Target: ₹15,200
CMP: ₹10,687.70
Dixon Technologies (Dixon) has corrected sharply (24 per cent/63 per cent in 1M/6M) on concerns around sharp surge in memory prices impacting mobile production, pending PN3 approval for the Vivo/HKC JV (key growth driver in FY27E), market-share loss of key client Xiaomi, and share loss within Motorola (increased outsourcing to peer) impacting the high growth/margin expansion narrative, in our view.
Acknowledging near-term headwinds, we cut smartphone volumes (ex-Samsung) by 27 per cent/20 per cent/5 per cent to about 32 million/46 million/56 million in FY26E/27E/28E; we also cut EPS by about 19 per cent/17 per cent/13 per cent and our target price by 20 per cent to ₹15,200 from ₹19,000.
However, the street is overly worried on near-term concerns, in our view, and is baking in a bear-case scenario at current levels (sharp/permanent mobile volume cuts, no Vivo/HKC JV, slow growth in verticals like IT Hardware/Telecom). The street is also undervaluing multiple structural growth avenues: Normalisation of memory supplies (Covid-like phase) and the consequent pent-up demand (from H2FY27); possibility of organic business win in Vivo in the absence of a JV; possibility of TLA with HKC (display modules); sustained strong outlook for other verticals such as telecom, IT hardware, backward integration initiatives (camera modules), etc.
Dixon has flagged servers as an opportunity, with ecosystem interest picking up (Wistron’s plan to invest ₹1,000 crore in India). High-margin PCBA/automotive displays offer optionality.
We believe that despite near-term headwinds, Dixon’s valuations are attractive at 31x FY28E PER with strong 50 per cent FY25-28E CAGR, >30 per cent industry-leading return ratios; retain BUY.