Dixon Technologies shares rallied 9% today. Can slowing demand for white goods dent stock's prospects?

Shares of Dixon Technologies rallied 9 per cent in Wednesday's trade following the company's beat on March quarter revenues and margins. But analysts view differ over the stock outlook. While many analysts see decent upside ahead, a few brokerages felt margin of safety is missing on the counter that has rallied 23 per cent in the last one month, as weaker demand for white goods and consumer durables is likely to hurt revenue growth in the near term.

JM Financial has a target of Rs 4,000 on the stock; Nuvama Institutional Equities finds it worth Rs 3,865. But Emkay Global values the stock at Rs 3,403, less than Wednesday's share price of Rs 3,577. ICICI Securities in fact has a price target of Rs 3,000 on the stock (suggesting a steep fall) as it sees muted demand for white goods, even as demand stays strong for hearables, wearables and mobiles.

Dixon Technologies, an electronic manufacturing services firm, said is confident of adding new customers in mobile and home appliances segments but ICICI Securities felt the ramp up will be gradual in FY24-25.

"We raise FY24-25 earnings to factor in higher share of ODM and improvement in margins. At current valuations of (52.8x FY24E), we believe the risk: reward is not favourable to the investors and hence, we maintain REDUCE with a DCF-based target of Rs 3,000," it said.

Emkay Global said while addition of new customers in the mobile segment is imminent, the slowdown in some key segments will hamper the overall growth of brands, which will see additional impact from Dixon being a B2B supplier.

Robust margin performance in Q4, however, is likely to sustain, as Dixon’s share in ODM manufacturing continues to grow, Emkay said adding that sales ramp-up remains the key monitorable going forward.

Despite a delay in signing two clients in the mobiles division, the Dixon management is confident of doubling mobile revenues from to Rs 8,000 crore in FY24E. The management felt the structural drivers such as strategic price hikes, cost optimisation, etc should not only sustain, but also improve margins in FY24 and FY25.

Nuvama Institutional Equities said Dixon entering the JV with Mega Alliance (part of Tinno group) should lead to the mobiles division still getting closer to doubling its revenue. That, along with gradual margin gains,

can potentially lead to Dixon clocking 25 per cent PAT CAGR during FY23–25E. This is even as it exepcts a slower growth in lighting and consumer electronics.

Profit for Dixon was up 27.7 per cent YoY at Rs 80.62 crore for the March quarter on a consolidated basis.

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