Buy Dixon Technology Ltd for the Target Rs. 20,500 by Motilal Oswal Financial Services Ltd
Mobile segment remains the growth driver
Dixon delivered a strong beat on EBITDA and PBT in 4QFY25, while net profit was boosted by one-time exceptional income from its stake sale in Aditya Infotech. For FY25, the company reported 120%/116%/93% YoY growth in revenue/EBITDA/PAT. Mobile and EMS segments continued to perform well, with improved order visibility from the top five clients for domestic as well as export volumes. Dixon is also actively pursuing partnerships with players across segments to deepen its relationships, which will help it grow volumes and improve its margin profile going forward. We expect Mobile segment growth to continue in the coming years, while consumer electronics will remain under pressure for some more time. The commissioning of its display facility and its foray into other components such as camera modules, batteries and enclosures through ECMS will help Dixon improve its margin profile once PLI ends. We marginally tweak our estimates and maintain our DCF-based TP of INR20,500 on Mar’27 estimates. Reiterate BUY.
Revenue in-line, EBITDA beat, adjusted PAT miss
Consolidated revenue grew 121% YoY to INR102.9b, broadly in line with our estimate. Absolute EBITDA grew by 143% YoY to INR4.4b, beating our estimate by 13% due to lower-than-expected other expenses, while margins expanded 40bp YoY to 4.3% vs. our estimate of 3.9%. Adj. PAT at INR1.85b increased 94% YoY but missed our estimates by 17% YoY, mainly due to higher-than-expected share of minority interest and lower-than-expected other income. However, Dixon had an exceptional gain of INR2.5b in 4Q, which led to core PAT (reported PAT) of INR4.0b. For FY25, revenue/EBIDTA/PAT grew 120%/116%/93% YoY to INR388.6b/INR15.1b/INR7.1b, while EBITDA margin was flat YoY.
Mobile phone volume growth to remain healthy
Smartphone order book is quite healthy for Dixon, with its anchor customer ramping up on exports to North America. Xiaomi and Longcheer order books also increased significantly from this quarter, and Itel and Infinix too look healthy. Dixon expects to achieve 43-44m smartphone volumes in FY26 and scale it up to 60m in FY27. In the Android smartphone market of 135m, Dixon plans to ramp up volumes from Oppo and Vivo too, which it has been so far doing in-house.
Backward integration to offset PLI loss
The contribution of PLI incentives to Dixon’s mobile margins is 0.6-0.7%, and the company is confident of fully mitigating this through scale benefits, automation, and localized component manufacturing. Strategic JVs, such as those with Vivo and Ismartu are expected to deepen customer stickiness and ensure volume growth. Moreover, Dixon is planning to invest in component manufacturing under the ECMS, including display modules, lithium-ion batteries, and camera modules, which should boost margins and create long-term cost advantages.
Expanding the non-mobile portfolio through innovation and integration
Within non-mobile segments, the consumer electronics segment faces headwinds, but Dixon is addressing them through new product introductions like digital signage and partnerships with Amazon Fire TV and LG WebOS. The refrigerator business has captured an 8% market share in just one year, with plans to double capacity and enter into new cooling categories. Home appliances reported strong performance in 4QFY25 with INR3.0b in revenue and 12.2% margins, driven by innovation and capacity expansion at the Tirupati plant. The lighting segment, with INR2.0b in revenue and 7.3% margins, is set to benefit from a new JV with Signify launching in 2QFY26. Telecom products grew significantly, aided by 5G and IPTV demand, with backward integration improving cost structures. IT hardware is gaining momentum with large-scale production for global brands and a strategic JV with Inventec to expand into high-value computing products. Wearables and hearables continued to perform well, supported by strong order books and growing localization, reinforcing Dixon’s position as a diversified and integrated electronics manufacturing leader.
Margin resilience and expansion strategy
Dixon has maintained a healthy operating margin profile, with 4QFY25 margins in the mobile business at 3.8% and higher margins across other segments like consumer electronics (6.1%), home appliances (12.2%) and lighting (7.3%). With PLI incentives tapering off by FY26, the company is relying on structural levers to drive future margin expansion. Dixon expects a margin gain of 150-200bp over time through backward integration, higher ODM contribution, automation, value engineering, and operational excellence. Component manufacturing, especially for high-margin items like display and camera modules, will be a game changer, significantly improving the blended margin profile of the company. We believe that these internal efficiency measures and integration efforts by the company will more than offset the PLI loss and deliver structurally stronger profitability.
Capacity expansion to drive long-term growth
Dixon is executing multiple expansion strategies to meet growing customer demand and strengthen its position across key segments. A 1m sq. ft. mobile manufacturing facility is under construction in Noida, with dedicated capacity for anchor clients including Vivo. The company is also building a display module plant with HKC, targeting initial production of 2m mobile and 2m laptop displays per month, set to double in later phases. In IT hardware, Dixon has begun production for HP, Asus, and Lenovo, and its JV with Inventec (set to commence in 4QFY26) is expected to contribute INR20b in revenue after two years. Refrigeration, lighting, and telecom verticals are also witnessing significant capacity additions, supported by strong order books and strategic partnerships like the Signify JV. With a steady capex of INR9b-10b annually, backed by internal cash flows and government schemes (PLI and ECMS), Dixon is well-positioned to scale up operations and enhance global competitiveness.
Financial outlook
We marginally tweak our estimates and expect a CAGR of 31%/33%/44% in revenue/EBITDA/PAT over FY25-FY27. Revenue growth would be mainly driven by mobile segment, while consumer electronics will remain under pressure for some more time. We expect an EBITDA margin of 3.8%/4.0% for FY26/FY27, led by increased focus on backward integration post PLI. This will result in a PAT CAGR of 44% over FY25- FY27.
Valuation and view
The stock is currently trading at 68.6x P/E on FY27E earnings. We broadly maintain our estimates and DCF-based TP of INR20,500 on Mar’27 estimates. 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, and limited bargaining power with clients.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
