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Result Synopsis

Dixon has delivered 8% revenue beat on strong performance of mobile phones and EMS division. Mobile phones and EMS business has seen continued growth of 189% as there has strong demand from new as well as existing customers. Increased order from Motorola and ramping up of Xiaomi has resulted in strong growth. The company expects onboarding of a large global brand in mobile phones and with this company will have all the brands in the android ecosystem as their customer. Apart from mobile phones only home appliances have registered double digit growth while consumer electronics has registered 3.1% decline and lighting products has seen muted 2% growth. Management is confident of strong showing in mobile phones and expect smart phones to register volume of 28mn units in FY25. We believe Dixon will continue to deliver strong growth in the medium term as it has been 1) able to add new customers on consistent basis; 2) New product category like refrigerator has seen strong performance and management is looking to expand capacity and make further investments in frost-free refrigerators; 3) IT hardware like laptops and tablets will be next growth driver as company has already started manufacturing for Acer and contract has been finalized with Lenovo to start mass manufacturing. Apart from that two new global brand are likely to be onboarded and company has finalized Chennai as location for new facility for IT hardware; and 4) Investing in backward integration to improve efficiency. On the margin front, company is looking to improve its margin by increasing scale, backward integration, and cost optimization initiatives. The company is also prudent in employing its capital and constantly endeavoring to improve its return ratios. We have increased our target multiple to 60x considering increased revenue from new categories, increasing of manufacturing capacity and entry into new categories. We however downgrade the stock to SELL as stock has runup ahead of expectation.

Dixon is expected to deliver strong revenue performance given the ramp up in its existing customer base and company is expected to on-board new customers in FY25. We now build-in FY24-26E Revenue/EBITDA/PAT CAGR of 54%/54%/67%, we value the stock at 60x FY26 EPS. We however downgrade the stock to SELL as CMP captures most of the positives and we will wait for better entry point.

Result Highlights

* Quarter summary – Dixon delivered better than expected growth as Mobile phones (+189%) has seen strong growth, while consumer electronics segment has seen decline, Home Appliances has seen 28% growth while lighting grew at 2%.

* Margin – EBITDA margin have contracted on yoy basis, as business mix has been more towards on the mobile phones side which has lower margins.

* Guidance – The company has refrained from giving any guidance; however, it is confident of strong growth rates continuing in coming fiscal and EBITDA margin is expected to be ~4%,

* Investments -Company will continue to invest in adding capacities and will be increase backward integration. Capex requirement for FY25 would be ~Rs6bn.

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