Emkay Global Initiates Coverage on Dixon Technologies, Sets Price Target at Rs 15,200
Dixon Technologies Research Update
Overview We have received positive news regarding Dixon Technologies, with the Union Cabinet approving changes to the Press Note 3 (PN3) framework for Foreign Direct Investment (FDI). This development could simplify and expedite FDI approvals for certain sectors, including Electronics Manufacturing Services (EMS).
Impact on Dixon Technologies The approval of Dixon Technologies' joint venture (JV) with Hong Kong Consumer Electronics Company (HKC) for display module manufacturing has significant implications for the company. With this approval, Dixon's level of backward integration in smartphones has increased by 10-12% from 16-17% currently. We believe this development enhances the likelihood of PN3 approval for the Vivo JV.
Outlook The concerns surrounding pending PN3 approvals for the HKC and Vivo JVs may soon be alleviated, allowing us to revisit our base case. Our base case assumes organic volume growth with Vivo, resulting in an estimated 48% compound annual growth rate (CAGR) in earnings per share (EPS) from FY25 to FY28. We also expect industry-leading return ratios of >30%.
Recommendation We reiterate a BUY recommendation on Dixon Technologies with a target price of Rs15,200.
Investor Takeaway
Investors should consider the potential for improved FDI approvals and structural growth avenues for Dixon Technologies.
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