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Dixon Technologies Limited on a Strong Growth Trajectory Dixon Technologies Limited On a strong growth trajectory Powered by the Sharekhan 3R Research Philosophy Capital Goods Sharekhan code: DIXON Result Update Update Stock 3R MATRIX + = - Summary Right Sector (RS) ü We retain Buy on Dixon Technologies (Dixon) with a revised PT of Rs4800, with an increased valuation multiple driven by strong earnings growth outlook. Right Quality (RQ) ü Dixon Technologies (Dixon) reported mixed Q4FY2021 performance wherein revenues came in higher than estimates, OPM were tad below our estimate and net earnings lower Right Valuation (RV) ü than estimate on account of higher tax outgo. The company is in process of getting PLI approvals for IT, Telecom, lighting and AC + Positive = Neutral - Negative components. It is also expanding capacities in existing business segments. The company remains one of the key beneficiaries from government impetus on increasing What has changed in 3R MATRIX domestic manufacturing through PLI schemes. Old New Dixon Technologies (Dixon) reported mixed Q4FY2021 performance wherein revenues came in higher than estimates, OPM was a tad below our estimate and net earnings lower than RS estimate on account of higher tax outgo. The consolidated revenues for Q4FY2021 rose 146% y-o-y to Rs. 2110 crore led by growth across key segments viz. consumer electronics (revenues RQ up 3x y-o-y), Mobile phones (up 4.8x y-o-y), Lighting (up 1.5x y-o-y), Home appliances (up 1.6x y-o-y) and Security systems (up 2x y-o-y). The operating margins contracted by 273bps y-o-y RV to 3.8% as lighting and Home appliances felt the pressure of increased raw material price rise and mobile phones had increased overhead and manpower costs. Hence, operating profit grew by 42.8% y-o-y to Rs. 79.8 crore. Strong revenue growth aided in PBT growth of 65% y-o-y to Rs. 61.4 crore. However, higher effective tax rate (27.9% vs 26% in Q4FY2020) led Reco/View Change to consolidated net profit growth of 60.5% y-o-y to Rs. 44.3 crore which was lower than our estimate. The management remained optimistic on high growth for FY2022 with increased Reco: Buy share of global revenues although did not quantify the same on account of COVID-led impact on domestic demand in near term. Domestically, the management is hopeful of demand pick CMP: Rs. 3,994 up from May 2021 end as more states come out of COVID led restrictions. The management reiterated its three to four year guidance of tripling its size. Dixon has applied for PLI in Price Target: Rs. 4,800 á IT (laptops, tablets, hardware) for which approval is expected in a month and production expected in Q3FY2022. It is also applying for PLIs in Lighting and AC components for which á Upgrade Maintain â Downgrade production is expected to start next fiscal year. It will be applying for PLI in Telecom (modems, routers, IoT devices) through the JV route (76% stake) for which it is awaiting guidelines. Even Company details if does not get PLI in telecom, it would start production in Q3FY2022. In consumer electronics, Dixon will be increasing capacities of TV sets, PCBAs, apart from plans of backward Market cap: Rs. 23,390 cr integration and new vertical LED monitors. In lighting, it would be increasing capacity of downlighters from 600k to 1.5mn. In home appliances, it would start production at 6 lakh p.a. 52-week high/low: Rs. 4,588/906 Top loading washers unit at Tirupati. In mobile phones it has aggressive target of reaching 50mn p.a. capacity from current 3.5-4mn. We believe Dixon is on a strong growth trajectory NSE volume: led by broadening and deepening its product portfolio along with applications for new PLI 0.3 lakh schemes in its domain. We introduce FY2024 earnings estimate in this note. We maintain our (No of shares) Buy rating on the stock with a revised PT of Rs. 4,800 increasing our valuation multiple on account of a strong earnings growth outlook. BSE code: 540699 Key positives NSE code: DIXON Healthy revenue growth outperformance led by growth across almost all segments. Free float: Venturing into new segments within the domain viz. Telecom, IT and AC components 3.8 cr (No of shares) Key negatives OPM affected by increase in raw material price in lighting and home appliances. Shareholding (%) Our Call Promoters 35.0 Valuation – Retain Buy with a revised PT of 4,800: Dixon Technologies had been one of the key beneficiaries from the government’s impetus on increasing domestic manufacturing FII 19.8 through PLI schemes. The company has been continuously expanding capacities in its existing verticals and is now in process of venturing into other verticals within the domain through PLI DII 11.0 schemes. The company is on a strong growth trajectory over the next three to four years with management targeting to triple its size. We have introduced FY2024 earnings estimate in this Others 34.1 note. We maintain our Buy rating on the stock with a revised PT of Rs. 4,800 increasing our valuation multiple on account of strong earnings growth outlook. Price chart Key risk 4550 Delay in the commissioning of its capex project, slowdown in consumer discretionary spends, and discontinuation of business from key customers might affect revenue growth. 3550 Adverse raw-material prices, delay in the ability to pass on price hikes adequately, and adverse forex fluctuations might affect margins. 2550 1550 Valuations (Consolidated) Rs cr Particulars FY21 FY22E FY23E FY24E 550 Revenue 6,448 9,608 12,993 17,678 20 21 20 21 - - - - Jan OPM (%) 4.4 4.5 4.5 4.6 Sep May May Adjusted PAT 159 253 350 540 Price performance % y-o-y growth 32.7 58.5 38.4 54.5 (%) 1m 3m 6m 12m Adjusted EPS (Rs.) 27.2 43.1 59.7 92.2 P/E (x) 146.7 92.6 66.9 43.3 Absolute -1 43 68 338 P/B (x) 31.7 24.0 17.8 12.7 Relative to -5 35 52 277 EV/EBITDA (x) 81.5 54.1 39.5 28.2 Sensex RoNW (%) 24.9 29.5 30.6 34.3 Sharekhan Research, Bloomberg RoCE (%) 27.4 32.3 35.2 38.6 Source: Company; Sharekhan estimates May 27, 2021 1 Powered by the Sharekhan 3R Research Philosophy Update Stock Mixed Quarter: Dixon Technologies (Dixon) reported mixed Q4FY2021 performance wherein revenues came in higher than estimates. OPM was a tad below our estimate and net earnings was lower than estimate on account of higher tax outgo. The consolidated revenues for Q4FY2021 rose 146% y-o-y to Rs. 2110 crore led by growth across key segments viz. consumer electronics (revenues up 3x y-o-y), Mobile phones (up 4.8x y-o-y), Lighting (up 1.5x y-o-y), Home appliances (up 1.6x y-o-y) and Security systems (up 2x y-o-y). The operating margins contracted by 273bps y-o-y to 3.8% as Lighting and Home appliances felt the pressure of increased raw material price rise and mobile phones had increased overhead and manpower costs. Hence, operating profit grew by 42.8% y-o-y to Rs. 79.8 crore. Strong revenue growth aided in PBT growth of 65% y-o-y to Rs. 61.4 crore. However, higher effective tax rate (27.9% vs 26% in Q4FY2020) led to consolidated net profit growth of 60.5% y-o-y to Rs. 44.3 crore which was lower than our estimate. Growth momentum to remains intact: The management remained optimistic on high growth for FY2022 with increased share of global revenues although did not quantify the same on account of COVID- led impact on domestic demand in near term. Domestically, the management is hopeful of demand pick up from May 2021 end as more states come out of COVID-led restrictions. The management reiterated its three to four guidance of tripling its size. Dixon has applied for PLI in IT (laptops, tablets, hardware) for which approval is expected in a month and production expected in Q3FY2022. It is also applying for PLIs in Lighting and AC components for which production is expected to start next fiscal year. It will be applying for PLI in Telecom (modems, routers, IoT devices) through JV route (76% stake) for which it is awaiting guidelines. Even if does not get PLI in Telecom, it would start production in Q3FY2022. In consumer electronics, Dixon will be increasing capacities of TV sets, PCBAs, apart from plans of backward integration and new vertical LED monitors. In lighting, it would be increasing capacity of downlighters from 600k to 1.5mn. In home appliances, it would start production at 6 lakh p.a. Top loading washers unit at Tirupati. In mobile phones it has aggressive target of reaching 50mn p.a. capacity from current 3.5-4mn. We believe Dixon is on a strong growth trajectory led by broadening and deepening its product portfolio along with applications for new PLI schemes in its domain. Dixon Technologies Q4FY2021 Concall Highlights Guidance: The management expects significant growth for FY2022 despite the pandemic although it has e not quantified the same. It expects large share of global revenues while the domestic side needs to be watch. Since the second week of April 2021, the growth has slowed down deteriorating in May 2021. The management is hopeful of a pickup in demand from May 2021 end as more states come out of covid restrictions. It targets to triple its size over next three to four years.
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