Dixon Technologies’ fortunes hinge on scale up of mobile biz

Dixon’s mobile business segment is expected to be a key growth driver for the company in coming quarters (Photo: iStock)
Dixon’s mobile business segment is expected to be a key growth driver for the company in coming quarters (Photo: iStock)

Summary

Dixon derived almost 46% of its revenues in Q4 from the mobile and EMS (electronic manufacturing services) business, which saw 9% growth.

Dixon Technologies (India) Ltd’s shares surged over 7% on Wednesday. Investors are visibly pleased with the contract manufacturer’s robust profit growth in the March quarter (Q4FY23). Dixon’s consolidated Ebitda rose by 32% year-on-year to 156 crore last quarter. Growth was led by favourable product mix with higher share of original design manufacturer sales, price hikes, lower input costs and operating leverage. So, Ebitda margin expanded by 110 basis points to 5.1%.

This comes at a time when revenue growth was subdued at nearly 4%. Dixon derived almost 46% of its revenues in Q4 from the mobile and EMS (electronic manufacturing services) business, which saw 9% growth. However, subdued demand lowered revenue year-on-year from consumer electronics and lighting products segments.

Graphic: Mint
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Graphic: Mint

Going ahead, Dixon’s mobile business segment is expected to be a key growth driver for the company in coming quarters. The management said it is in final stages of closing two large customers in this segment. Combined this could potentially add 4,000-5,000 crore revenue on an annual basis. For perspective, mobile and EMS segment’s FY23 revenue was 5,224 crore.

Further, a healthy order book from existing customers such as Nokia is expected to aid in its growth. Management’s assurance of strong growth across segments in FY24 bodes well. Management has not given any revenue growth guidance for FY24, but expects new categories like wearables, telecom, and refrigerators to post strong growth in revenue.

The road ahead will not be easy as there are concerns on demand. “Present weakness in domestic demand warrants caution, as most product categories are B2C/discretionary (eg: mobiles, TVs, appliances). Smartphone offtake has been weaker globally as well," wrote Sonali Salgaonkar, Jefferies India analyst in a report. Even so, Jefferies estimates strong FY23-26e sales and PAT compound annual growth rate for Dixon at +32% and 49%, aided by PLI ramp-up (especially mobiles), new customer and category additions.

Hereon, sales ramp-up remains key. “While addition of new customers in mobile segment is imminent, we believe slowdown in some key segments will hamper growth of brands, which will see additional impact from Dixon being B2B supplier," said Emkay Global Financial Services analysts in a 24 May report. Dixon’s valuations are not cheap. The stock trades at 36 times FY25 estimated earnings, showed Bloomberg data.

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