Up 500% since March 2020: Analyst see more upside in this multibagger electronic manufacturer

Despite giving over 500% return to investors during the past 14 months, this leading electronic manufacturing supplier has not yet run out of gas and seems to have more steam left. Meet Dixon Technologies whose shares have rallied to Rs 4,111.20 on June 1, 2021 from an adjusted price Rs 633.84 in March 2020. With an objective to encourage the wider participation of small investors, the company in March had split shares in the ratio of 1:5.

Going ahead, analysts see strong tailwinds for the stock and have set a target price of up to Rs 5,006. The company has outlined a capex of Rs 200 crore in FY22 for a brownfield expansion in TVs, washing machines, mobile phones and to start a new manufacturing unit for direct cool refrigerators.

Dixon has also applied for performance-linked incentive (PLI) schemes in electronics, technology products, telecom products and LED lights & AC component manufacturing. The approval for all applications are expected within the second of FY22.

There are expectations that entry into new product categories and customer additions into existing product categories would help drive revenue at a CAGR of 63% in FY21-23E.

Latest financials
Of late, the company last week reported a 60.48% growth in consolidated net profit at Rs 44.26 crore for the fourth quarter ended March 2021, helped by an increase in revenue. It had reported a net profit of Rs 27.58 crore in the January-March period a year ago.

Revenue from operations jumped over two-fold to Rs 2,109.71 crore as against Rs 857.41 crore in the corresponding quarter last fiscal. Total expenses were at Rs 2,049.32 crore in Q4 FY 2020-21 as against Rs 820.12 crore earlier.

For the fiscal year 2020-21, Dixon Technologies reported an increase of 32.61% in net profit to Rs 159.80 crore. It had logged a net profit of Rs 120.50 crore in the previous year.

Commenting on the financial results, Anand Rathi Shares and Stock Brokers said, “After the FY21 results, we have raised our FY22 and FY23 revenue respectively 21% and 29%. However, we lower our margin FY22 expectation 19% due to mounting commodity prices and further clarity required regarding PLI for mobiles.”

Should you invest?
Anand Rathi has a ‘Buy’ call on Dixon Technologies with a price target of Rs 5,006. “After production-linked incentives for mobiles being approved, Dixon will now bid for PLIs for AC components and LED bulbs. The proposed PLI for wearable technology augurs well for it, as bOAT is a customer. Dixon can benefit from opportunities in the 5G-technology roll-out as it can assemble 5G-compliant handsets and equipment like modems and routers. On such powerful tailwinds support, we raise PE(x) assigned to the stock from 50x to 60x,” the brokerage said.

ICICI Securities is also positive on Dixon with a price target of Rs 4,635. The brokerage revised revenue, PAT estimate downward by 6%, 13%, respectively, for FY22E considering the impact of lockdown in Q1FY22. However, it believes that a strong balance sheet, increased backward integration and increasing share of Dixon in domestic electronic manufacturing is expected to result in a strong annualised profit growth of 87% in FY21-23E.