Reduce Dixon Technologies Ltd for Target Rs. 14,770 by Elara Capitals
Momentum slowing for mobiles
Dixon Technologies (DIXON IN) witnessed revenue growth of 120% YoY in FY25, led by its growing mobile segment and ISmartu acquisition. DIXON’s foray into precision components for displays and semiconductor fabs for displays provide scope for margin improvement; however, with the mobile PLI ending next year, its impact remains to be seen. A slowdown in domestic mobile demand is also seeing the company focused on exports for volume growth hereafter. We retain Reduce with a higher TP of INR 14,770 on 61x March 2027E P/E on new customer additions in IT hardware and component PLI benefits in mobile and nonmobile categories.
Mobile momentum slows with lower sequential growth: DIXON’s mobile revenue momentum appears to be slowing with lower sequential growth despite clocking in 194% growth YoY due to new client additions in FY25 and ISmartu acquisition. Domestic demand may see a slowdown as sales of low-margin mobiles seems to be declining, due to the premiumization shift. As a result, the company is focused on exports, with a target of 10.0mn mobiles in FY26 vs 1.5mn exports in FY25. Overall, it targets 43-44mn mobiles manufacturing in FY26 vs 28mn in FY25, which it further intends to ramp up to 60-65mn in FY27 once its Vivo JV kicks in. It also targets backward integration into displays with an initial target of 2mn displays in Phase 1, followed by 4mn mobile displays and 2mn laptop displays in Phase 2.
Margin surprise likely on price rise but uncertainty as PLI nears end: Margin saw a positive surprise in Q4FY25, up 40bp YoY to 4.3%, likely due to price increase in mobiles. FY25 EBITDA margin remains flat YoY at 3.9%, due to higher contribution of the lower margin mobile phone segment. Margin may take a further hit in FY27 as mobile PLI ends in FY26, which currently contributes 0.6-0.7% of margin, as per management. However, it stated backward integration into displays along with investment into a new line of robotics and automation should help to offset the PLI-related decline.
FY26 guidance of 40-45% sales growth with 25bp margin expansion: Management has 40- 45% top-line growth target in FY26, led by ramping up of mobile exports along with margin expansion of 20-25bp, as its other segments, such as IT hardware, telecom and consumer electronics, increase their share. The company also targets a capex of INR 9-10bn in FY26 to invest in display module and factories for new customers.
Retain Reduce with a higher TP of INR 14,770: We keep our FY26 EPS unchanged and trim our EPS by 2% for FY27E due to uncertainty on margin due to mobile PLI ending in FY26. We introduce FY28E. 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 retain Reduce with a higher TP of INR 14,770 from INR 14,350 on 61x (unchanged) March 2027E P/E, due to new customer additions in IT hardware and component PLI benefits in mobile and nonmobile categories. We expect an earnings CAGR of 17% during FY25-28E.
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SEBI Registration number is INH000000933
