Dixon Tech shares slide over 12% despite solid Q2, brokerages bullish

Dixon Tech shares have rallied a staggering 130 percent since the start of the year.

Shares of Dixon Technologies continued their downward trajectory after tanking more than 12 percent to Rs 13,161 on October 25 despite the company delivering a robust performance in the second quarter of FY25. This prompted bullish brokerage calls, suggesting that the mobile segment, in particular, is seen as a major growth driver, alongside IT hardware and backward integration.

During the quarter, Dixon reported a 263 percent rise in its consolidated net profit at Rs 412 crore while its revenue from operations increased to Rs 11,534.08 crore.

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Brokerages like Investec and Nomura have responded positively to Dixon’s Q2 results. Investec raised its target price to Rs 15,900 from Rs 12,700, maintaining a 'buy' rating. The brokerage attributed the strong performance to a significant ramp-up in mobile revenues and continued to see IT hardware as a promising growth opportunity for the company. Dixon's foray into components manufacturing is also expected to bolster its competitive edge and profitability in the long term.

Similarly, Nomura issued a 'buy' call on Dixon Technologies, setting a target price of Rs 18,654 per share. The brokerage noted that Q2 exceeded expectations, particularly in the mobile segment. Nomura raised its estimates for FY25-27 by up to 10 percent and anticipates Dixon to produce 4 crore smartphones by FY27. IT hardware, along with Dixon’s focus on component manufacturing, is seen as a key factor that will drive growth, with full benefits expected to materialize from FY27 onwards. The government’s focus on stricter import monitoring is also expected to work in Dixon’s favor.

On the operational front, Dixon remains optimistic about its long-term growth, expecting mobile to be the largest revenue driver, followed by IT hardware. The company expects to improve its return on capital employed (ROCE) and return on equity (ROE) in the coming years. However, margins are likely to remain below 4 percent for the next 18 months. Additionally, Dixon is in advanced discussions with a major customer for Printed Circuit Board Assembly (PCBA) and is also anticipating a rollout of the Production Linked Incentive (PLI) scheme for the non-semiconductor sector in the coming months.

Dixon’s smartphone order book remains robust, with the company forecasting a strong Q4 for its mobile segment. Revenues from one of its key clients, ISMARTU, are projected to range between Rs 7,000 crore and Rs 7,500 crore for FY25.

In the IT hardware segment, Dixon has committed Rs 150 crore for Phase 1 of its expansion, which will have a capacity of 1.2 billion units and is expected to generate Rs 4,500 crore in revenue over the next 2-3 years. Manufacturing for Lenovo is set to begin this quarter, while production for Asus and HP is expected to commence by Q4FY25, further strengthening the company's foothold in this sector.

Dixon Tech shares have rallied a staggering 130 percent since the start of the year.

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