY rating on Dixon Technologies with a DCF-based TP of INR15,500.

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