Emkay Global Maintains Buy Rating for Dixon Technologies, Sees Target Price of Rs 12,500

Dixon Technologies Logs Weak Q4, Guides Flat Smartphone Volumes in FY27

Dixon Technologies posted a lackluster fourth quarter (Q4), with revenue increasing only 2% year-over-year (YoY) amid a sequential improvement in the mobile phone business, which rose 8.5% quarter-over-quarter (QoQ) driven by better average selling price (ASP). Conversely, the telecom business saw a 50% YoY decline. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) margin remained stable at 3.9% on a quarterly basis.

The mobile phone industry's demand-supply dynamics have been stabilizing over the last six months, following a period of demand moderation. Dixon has guided to flat smartphone volumes in fiscal year 2027 (FY27), with approximately 33 million units per annum, down from its earlier guidance of 60-65 million units. However, the company expects revenue growth of 12-15% (led by higher ASP due to rising component prices), with total revenue growth of 15% YoY at Rs560 billion.

The pressure on mobile EBITDAM from the lapse of the production-linked incentive (PLI) scheme (~0.6%) will be partially offset by better operational efficiency, with benefits from backward integration expected to kick in from FY28. Dixon anticipates a 40-50 basis points (bps) margin expansion as it ramps up its component manufacturing. IT Hardware revenue is expected to scale up three times in FY27, driven by a strong orderbook across clients.

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Dixon is undertaking initiatives to diversify its business and add future growth levers, including a foray into the high-margin industrial electronic manufacturing services (EMS) business, with attractive merger and acquisition opportunities on the table. Additionally, the company is awaiting approval for its Vivo joint venture.

Revised Estimates and Recommendation

We have revised our estimates for FY27 and FY28, cutting earnings per share (EPS) by 27-29% to factor in lower smartphone volumes (nil volume from Vivo) and pressure on mobile business EBITDAM due to the lapse of PLI and delay in backward integration. Despite this, we retain our BUY recommendation, given Dixon's robust cash flows, return ratios exceeding 25%, negative working capital cycle, and resilience in the face of tougher macro conditions and headwinds in FY26.

We have revised our discounted cash flow (DCF)-based target price to Rs12,500 from Rs15,200, representing an approximately 18% decrease.

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