Dixon Tech shares: Why stock rallied 11% after Q2; CLSA, JPMorgan targets

Dixon Technologies (India) Ltd shares surged 11 per cent in Monday's trade as the steep fall in September quarter net profit came in line with analyst estimates. Revenue growth was strong, led by a 35 per cent year-on-year (YoY) rise in average selling price (ASP), while volumes came in line with guidance, analysts said.

Ebitda margin at 2.7 per cent came in 18 basis points below consensus estimates on lower gross margins, partly offset by improved operating performance.

Dixon Tech shares rose 11.26 per cent to Rs 12,238.75 apiece. JPMorgan suggested a 'Buy' rating with a target of Rs 16,800 on Dixon Tech. UBS also has a 'Buy' rating with a target of Rs 15,600. Investec retained its 'Buy' rating with a target of Rs 14,500, while CLSA has a 'Reduce' rating with a target of Rs 10,600.

Axis Capital's target of Rs 9,082 is the lowest on the Street, while Adani Rathi's target of Rs 18,000 is the highest.

Profit for the quarter (pre non-controlling interest) fell 45 per cent YoY to Rs 411 crore. Revenue for the quarter was up 47 per cent at Rs 21,806 crore.

MOFSL said Dixon Tech's Q2 revenue and PAT came in above its estimates, while margins were largely in line. The brokerage said Dixon Tech continues to gain market share in the mobile segment, despite a 16 per cent YoY decline in overall smartphone market volumes in India.

"Along with this, we have also seen a strong scale-up in IT hardware and Telecom segments, which benefited from product portfolio expansion and higher realization. Weakness was seen on non-mobile segments. We factor in better realization across segments, along with a slight delay in backward integration on displays. We expect FY28 to see full benefit of backward integration and improved volumes from Vivo-JV, exports and new client addition," it said.

The brokerage raised its target on Dixon Tech to Rs 15,900 from Rs 15,400.

JM Financial said it would remain conservative as weaker festive demand could keep channel inventory high and hurt Q3 performance. It said the commencement of the Vivo JV had been delayed to Q4 from Q3. While margin expansion initiatives were underway, the brokerage lowered its medium-term margin expansion outlook to 80-90 basis points from 100-120 basis points.

"New initiatives are tracking expectations. We factor this in through a 7-8 per cent cut in FY27–29E EPS and lower P/E of 45x (from 50x) for delays. Retain ADD with a target of Rs 12,300 (earlier Rs 14,800) set at Sep’28E EPS," JM Financial said.

Analysts noted that Dixon had guided for volumes of 70-75 lakh units for the quarter and maintained its full-year guidance of 3.3-3.4 crore units, excluding Vivo.

"We believe Dixon is well-placed to navigate the AI-capex induced memory cyclicality, with the volumes lost due to weak market demand more than compensated by wallet share gains and new customer additions. Dixon’s scale advantage and customer relationships remain a compelling moat; reiterate BUY," Emkay Global said.