Buy Dixon Technologies; target of Rs 15,200: Emkay Global Financial

Buy

Emkay Global Financial' research report on Dixon Technologies

Per media articles (refer to link) , the Union Cabinet has approved changes to the Press Note 3 framework for FDI (we await official confirmation by the GoI). Press reports indicate that certain sectors, including EMS, could be moved to a simpler and faster track for FDI approvals with introduction of ‘de minimis’ thresholds. Dixon has received approval for its HKC JV, to manufacture display modules (offer double-digit EBITDAM); this raises level of backward integration in smartphones by 10-12% from 16-17% now. We believe such events improve the odds for PN3 approval coming through for the Vivo JV. As argued in our earlier report (Jan-26; De-rated on cyclical fears; structural upside intact), the street has been baking in a bear case due to a couple of near-term concerns (including pending PN3 approval for HKC and Vivo JV), while undervaluing the structural growth avenues, including possibility of i) TLA with HKC and ii) organic business win in Vivo in the absence of a JV.

Outlook

The two concerns are likely to be addressed, offering visibility to our base case (factors in organic volume ramp-up with Vivo), where we build in 48% FY25-28E EPS CAGR with industry leading return ratios of >30%. We reiterate BUY on Dixon with TP of Rs15,200.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Dixon Technologies - 1103026 - emkay