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Morgan Stanley differs with other brokerages over Dixon

Shares of Dixon Technologies Ltd. fell as much as 6%, the most in over two weeks , after Morgan Stanley flagged “ignored” risks even as other top brokerages had a positive view on the contract manufacturer of mobile phones to televisions.

While Dixon is likely a key beneficiary of the electronic manufacturing scheme in India, Morgan Stanley cautions that multiple risks are being ignored, according to its June 21 note. These include competition, possible of contraction in return on equity, rising commodity costs and impact on cost competitiveness once the performance-linked incentives end.

Jefferies, however, expects Dixon Technologies to be a key beneficiary of the indigenisation opportunity, citing incentives for local manufacturing of mobiles as the biggest upside trigger among performance-linked incentive segments it is participating in.

While Morgan Stanley flagged sluggish volumes in consumer electronics and domestic lighting segments, Jefferies sees the business on a firm footing.

Morgan Stanley is underweight on the stock with the target price reduced to Rs 2,634 — an implied downside of 21%. Jefferies retained ‘buy’ and target at Rs 5,300, a potential upside of of 59.35%. Credit Suisse maintained ‘buy’ and ‘outperform’.

Saurabh Gupta, chief financial officer at Dixon Technologies, however, tried to allay some of the concerns raised in Morgan Stanley’s note.

While commodity costs continue to have an impact, there’s a shift in momentum as prices of some of raw materials moderated over the last month, Gupta told BQ Prime’s Niraj Shah in an interview.

Also, the volume of consumer electronics, Gupta said, remained “healthy”, while revenue growth fell due to a rise in price of displays during Covid. Volume of consumer electronics, predominantly LED TVs, increased from 3 million last year to 4.4 million, a growth of slightly less than 50%. BQ Prime

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