Dixon Technologies share price: Anand Rathi pegs this price target

After production-linked incentives for mobiles being approved, Dixon Technologies will now bid for PLIs for AC components LED bulbs. The proposed PLI for wearable technology augurs well for it, as bOAT is a customer. Dixon can benefit from opportunities in the 5G-technology roll-out as it can assemble 5G-compliant handsets and equipment like modems and routers. On such powerful tailwinds support, Anand Rathi raised PE(x) assigned to the stock from 50x to 60x. Anand Rathi maintains a Buy with a higher target price of Rs 5006 (60x FY23e EPS of Rs 83.4), earlier Rs 3916, post-split.

Backed by robust, 2x yoy volume growths in consumer electronics, and 3.8x in mobiles, Dixon Technologies Q4 revenue increased 1.5x y/y at Rs21bn. Its EBITDA margin dipped 270 bps yoy to 3.8% on the gross margin coming 560bps lower yoy due to higher commodity costs, passed on in Q1 FY22 to customers. As a result, Q4 PAT shot up 60% yoy to Rs 443 mn.

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The outlook for mobile phones has turned brighter after the company became an approved vendor under the PLI scheme and on rising volumes from OEMs such as Samsung, Motorola and Nokia. Dixon would also bid for PLI for AC components and LED bulbs. The staggered capex to be incurred for the PLI production (over five years) initially reduces the strain on the balance sheet.

After the FY21 results, Anand Rathi has raised our FY22e and FY23e revenue respectively 21% and 29%. However, Anand Rathi has lowered their FY22 margin expectation 19% due to mounting commodity prices and further clarity required regarding PLI for mobiles. The outlook for FY23, though, can brighten as revenue booking under PLI schemes could increase and higher contribution from home appliances segment, which have higher margins. 

Dixon Technologies Key risks:

1)      restrained demand for consumer durables in the home market
2)      shortages of semiconductors and chips, critical inputs for all Dixon’s product categories, on demand shooting up with the roll-out of 5G technology