Dixon Technologies shares up 181% since March; Jefferies expects further upside from Make in India push

Dixon Technologies shares have outperformed the benchmark indices during the pandemic, surging 181% since their March lows. The largest electronic manufacturing services (EMS) sector player, that deals with major clients across segments, is well placed to capitalise on the ‘Make in India’ push. This carves out an opportunity for investors that have missed the previous rally in the stock to still pocket massive gains. Global brokerage and research firm, Jefferies recently initiated the coverage of Dixon Technologies with a target price of Rs 12,600 per share banking on its diversified product mix that ranges from Consumer Electronics to Mobile Phones and even security systems. Stocks of the EMS major currently are trading at Rs 9,385 apiece. 

In various product categories, Dixon Technologies serves leading clients like Philips, Samsung, Airtel, Wipro, Panasonic, and Godrej, among others. Between financial year 2020 and 2023 the revenue of the company, as estimated by Jefferies, could grow at a CAGR 33%. Along with that, the RoE and RoCE of Dixon Technologies are also expected to surge.

The Production Linked Incentive (PLI) scheme of the government of India, which aims for manufacturing of mobile phones/components segment could benefit Dixon Technologies massively. “As notified by MEITY on October 6, Padget Electronics (subsidiary of Dixon) has been awarded one PLI scheme. We estimate ~8x sales growth in Mobiles over FY21-23e, with +40bps margin expansion,” Jefferies said in the report.  Dixon’s Mobiles sales/EBITDA share could grow from 12%/9% last fiscal year to 44%/31% by financial year 2023. Dixon Technologies said that the Indian mobile phones market was valued at Rs 1.6 lakh crore financial year 2020 and is estimated to reach Rs 2 lakh crore by fiscal year 2023. 

Dixon manufactures feature phones, smart phones, and PCBA for mobiles with a backward integration framework, according to Jefferies. Samsung, LG, Gionee, Panasonic, Karbonn are some of the key clients of the company. In 2017, Dixon’s revenue was drawn largely by mobile phones and consumer electronics having a 33% and 34% share in revenue mix, by 2020 the share of consumer electronics had moved higher to 48% and mobile phones dropping to 12%. However, estimates suggest that by 2023, mobile phone manufacturing will make up for 44% of the revenue mix. 

The EMS firm is also well placed on the financial front. “Dixon has a robust balance sheet, characterized by net cash, optimum working capital, high return ratios, good cash flows and sizable cash pile,” analysts at Jefferies said. When compared to fast moving electronic manufacturers and even FMCG players, Dixon indicates notable growth and RoCE. “We initiate Dixon with a Buy rating and PT of Rs 12,600, assigning a target PE multiple of 50x to Sept’22 EPS,” the report added.