Motilal Oswal Initiates Coverage on Dixon Technologies, Sets Target Price at Rs 14,700.

Dixon Technologies Faces Impact of Rising Memory Prices

The smartphone industry has been affected by high memory prices, leading several players to increase prices in order to pass on the higher costs to consumers. As a result, the overall volumes of smartphone markets, particularly in the low and mid-range segments, are likely to decline. This development is consistent with the second scenario outlined in a recent research report by Motilal Oswal, and the company's estimates have been aligned accordingly.

Despite the expected decline in volumes, the research report highlights several positives for Dixon Technologies. The Indian government's decision to relax the PN3 approval process is expected to facilitate the approval of the Dixon-Vivo joint venture. Additionally, the approval of the 74:26 joint venture between Dixon and HKC for display modules, as well as the ECMS approval for Dixon's display modules, are expected to boost the company's prospects.

The next 2-3 quarters are likely to be challenging for Dixon Technologies, with the company facing the impact of lower volumes and margins as the benefits of the Production Linked Incentive (PLI) scheme come to an end. However, the company is expected to benefit from backward integration, which will boost its margins in the long run.

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Recommendation

We reiterate our BUY recommendation for Dixon Technologies, with a target price of INR 14,700. This is based on a price-to-earnings multiple of 55x, applied to the company's estimated earnings per share for March 2028.