Dixon Technologies (India) Ltd, a prominent electronics manufacturing services (EMS) provider, continues its growth trajectory by onboarding top-tier clients such as Google, HP, and Asus, which positions the company for exponential performance in the IT hardware and mobile segments. The company’s backward integration in segments like TVs and appliances further supports operating margins. Sharekhan has reiterated its "BUY" recommendation with a price target of Rs 18,800, projecting a revenue CAGR of 53% and PAT CAGR of 69% for FY2024-FY2027E. Risks include consumer discretionary slowdown and raw material price volatility.

Strategic Client Additions Drive Growth

Dixon has expanded its clientele in high-potential segments, securing contracts with Google to manufacture Pixel smartphones and agreements with HP and Asus for IT hardware. These partnerships solidify Dixon’s position as a leading EMS provider and open avenues for international expansion. The Chennai facility, with a 2-million-unit capacity, will play a critical role in fulfilling this growing demand, aiming for revenue of Rs 3,500-4,000 crore by FY2026.

Strong Financial Performance in Q2FY2025

The company reported a revenue growth of 133% in Q2FY2025, driven by stellar performances in mobile and home appliance segments, which grew 235% and 22% year-on-year, respectively. Operating profit surged by 114% to Rs 426 crore, with flat margins on a year-over-year basis. Dixon is leveraging its diversified product base to maintain this growth momentum.

Backward Integration Bolsters Margins

Dixon’s focus on backward integration across TVs, lighting, and appliances is expected to enhance operating margins, projected to improve from 3.9% in FY2024 to 4.1% in FY2027. This initiative reduces dependency on external suppliers and increases value offerings to clients, ensuring long-term profitability.

Government Support Amplifies Sector Opportunities

The Indian government’s Production Linked Incentive (PLI) scheme and a proposed Rs 40,000-crore package for electronic component manufacturing are significant tailwinds for Dixon. These initiatives aim to strengthen domestic manufacturing and integrate Indian companies into the global value chain. Dixon’s focus on precision components and mechanical modules positions it to benefit substantially from these incentives.

Outlook and Valuation

The electronics and consumer durable sector, valued at Rs 4,00,000 crore, presents a promising growth opportunity. Dixon’s strategic expansion, backed by robust government support, underpins Sharekhan’s valuation. With a revised price target of Rs 18,800, the stock offers an upside potential of approximately 11.5% from its current market price of Rs 16,874.

Key Financial Metrics

Below is a summary of Dixon Technologies’ financial projections:

Key Risks

Consumer Spending Slowdown: A decline in discretionary spending could impact revenue growth.
Raw Material Price Volatility: Adverse pricing or forex fluctuations could compress margins.
Project Delays: Any postponements in capex projects could hinder revenue targets.