Dixon Technologies Ltd For Target Rs. 14,350 By Elara Capital Ltd
Display fab foray to grow value addition
Dixon Technologies (DIXON IN) witnessed revenue growth of 117% YoY in Q3, led by its growing mobile segment. DIXON’s foray into precision components for displays and now into semiconductor fabs for displays provide scope for margin improvement; however, with the mobile PLI ending next year, its impact remains to be seen. We revise to Reduce with a higher TP of INR 14,350 on 61x December 2026E P/E on display fab foray and sharp correction in the stock from a high of INR 19,150. PLI for hearables & wearables and components ecosystem could act as catalysts for a rerating.
Top line surge continues led by mobiles: DIXON saw sales growth 190% YoY in the mobiles and electronic manufacturing services (EMS) segment in Q3FY25, led by new client additions and Ismartu consolidation. Lighting sales rose 7% YoY while home appliances revenue was up 9% YoY. Consumer electronics saw a decline of 32% YoY, due to the fall in TV volume. The company has announced a JV with Vivo India and has recently acquired the land and plant & machinery of KHY Electronic India, which may bolster mobile volume from the next year.
Foray into semiconductor fabs for displays to grow value addition: DIXON has announced plans to manufacture semiconductor fabs for displays for mobile, TV, laptops, notebooks, tablets, and automotive. During Q2FY25, it had announced a JV with the HKC Group to produce non-semiconductor components for mobiles, such as precision & mechanical components and camera modules. The company looks to extend this partnership by also manufacturing display fabs. The project needs capex of USD 3bn. It awaits the rollout of the new components PLI and ISM-2 guidelines for clarity on subsidy allocation, which may be similar to Outsourced Semiconductor Assembly & Testing (OSAT) subsidies (~70% capex subsidy), without which the project would not be financially viable. As per management, if subsidies are as per guidance, the display fab project may have double-digit margin with high asset turnover and ROE.
Margin decline due to higher mobile contribution: EBITDA margin contracted 10bp due to increased contribution from the low-margin mobiles business during the quarter. Margin may remain ~3.8-4.0% in FY26E, with improvement of 30-40bp likely in FY27E once in-house manufacturing of components starts.
Revise to Reduce with a higher TP of INR 14,350: We raise our EPS by 3% for FY25E and by 1% for FY26E given the ISmartu consolidation and Vivo onboarding. While sales growth would continue through new client acquisitions, margin remains low, with further potential decrease once the mobile PLI ends. The components foray may have higher margin, but asset turnover is far lower than assembly, which may restrict growth and cap its return ratios. We revise to Reduce from Sell with a higher TP of INR 14,350 from INR 12,275 on 61x (from 55x) December 2026E EPS based on its foray into display fabs and sharp correction in the stock from a high of INR 19,150. We expect an earnings CAGR of 65% during FY24-27E. Introduction of PLI for hearables & wearables and non-semiconductor mobile components & displays could be triggers for rerating.
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SEBI Registration number is INH000000933
