Dixon Technologies India - High-octane growth to continue - ICICI Securities

Q2FY21 business highlights include significantly richer client portfolio in LED TV, better margin profile in washing machine and significant revenue growth in non-PLI mobile and sustained robust outlook in set top box business. The mobile PLI segment gains more traction with Dixon aiming to target annual eligible ceiling revenues and beyond while indicating talks with 3 large customers apart from Samsung. We upgrade from HOLD to BUY with revised target price of Rs11,200 based on 40x Sep'22 EPS (average of FY22 and FY23 earnings).

- LED TV is enroute to Rs1bn annual EBITDA category akin to lighting in FY21. Volumes and mix will improve margins. Consumer Electronics (mainly LED TV) did an EBITDA of Rs265mn in Q2FY21 (less than the annual run rate of FY17-19). This growth was driven by addition of Xiaomi in the client portfolio. However, there are additional structural tailwinds in terms of import restrictions as well as higher capacity ahead. Dixon currently has capacity of 4.4mn units per annum. Based on Government notifications and advisory, the company is further increasing the capacity to 5.5mn units per annum in near term. New customers include VU, One Plus, Nokia, Toshiba, Hisense, private label of Flipkart apart from anchor customer Xiaomi. Shift to large TV sizes and expansion of PCB lines are aiding margin improvements. We factor Rs780mn/1bn/1.3bn EBITDA in TV in FY21/22/23E.

- Lighting restores to ~quarterly EBITDA of Rs277mn in Q2FY21, addition of new category/exports will lend growth in next 2-3 years: Capacity expansion for batons/down lighters has been executed. Company has decided to offer solutions for LED commercial lights, street lights and flood lights by the end of this year. A third of the assembly lines have been automated in the Noida plant. Dixon has already exported consignments of lighting for anchor customer to US/Indonesia. The company is in talks with some large global retail chains. We factor 15% revenue CAGR between FY19-23E and Rs800mn/1.3bn/1.8bn EBITDA in FY21/22/23E.

- Washing Machines does Q2FY21 EBITDA of Rs173mn with margins reaching ~12%, can be another Rs1bn EBITDA category by FY23: Tirupati plant for fully automatic top load washing machine (0.6mn per annum) is on track for trial run in December. We factor Rs450mn/661mn/794mn EBITDA in FY21/22/23E.

- Mobile + EMS segment quarterly EBITDA reached Rs163mn in Q2FY21, PLI and rampup of set top box revenues will be additional. Based on Q2FY21, quarterly revenue in non-PLI mobile business would be ~Rs1.5bn while we factor PLI revenues of Rs4bn/12.5bn/40bn in FY21/22/23E. These PLI revenue estimates are near midway of the floor and ceiling of allowable eligible revenue for incentives. The company is in talks with three large customers in addition to the anchor customer (Samsung) and has already leased a 200,000sqft factory in Noida. We factor set top box/feature phone revenues of Rs10bn/5 in FY22/23E. Based on 3-4% margin, we factor Rs363mn/880mn/2bn EBITDA in this segment in FY21/22/23E.

Shares of Dixon Technologies (India) Ltd was last trading in BSE at Rs.9311 as compared to the previous close of Rs. 9046.4. The total number of shares traded during the day was 2267 in over 1280 trades.

The stock hit an intraday high of Rs. 9428.2 and intraday low of 9025.05. The net turnover during the day was Rs. 20977436.

Source : Equity Bulls

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