Dixon Technologies shares crack 8% to 4-week low, worst 1-day drop in over 2 months

After experiencing a consistent rise in recent months without any major pullbacks, the shares of Dixon Technologies came under significant selling pressure in today’s trade, January 07, falling by 8% to 4-week low of ₹16,982 apiece. Today’s drop is also the worst intraday drop in over 2 months.

Market analysts suggest that investors may be cashing in on profits, as the stock has surged by 175% in CY24 and 336% over the past two years. Despite today’s fall, the news flow surrounding the company has been positive, with the company partnering with major mobile companies and planning to boost its production capacity. 

Brokerage firms have also maintained their positive outlook on the stock, with a few maintaining a cautious stance, citing the strong run-up in the stock.

Japanese brokerage firm, Nomura recently raised its target price for Dixon Technologies to ₹22,256 apiece from ₹18,654, maintaining its ‘buy’ recommendation. The brokerage believes the company stands to benefit from the ongoing US-China trade tensions, citing the success of early entrants like Apple and Samsung.

The brokerage forecasts a 55% surge in India’s mobile exports by FY2026, with a 25% CAGR expected through FY2030. Supporting this outlook, domestic brokerage firm Anand Rathi expects the company to benefit from ongoing mobile manufacturing localization tailwinds regardless of market share movement among brands.

The good growth outlook and margin expansion should drive RoCE to 46.4% by FY27, from 28.2% now. Therefore, the brokerage retained its ‘buy’ rating on the stock with a target price of ₹21,875 apiece.

Likewise, Jefferies also sees promising growth prospects for India’s electronics manufacturing services (EMS) companies, driven by favourable government policies and rising costs in China. Jefferies highlights India’s cost advantage due to cheaper labour and the “China Plus One” strategy, creating more opportunities for local EMS providers.

While optimistic about India’s EMS sector, Jefferies remains cautious about Dixon Technologies as it remains underweight on the stock with a target price of ₹12,600, suggesting a 35% downside from the stock’s current level.

Recent developments

The company in mid-December has signed a binding term sheet with Vivo India to undertake OEM business of electronic devices, including smartphones. The company would hold a 51% stake in the JV, while Vivo India would hold 49%, with no cross-stakes between them.

The tie-up will enable the company to manufacture non-Vivo phones too, thus increasing capacity from the current 50 million phones pa (40-45% of outsourcing opportunity). Post onboarding Vivo, the company now has tie-ups with all major Android brands.

Furthermore, it has recently onboarded Google to manufacture its flagship premium phone brand, Google Pixel, and HP and Asus for manufacturing its products locally. The IT hardware business is expected to be a significant growth driver, as the top four global brands are in a tie-up with Dixon for manufacturing laptops.

Dixon has already started manufacturing for Acer. To cater to upcoming demand, Dixon has set up a plant in Chennai with a capacity of 2 million units, which would be operational by Q4 FY25. Dixon is targeting revenue of ₹3,500-4,000 crore by FY2026. The total capex outlay for the Chennai unit is at ₹150 crore.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.