Buy Dixon Technologies; target of Rs 19,000: Emkay Global Financial

Emkay Global Financial' research report on Dixon Technologies

Dixon logged a robust Q1, with revenue up 95% YoY (above consensus) led by the Mobile and EMS segment, on strong volume growth across customer brands. The management maintained its FY26/27 smartphone volume guidance of ~40- 45/60-65mn units; it also retained its outlook of 120-150bps margin expansion by FY27 in the mobiles segment (implying 70-80bps overall) led by strategic backward integration – a) JV with HKC for display module, b) Q-Tech acquisition for camera modules (consolidation from Q3; revenue likely to grow to Rs50bn in 5Y from Rs19bn in FY25), and c) JV with Chongqing for precision components. Though mobile PLI is set to expire in FY26 (0.6% EBITDAM impact), Dixon would continue enjoying strong competitive advantage on i) scale-led operating leverage, ii) deepening customer relations, iii) benefits from backward integration. The mgmt highlighted that while PCB is not lucrative (on lack of duty arbitrage), PCBA for industrials, automotive application, etc could be a major driver for Dixon’s next phase of growth.

Outlook

Dixon remains committed to expanding margin by deepening its value proposition via backward integration. We cut our DCF based TP by ~4% to Rs19,000, to factor in the impact of minority interest from recent/upcoming JVs and acquisitions; maintain BUY.