Shares of Dixon Technologies, the electronic products manufacturer, rallied 124 percent in last one year, though it lost around 30 percent during February-March due to COVID-19 crisis.
Brokerage houses retained their buy call on the stock with expectations of double-digit returns, especially after its March quarter earnings scorecard.
“Dixon has multiple growth options, including upcoming opportunities in electronic manufacturing, all of which is not captured in near-term earnings in FY20-22E. Hence, we increase the multiple premia by 10 percent to 38x(from 35x) FY22E, and raise target price to Rs 6,100, and upgrade the stock to buy,” said Dolat Capital, adding Q4FY20 numbers were ahead of its estimates, with strong performance in consumer electronics segments. Its target price implies 23.2 percent potential upside from current levels.
Given new customer acquisitions, deepening business with existing customers, and increase in the original design manufacturer (ODM) mix, the brokerage expects Dixon’s sales/EPS to grow at a CAGR of 19/25 percent over FY20-22.
Dixon Technologies has reported a 66.8 percent year-on-year increase in Q4 consolidated profit at Rs 27.6 crore, while its consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 49 percent YoY to Rs 55.9 crore with margin expansion of 210 bps at 6.5 percent for the quarter ended March 2020.
“Margins improved due to stable commodity and higher ODM migration. On the back of a strong Q4, Dixon has crossed 5 percent margins in FY20. It reported strong RoE and RoCE at 26 percent and 33 percent, and cash conversion at its guided level of 4 days,” said Dolat Capital.
Consolidated revenue declined 0.2 percent to Rs 857.4 crore in Q4 compared to same quarter last year.
While maintaining buy rating on the stock with a target of Rs 5,705 (implying 15.3 percent potential upside) Emkay Global said Dixon’s revenues were in line with expectations, while EBITDA beat the estimates, driven by gross margin expansion (336bps YoY and 297bps QoQ) and full contribution from Samsung feature phones.
EBITDA beat was supported by Consumer Electronics, Lighting and Mobile segments. The company ended FY20 with strong cash generation, improved working capital cycle and net cash balance sheet.
Dixon continues to add new customers in key product categories. “There is still a lack of clarity on sustenance of consumer demand once the pent-up demand is absorbed. Large order wins under the mobile PLI scheme is the key near-term catalyst,” said Emkay Global.
The brokerage has raised FY22 revenue and EBITDA forecasts by 8/10 percent on new order wins in consumer electronics.
At EBIT level, its consumer electronic segment registered a 138 percent YoY growth in Q4FY20, lighting product 18 percent, home appliances 4 percent, mobile phones 416 percent and security system 20 percent.
Dixon intends to participate in the production-linked incentive scheme for mobile manufacturing which offers incentives to boost domestic manufacturing of mobiles.
“It is already in discussions on with large customers for both exports and domestic markets. As per government norms sub $200 phones, which is 70 percent of Indian market, can only be done by domestic companies and this puts Dixon on strong footing. The total capex envisaged under this is Rs 200 crore over 4 years, with Rs 50 crore expected to be spent in FY21 (of its total expected FY21 capex of Rs 100-120 crore),” Dolat Capital said. –Moneycontrol