Dixon Technologies' shares fell over 12% to Rs 13,161 on October 25, even though the company had a strong performance in the second quarter of FY25. This drop has led some brokerages to remain positive about the company, especially regarding growth in the mobile segment, along with IT hardware and component manufacturing.
In the latest quarter, Dixon reported a huge 263% increase in its consolidated net profit, reaching Rs 412 crore, while revenue from operations rose to Rs 11,534.08 crore.
Brokerages like Investec and Nomura responded favorably to Dixon's Q2 results. Investec raised its target price from Rs 12,700 to Rs 15,900 and maintained a "buy" rating, noting that the strong mobile revenues contributed significantly to the performance. They believe that Dixon's entry into component manufacturing will help improve its competitiveness and profitability over time.
Nomura also issued a "buy" recommendation for Dixon, setting a target price of Rs 18,654 per share. They noted that the Q2 results exceeded expectations, especially in the mobile segment. Nomura has increased its earnings estimates for FY25-27 by up to 10% and predicts that Dixon will produce 4 crore smartphones by FY27. They see IT hardware and component manufacturing as key growth areas and expect full benefits to emerge by FY27. The government’s stricter import monitoring is also expected to benefit Dixon.
Operationally, Dixon is optimistic about long-term growth, expecting mobile to be its largest revenue source, followed by IT hardware. The company aims to improve its return on capital employed (ROCE) and return on equity (ROE) in the coming years, but margins are expected to stay below 4% for the next 18 months. Dixon is also in talks with a major customer about Printed Circuit Board Assembly (PCBA) and is looking forward to the rollout of the Production Linked Incentive (PLI) scheme for the non-semiconductor sector soon.
Dixon's smartphone order book is strong, and the company expects a good Q4 for its mobile segment. Revenue from one of its key clients, ISMARTU, is estimated to be between Rs 7,000 crore and Rs 7,500 crore for FY25.
In the IT hardware sector, Dixon has invested Rs 150 crore for the first phase of its expansion, which will have a capacity of 1.2 billion units and is projected to generate Rs 4,500 crore in revenue over the next 2-3 years. Manufacturing for Lenovo will start this quarter, while production for Asus and HP is expected to begin by Q4 FY25, further strengthening Dixon's position in this market.
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