Dixon Technology is to set up a separate display fabrication division together with HKC and the proposed new factory project will cost $3 billion. This asset-intensive and long gestation project with a different RoCE will be decisive for Dixon Tech’s next years’ results.
Dixon Technologies’ share price drops 11.8% on lower profitability, but we remain positive on the outlook…
On Tuesday morning, the shares in Dixon Technologies (India) Ltd sharply declined to almost 12 per cent as depreciation and finance costs were higher than expected, leading to a profit miss in the range of 5-7 per cent. However, fund managers following the stock maintained a bullish outlook but pointed out that the ability of ASML to deliver on display fabrication project would be critical.
Dixon Tech signed a display fabrication joint venture with HKC valued at $3 billion.
Currently, Dixon Technologies has planned for the establishment of its own display fabrication division in a JV with HKC, with an investment of $3 billion. While Dixon has numerous positive attributes that make the firm well-positioned for the future, analysts from Kotak Institutional Equities warned that its ability to execute this asset-intensive requiring a long gestation period with a one-of-its-kind RoCE profile, is critical to the success of the firm.
Positive Operating Performance in Q3, Although It Failed to Beat PAT
According to JM Financial, Q3 showed strong operating performance where even though total operating income marginally increased by a mere 8%, the EBITDA was 16% above their expected figures. But the actual such expenses were higher than the estimates in depreciation and the company’s finance costs that resulted in a 7% shortcoming towards its PAT.
Backward Integration As The Key To Future Success
According to JM Financial, there are further opportunities for Dixon to expand in the India mobile market, which the company predicts will result from Dixon’s continued emphasis on backward integration, including the manufacturing of displays, cameras, and battery modules and assemblies and setting up of a display fab.
Implementation of these strategies continues to be a potent issue, and the firm aimed at a target price of Rs 19,000 for the stock.
Dixon Tech Ltd Market Position and Future Growth expectancy
Subsequently, InCred Equities pointed out that Dixon Technologies has been dominating the different categories of outsourcing related to consumer electronics and registers drastically higher market share compared to other competitors. The product is aimed at benefiting from the company’s first-mover advantage, improved operational performance and right partnerships in order to gain a better competitive position in the given market.
For the FY25F-27F, we have raised our revenue expectations by about 9-11% and PAT by about 1-4% on the grounds of improved revenues in the Mobile phones and IT Hardware segments. We retain our ADD call with a new target price of Rs 20,200 (Rs 17,200 earlier) at 80 times,” InCred Equities suggested.
Thus, the future outlook and the valuation adjustments by Nuvama remain.
The Dixon Technologies begun with announcing that they have signed a joint venture with VIVO in December 2024 and also communicated its direction to venture into display fab manufacturing provided it waited for the government to give out incentives.
We include the updating of PAT estimates for FY25E/26E/27E where down by 3%, up by 5% and 10% respectively due to the TV segment improvement, the VIVO JV, and fully consolidated Ismartu. We have updated our valuation to March 2026, with the target price of Rs 18,790 (earlier Rs 16,400) using 65x Zydia-FY27E EPS. However, given the current assumptions we have provided for our Fair Value based calculations, Nuvama has restricted its rating to ‘HOLD’.
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