Markets
Dixon Technologies needs demand to pick up and soon enough
Summary
After a miserable December quarter (Q3FY23), Dixon now expects to clock revenue in the range of ₹12,200- 12,700 crore.Dixon Technologies (India) Ltd is staring at a gloomy FY23. At the start of the year, the company was expecting revenue of ₹16,500- 17,000 crore. But those expectations have moderated since then. In the first half of FY23, the guidance was reduced to about ₹15,000 crore. After a miserable December quarter (Q3FY23), Dixon now expects to clock revenue in the range of ₹12,200- 12,700 crore. Revenue stood at about ₹10,700 crore in FY22.
A subdued demand environment across its key segments – consumer electronics, lighting products and mobiles remains a sore point. This led to weaker-than-expected Q3 results with revenue down by almost 22% year-on-year (y-o-y) to ₹2,405 crore. The expansion in Ebitda margin by 1.27 percentage points y-o-y to 4.6% was a positive but this alone couldn’t soothe investor concerns. Dixon’s shares tumbled as much as 19% on Friday, also hitting a new 52-week low of ₹2,631 apiece. Valuations are not exactly inexpensive. The stock trades at 36 times FY24 estimated earnings, Bloomberg data show.
Some analysts opine that the share price drop was overdone. Analysts at Nuvama Research expect near-term weakness for the stock as earnings downgrades play through. Various brokerages have cut their FY23-24 earnings estimates for Dixon, including Nuvama. But the broking firm points out that growth seems healthy despite these cuts (with 30%+ return on equity). Indeed, Dixon’s healthy return ratios are a bright spot.
However, investor sentiment could revive with volume growth and thus, revenue. Dixon is on the verge of closing two key customer acquisitions in the mobile segment, which can potentially add ₹5,000-6,000 crore worth of annual revenue. This vertical contributed nearly 42% to operating revenue in the nine months ended December. On the back of these acquisitions, Dixon aims to double mobile segment revenue in FY24 from an estimated ₹4,000 crore in FY23. Overall, it expects revenue of ₹19,000–21,000 crore in FY24. Dixon’s progress towards this aim is a key monitorable. Jefferies India pencils in lower sales at ₹18,700 crore, building softer offtake amid a global slowdown in mobiles.
Besides, sustaining the Q3 margin level is crucial. The multi-quarter high margin was driven by cost efficiencies and price hikes across original design manufacturer businesses. But given the lower margins in Q1 and Q2, Dixon expects FY23 margin at about 4%. While the company expects to maintain Q3 levels going forward, it could be a stretch if there is no meaningful pick-up in sales volumes.
