Dixon Technologies: A Meteoric Rise or a Temporary Spark? (Stock Up 6.21%, Down 13.33%)

Dixon Technologies: A Meteoric Rise or a Temporary Spark? (Stock Up 6.21%, Down 13.33%)

Dixon Technologies Delivers Strong Financials

Dixon Technologies: A Meteoric Rise  Dixon Technologies (India) Limited, which manufactures consumer electronics, lighting, home appliances, closed-circuit television cameras (CCTVs), and mobile phones, saw its stock surge by 6.21% at the market open in India after announcing impressive financial results. The company’s revenue jumped 133.33% year-over-year (YOY), and net profit soared 264.40% YOY. With a market capitalization of ₹81,779.57 crores, the stock opened at ₹15,999.95 per share, up from the previous day’s close of ₹15,064.95, but is currently trading at ₹13,389.25, reflecting an 11.12% decline.

For the September Quarter of 2024, Dixon reported a revenue increase from ₹4,943.18 crores in Q2 FY24 to ₹11,534.08 crores in Q2 FY25, a 133.33% YOY rise and a 75.29% quarter-over-quarter (QoQ) increase from ₹6,580 crores in Q1 FY25. Net profit rose from ₹113 crores in Q2 FY24 to ₹412 crores in Q2 FY25, marking a 264.60% YOY increase and a 194.29% QoQ rise from ₹140 crores.

In the first half of FY25, revenue grew by 120.51%, from ₹8,214.68 crores in H1 FY24 to ₹17,690.90 crores in H1 FY25, while net profit jumped from ₹180.55 crores in H1 FY24 to ₹551.40 crores in H1 FY25, an increase of 205.40%.

Dixon’s return ratios are strong, with a return on equity (ROE) of 24.7% and return on capital employed (ROCE) at 29.2%. The company is nearly debt-free, boasting a debt-to-equity ratio of 0.36x. According to the September 2024 shareholding pattern, promoters hold 32.89%, foreign institutional investors (FIIs) own 22.69%, domestic institutional investors hold 23.14%, and the public holds 21.27%. Notably, FIIs have increased their stake by 3.36% compared to the June quarter of 2024.

Dixon Technologies: A Meteoric Rise Shares of Dixon Technologies reached a record high on Friday following impressive Q2 earnings, gaining 6.21% to hit ₹15,999.95. However, the stock experienced profit booking, falling 13.33% to ₹13,055.30 from the previous close of ₹15,064.05 on the Bombay Stock Exchange (BSE). Overall, it has dropped 18.40% from its record high. The turnover was substantial, amounting to ₹176.33 crore, with 1.26 lakh shares traded. The company’s market capitalization stood at ₹84,653 crores.

Brokerage Nuvama has suggested limited upside potential for the stock after the Q2 results. They noted that Dixon’s Q2FY25 performance was strong, with revenue soaring 133% YOY to ₹11,534 crore, which was 29% above expectations, primarily driven by a 235% YOY surge in the mobile segment. EBITDA also increased by 113% YOY to ₹4.26 billion, exceeding estimates by 22%, although margins were affected by a higher mobile mix. Net profit jumped 261% YOY to ₹4.12 billion, bolstered by investment gains, while adjusted net profit rose 123% YOY to ₹2.55 billion, surpassing estimates by 20%. Nuvama has raised its FY25–27 EPS estimates by up to 23% and set a target price of ₹16,100, maintaining a ‘HOLD’ recommendation due to limited upside.

Meanwhile, Motilal Oswal has reiterated its buy rating with a revised target price of ₹17,500, highlighting that Dixon’s Q2 earnings exceeded expectations due to strong performances in the mobile and EMS segments, along with the integration of Ismartu from mid-August 2024. They anticipate a compound annual growth rate (CAGR) of 48%/49%/56% in revenue/EBITDA/net profit over FY24-FY27, driven by growth in EMS, consumer electronics, and new segments like refrigerators and telecom products. They expect EBITDA margins to improve, projecting 3.9%/4.0%/4.1% for FY25-FY27 due to increased backward integration and a higher share of high-margin products. Risks to these projections include slower market growth, loss of key client relationships, increased competition, and reduced bargaining power.

Dixon Technologies: A Meteoric Rise  Investec has also issued a Buy call with a target price of ₹15,900, up from ₹12,700. They attribute the strong Q2 performance to a significant increase in mobile revenues and believe that IT Hardware presents an attractive growth opportunity for Dixon. The company’s entry into components manufacturing may enhance its competitive strength and profitability.

On Thursday, Dixon reported a remarkable 265% YOY increase in net profit for the September 2024 quarter, rising to ₹412 crore, driven by an exceptional gain of ₹209.6 crore and increased mobile phone production, compared to ₹113.36 crore in Q2 of the previous fiscal year. Revenue climbed 133% to ₹11,534 crore in the July-September period, up from ₹4,944 crore a year ago, while earnings before interest, tax, depreciation, and amortization (EBITDA) reached ₹420 crore, reflecting a 110% YOY increase.

From a technical perspective, Dixon Technologies’ relative strength index (RSI) is at 58.6, indicating that the stock is neither overbought nor oversold. The shares are trading above their 20-day, 30-day, 50-day, 100-day, and 200-day moving averages.

Dixon Technologies (India) is the largest homegrown design-focused solutions company engaged in contract manufacturing for the consumer durables, lighting, and mobile phone markets in India.