The stock of Dixon Technologies (India), the country’s largest listed electronic manufacturing services (EMS) player, was up 6 per cent in 10 trading sessions, boosting the gains over the last three months to 21 per cent.<\/p>\n
The gains came following reports that Dixon will produce laptops in India in partnership with US and Chinese firms under the production-linked investment (PLI) scheme.<\/p>\n
It recently signed an agreement to make smartphones for Xiaomi India.<\/p>\n
Dixon has a diversified portfolio of televisions (TV), smartphones, lighting, washing machines, refrigerators, information technology (IT) hardware and wearables.<\/p>\n
New customers are expected to give it earnings visibility.<\/p>\n
Dixon has a 35 per cent share of the LED TV market, 30 per cent in washing machines, 15 per cent in mobile phones, half of the lighting market and a quarter in surveillance systems.<\/p>\n
While the company improved its revenue by 32 per cent and operating profit by 37 per cent in the last decade (FY13-23), the street will monitor its ability to maintain growth on the back of new initiatives.<\/p>\n
Axis Capital believes Dixon will be able to achieve a revenue growth of 36 per cent over FY 23-26, led by a 59 per cent growth in mobile phones and a 20 per cent growth in home appliances.<\/p>\n
The brokerage believes Dixon will be a direct beneficiary of the government’s Make in India manufacturing campaign and the country’s evolution as an electronics export hub.<\/p>\n
The company has maintained its relationship with marquee customers (Samsung, Phillips, Xiaomi, Panasonic and others), added new global clients, developed product capabilities and scaled up verticals.<\/p>\n
The brokerage has a target price of Rs 6,200 per share for Dixon.<\/p>\n
Government efforts to encourage domestic production of laptops and its restriction on import licences have created positive sentiment for domestic EMS majors such as Dixon.<\/p>\n
Kotak Institutional Equities, however, said that manufacturing laptops\/tablets is complicated in terms of higher levels of software and hardware testing and requirements to customise products.<\/p>\n
Aditya Mongia and Sai Siddhardha Pasupuleti, analysts with the brokerage, said the difference between manufacturing laptops\/tablets and mobile phones would limit Dixon’s pace of scale-up in the laptops\/tablets business.<\/p>\n
There is a weak case for brands to outsource or move manufacturing to India, they said.<\/p>\n
The brokerage has reiterated its sell rating with a target price of Rs 4,000 per share.<\/p>\n
Morgan Stanley Research, too, has an underweight rating on the company.<\/p>\n
The brokerage believes that Dixon has a heavier exposure to business-to-consumer segments and hence it is vulnerable to competition.<\/p>\n
Its growth is reliant on PLI schemes continuing.<\/p>\n
The brokerage has a target price of Rs 4,033 a share as valuations do not factor in risks from potential competitive intensity and lack of intensity in research and development.<\/p>\n
At the current price, the stock is trading at 54 times its FY25 earnings estimates.<\/p>\n