Dixon Tech, Amber Enterprises: Will they benefit from MPMS? Kotak shares views

Kotak Institutional Equities in its latest note retained its earnings estimates and fair values for Dixon Technologies (India) Ltd and Amber Enterprises India Ltd, saying it does not see any near-term impact of Mobile Phone Manufacturing Scheme (MPMS) scheme  on Amber Enterprises, given the OPPO volumes are still ramping up.

The domestic brokerage noted that the MPMS scheme has introduced a two-track framework, with TS1 focused on scaling manufacturing and localization through a demanding 15 per cent moving baseline revenue target, while TS2 aims to foster Indian smartphone brands.

Given that the Indian smartphone market delivered approximately 1.8 per cent volume growth and 14 per cent value growth over 2022-25, compounded annually, largely driven by premiumszation rather than unit expansion, sustaining growth above the scheme hurdle may become increasingly challenging through domestic demand alone. It believes export growth will be the most important lever for brands seeking to maximize incentive payouts under MPMS.

Kotak said Indian mobile production has grown at 24 per cent CAGR over the past five years, primarily driven by a 62 per cent CAGR in export production.

"We believe exports will be critical for brands to consistently exceed TS1 growth hurdles, given India's flat domestic smartphone sales, while mobile production growth has been predominantly export-led. Our scenario analysis suggests a 14-22 bps Ebitda margin uplift for Dixon from MPMS. We retain FVs for Dixon and Amber," Kotak said.

The domestic brokerage expects Dixon Tech to primary benefit from increase in volumes due to a pick-up in exports from its key anchor customers as well as margin benefits due to backward integration but limited benefits due to MPMS.

"Our scenario analysis suggests potential 14-22 bps Ebitda margin improvement for Dixon Tech. Dixon Tech can get additional upside should its JVs with Vivo, Longcheer (OPPO and Realme) or partnership with Compal (Pixel) see a sharp uptick in volumes," Kotak said.

Kotak said Target Segment 2 could provide additional volumes to players such as Dixon and Amber but their contribution to overall sales and EBitda would be a function of strong ramp-up of these Indian brands, which may still be a few years down the line.

Kotak suggested fair values of Rs 8,600 on Amber Enterprises and Rs 15,300 for Dixon Tech.