Dixon Technologies Q1 Results Review - Customer, Product Addition To Drive Robust Growth: Systematix

Systematix Research Report

Dixon Technologies India Ltd.'s in line Q1 FY24 revenue was mainly driven by the mobile and electronic manufacturing services segment (Rs 17.95 billion, up 38% YoY and 27% QoQ), while Ebitda/profit after tax came below estimates (by 14%/7%) on below expected Ebitda margin (4% versus 4.7% estimated) in all segments.

Management attributes the low margins to soft volumes in most key core segments. However, balance sheet remained healthy with gross debt/equity at 0.14 times and net working capital at negative six days.

Despite the soft demand, management bases its optimistic growth outlook on its robust order book position in all divisions. Customer additions (India and overseas), healthy traction in existing segments (washing machines, smartphones, lighting) and fast ramp up in new segments (telecom hardware, laptops, refrigerators) are slated to drive growth.

Dixon has also identified white spaces in its businesses that it intends to scale.

We retain our estimates post broadly in line Q1 result and estimate 23%/27%/39% compound annual growth rate in revenue/Ebitda/profit afer tax over FY23-25E (FY20-23: 40%/32%/ 28%), with 300-500 bps expansion in its return on equity/return on capital employed/return on invested capital to ~23%/32%/36% in FY25E.

High asset-turnover (~8 times) and low NWC days (seven) could drive healthy return ratios, despite low margins.

Dixon’s scrip has been volatile over last two years due to lacklustre performance, mainly in the Mobile segment.

Demand recovery and new customer onboarding should accelerate growth momentum; 'Buy' with a target price of Rs 4,966 (60 times FY25E earnings per share of Rs 83).

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