The mobile and electronic manufacturing services (EMS) was the star performer for Dixon Technologies (India) Ltd for the September quarter (Q2FY24). Thanks to the 77% year-on-year growth, the segment’s contribution in the overall revenues rose to 57% from 41% a year ago. Mobile segment growth was led by execution and new client additions.
Dixon’s robust order book means the mobile business is on a strong footing in the coming quarters. The order book from anchor customer Motorola increased. Plus, further execution from new client-wins such as Xiaomi, Jio and Itel would drive growth. Dixon has secured a 15-million unit order for Jio Bharat phones with 1.5 million units produced so far. Dixon has also partnered with Nokia to manufacture over a million phones monthly. Plus, its Noida facility now makes Xiaomi phones, and production is set to increase to 0.3 million per month in Q4 and 2.5 million per month later. “We are further in discussions with a couple of very large global brands,” Dixon said in the earnings call. But this also brings concentration risks tied to significant revenues coming from one specific area. Nuvama Institutional Equities points out that Dixon’s large client-wins in the mobile segments have paved the way for its mobile revenue to hit even ₹20,000 crore by FY26. This, in turn, could lift Dixon’s topline to ₹33,000 crore-plus by FY26 (from ₹12,192 crore in FY23). “However, this would dilute the overall margins as the mobile division has lower margins of 2.3-2.7%,” according to Nuvama.
Meanwhile, stellar growth in the largest vertical has overshadowed the weakness seen in Dixon’s other businesses. Segment-wise, revenue from consumer electronics fell 4% year-on-year due to a shift in the festival season. Home appliances saw flattish revenues. The lighting products division saw a sharp revenue drop of 38% mainly owing to price erosion and change in technology.
Going ahead, investors will keenly observe the potential scale up in mobile revenue. Dixon is widely seen as an indigenization opportunity and a beneficiary of production linked incentive schemes, although investors seem to be capturing the optimism adequately. After all, Dixon’s shares have gained 38% so far in 2023 and trade at 55 times FY25 estimated earnings. That is pricey.