Dixon Applied sciences share worth in focus: Shares of Dixon Applied sciences tumbled 2.5% in Wednesday’s commerce (June 25), falling to ₹14,585 apiece, even because the broader Indian inventory market traded in constructive territory. This drop in one of many nation’s main EMS (Electronics Manufacturing Providers) firms got here after world brokerage agency Phillip Capital downgraded its estimates for Dixon, citing rising competitors within the cell phone meeting area.
In response to the brokerage, Dixon’s largest consumer, Motorola, has began outsourcing home volumes to Karbonn, which at present accounts for 25% of Motorola’s month-to-month quantity, a determine anticipated to rise to 35% by June. As a part of its diversification technique, Motorola has been actively increasing its provider base.
Motorola contributes roughly 40% of Dixon’s cell phone volumes however almost 72% of its cell phone revenues. Dixon had considerably benefited from Motorola’s market share good points within the Indian smartphone market in CY24 in comparison with CY23.
When Motorola was a smaller participant in CY23, Dixon dealt with its whole manufacturing. As Motorola has achieved scale, it has began outsourcing a few of its volumes to Karbonn to diversify its provide chain, stated Phillip Capital.
It’s price noting that Karbonn itself is a recipient of cell phone PLI and, due to this fact, might be cost-competitive within the cell phone meeting area. The brokerage famous the corporate’s exports have ramped up in the previous couple of months, however home quantity acquire by Karbonn means Dixon’s YoY development from Motorola will probably be capped at 15% at finest.
Longcheer (one other Dixon consumer) has began testing the waters with Karbonn
Along with Motorola, Dixon’s second-largest consumer, Longcheer, has additionally begun diversifying its provide chain. Whereas Dixon’s volumes from Longcheer have grown over the previous 12 months, the consumer outsourced a small portion (2%) to Karbonn in Could CY25.
Although at present modest, Phillip Capital believes this might scale up shortly, following a sample much like Motorola’s shift. Motorola initially outsourced simply 1–2% of its volumes to Karbonn in February CY25, which jumped to 30% by Could.
On a extra constructive observe, Dixon and Vivo entered right into a 51:49 three way partnership (JV) for cell phone manufacturing in December CY24. The JV, which is at present awaiting regulatory approval, is anticipated to start contributing to Dixon’s topline by FY27.
Administration anticipates that the JV will deal with two-thirds of Vivo India’s cell phone volumes. Based mostly on a proportional volume-to-value ratio, the JV might generate income of ₹160 billion at optimum utilization, with Dixon’s share estimated at ₹80 billion.
Phillip cuts earnings estimate to account for rising competitors
Phillip Capital has lowered its income, EBITDA, and PAT estimates for Dixon Applied sciences for FY27 by 4%, 6%, and 9%, respectively, to mirror the intensifying competitors within the cell phone meeting area.
Dixon shares its PLI (Manufacturing Linked Incentive) advantages with its cell phone shoppers, which is at present offset by favorable Internet Working Capital (NWC) phrases. Nonetheless, as soon as the cell phone PLI scheme ends, the brokerage expects Dixon’s NWC days to pattern towards 35+, in step with friends—Foxconn’s stood at 40+ in CY24—which might result in a declining RoCE trajectory.
Factoring this in, Phillip Capital has additionally revised its valuation a number of, reducing the PE a number of from 50x to 45x FY27 EPS of ₹202, leading to a revised goal worth of ₹9,085, down from the sooner goal of ₹11,077.
Disclaimer: This story is for instructional functions solely. The views and proposals above are these of particular person analysts or broking firms, not Mint. We advise buyers to examine with licensed consultants earlier than making any funding selections, as market situations can change quickly, and circumstances could range.
